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Distressed Housing

[Seasonal Sensibility] Isn’t It Supposed To Get Better In The Spring?

May 21, 2008 | 12:20 am |

Housing markets are seasonal, blah, blah, blah, blah, blah.

Its May so we would expect the housing activity would be higher than it would be say in January. The weather is warmer, the birds are chirping, Lawrence is saying things are great. So whats the problem?

You need to compare the current housing market with the same period in the preceding year or years.

Is June better than December in terms of sales activity and price trends? How about May versus January?

Using this logic, these articles seem a little light.

Yet in markets like Sacramento County, median sales price is down 40% since August 2005. As Andrew Leonard in his column writes:

A 40 percent drop. If those are the kinds of numbers required to goose the market back into action, the entire economy still has a lot of pain coming.

However, I like the decline from peak comparisons, so disregard my argument for using seasonality. I am either hot or cold on it, depending on the weather.


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[Premature Lecture] Agencies Go Full Court Press On Self-reflection

May 20, 2008 | 11:05 am | |


It seems a bit early to start reflecting on the lessons learned from the housing/mortgage problems we face, since, well, we still face them.

Don’t get me wrong.

It is always good to look back over your efforts and evaluate whether anything different could have been done to yield a different result. It is just that this infers closure and it is too early to summarize.

OFHEO – James Lockhart, the director spoke last week at the 44th Annual Conference on Bank Structure and Competition in Chicago (think Auto show, only less metallic paint) on the “Lessons Learned from the Mortgage Market Turmoil.”

He arrived on the scene after the party already begun and despite the criticisms levied towards both him and his agency, I actually think he did well with what powers he has to employ.

Plus, he likes charts “To set my remarks in context, I often like to start with a chart that gives some perspective…” Start with a chart and I am on your side.

Key lessons learned

  • what goes up too far goes down too far. In other words, bubbles burst.
  • mortgage securities are risky and that there is a long list of financial firms that have had problems with those securities, including problems related to model, market, credit, and operational risks. A key lesson from the savings and loan crisis that was ignored was not to lend long and borrow short, as structured investment vehicles (SIVs) did.
  • Another lesson ignored is that in bull markets investors and financial institutions tend to misprice risk, which can result in inadequate capital when markets turn.
  • A new lesson that should be learned is that putting subprime mortgages, which almost by definition need to be worked, into a “brain dead” trust makes no sense.
  • Another lesson is that overreliance on sophisticated, quantitative models promotes a hubris that has frequently caused serious problems at many financial institutions

Lessons learned specific to the GSEs

  • The first is about pro-cyclical behavior during the credit cycle. An important issue for supervisory agencies is how to create incentives for institutions to behave in a less pro-cyclical manner without interfering with their ability to earn reasonable returns on capital.
  • A second lesson from recent experience is the importance of capital. Capital at individual institutions not only reduces their risk of experiencing solvency and funding problems and of contributing to financial market illiquidity, but also helps them avoid the need to retrench in bad times and miss what may be very attractive opportunities in weak markets.
  • Those two lessons provide compelling arguments for a third: legislation needs to be enacted soon that would reform supervision of Fannie Mae and Freddie Mac and, specifically, give a new agency authority to set capital requirements comparable to the authority the bank regulatory agencies possess.

These are important points because the GSEs dwarf other debt and the GSEs have been losing money as of late. Here’s a few charts that may be of interest from his speech:


FDIC – Sheila Bair, FDIC CHairman was speaking in Washington, DC at the Brookings Institution Forum, The Great Credit Squeeze: How it Happened, How to Prevent Another http://www.fdic.gov/news/news/speeches/chairman/spmay1608.html on the same day Lockhart was speaking in Chicago. A full court press of self-reflection. Like Lockhart, Bair has been very outspoken and I believe lucid in her depiction of the problems at hand. To her credit, she has clearly articulated the problem with the mortgage system.

Her salient points are:

  • …things may get worse before they get better. As regulators, we continue to see a lot of distress out there.
  • Data show there could be a second wave of the more traditional credit stress you see in an economic slowdown.
  • Delinquencies are rising for other types of credit, most notably for construction and development lending, but also for commercial loans and consumer debt.
  • The slowdown we’ve seen in the U.S. economy since late last year appears to be directly linked to the housing crisis and the self-reinforcing cycle of defaults and foreclosures, putting more downward pressure on the housing market and leading to yet more defaults and foreclosures.
  • Reform is not happening fast enough
  • She explains HOP loans are NOT a bailout
  • The housing crisis is now a national problem that requires a national solution. It’s no longer confined to states that once had go-go real estate markets.
  • The FDIC has dealt with this kind of crisis before.

Take away

Both OFHEO and FDIC seem to be saying we need to take action now and they were powerless to do anything before this situation evolved into its current form?

It makes me wonder whether any regulatory proposals will do much good. Regulators did not take action or propose safeguards while the problem was building. How can they suddenly have wisdom now? While these recommendations and insight seem prudent but isn’t it kind of late for that?

Speaking of monoliths, here’s Steve Ballmer getting egged in Hungary.


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[Credit Spiral] Declining Home Prices Primary Cause Of Declining Home Prices

May 6, 2008 | 9:51 am | |

The FRB’s April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices showed that:

In the April survey, domestic and foreign institutions reported having further tightened their lending standards and terms on a broad range of loan categories over the previous three months. The net fractions of domestic banks reporting tighter lending standards were close to, or above, historical highs for nearly all loan categories in the survey.

In other words, it’s a lot harder to obtain financing.

Chairman of the Federal Reserve said in a speech yesterday that the decline in home prices was different this time and more flexibility in solving the problem is called for.

In a 10-page speech, Mr. Bernanke said (is 10 pages double spaced supposed to be significant?) that some regions of the country including California, Florida, Colorado and parts of the Midwest have experienced sharp increases in the number of homeowners who are delinquent on their mortgages, despite data that does not reveal the classic causes of foreclosures, like higher unemployment rates.

Instead, much of the problem can be attributed to a decline in home prices, which, Mr. Bernanke said, can “reduce the ability and incentive of homeowners, particularly those under financial stress for other reasons, to retain their homes.”

(image of lightbulb turning on) Borrowers were allowed to have mortgages they could not afford and speculators have less incentive to hold on to their properties. Economic vulnerability is made even more precarious by the vulnerability of the GSEs. (Today, Fannie Mae Posted unexpected losses associated with credit performance).

Bernanke’s comments on GSEs

Separately, the government-sponsored enterprises (GSEs)–Fannie Mae and Freddie Mac–could do more. Recently, the Congress expanded Fannie Mae’s and Freddie Mac’s role in the mortgage market by temporarily increasing the limits on the sizes of the mortgages they can accept for securitization. In addition, because the GSEs have resolved some of their accounting and operational problems, their federal regulator, the Office of Federal Housing Enterprise Oversight, has lifted some of the constraints that it had imposed on them. Thus, now is an especially appropriate time for the GSEs to move quickly to raise significant new capital, which they will need to take advantage of these new securitization and investment opportunities, to provide assistance to the housing markets in times of stress, and to do so in a safe and sound manner.

As the GSEs expand their role in housing markets, the Congress should move forward on GSE reform legislation, which includes strengthening the regulatory oversight of these companies. As the Federal Reserve has testified on many occasions, it is very important for the health and stability of our housing finance system that the Congress provide the GSE regulator with broad authority to set capital standards, establish a clear and credible receivership process, and define and monitor a transparent public purpose–one that transcends just shareholder interests–for the accumulation of assets held in their portfolios.

Bernanke actually says “Location, Location, Location”
There is significant locational disparity in the performance of housing markets across the country. Bernanke showed a very cool set of heat maps on a variety metrics.










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[Capital Reflection] GSE/NY AG Comment Period Over, Political Maneuvering Remains

May 6, 2008 | 12:01 am | |

Did a lot of painting inside my house this weekend so I apologize if some of the paint ended up on this post.

The comment period has ended but the debate rages on within the appraisal profession: the new mortgage process that does not allow appraisals to be ordered by mortgage brokers will have the effect of enabling appraisal management companies and end up with an unreliable appraisal product. Two different paths taken to the same end: crummy collateral asset quality.

I am guessing the OCC is going to get busy, gaining back the limelight on the mortgage lending process from the NY AG’s office.

James Hagarty wrote a nice piece in the Wall Street Journal called Who Should Profit From Home Appraisals? about the political storm that has only just begun. What I find disappointing is how self-serving the players have become. Nothing wrong with advocating for your constituents, that is their job. The part that rubs me wrong is that it has become so predictable. The trade groups seem to be saying the old system worked just fine. Of course that is a complete disconnect from reality.

How does one explain how we got here? And are we going in the right direction?

  • Appraisal Management Companies (Title/Appraisal Vendor Management Association) – banks pay them about the same fee as the appraiser would get but they keep 30% to 60% of the fee and work hard to find appraiser (form-fillers) who will work at fees that don”t allow them to do research in the appraisal process. It’s laughable that the trade group contends they pay market rate to appraisers. Market rate for AMCs, I think is what he means. The AMC model doesn’t work paying market rates. It has been my experience that most appraisals I have seen done for AMCs are usually not worth the paper they are written on. The lower caliber appraisers they are forced to use experienced a flood of business during the housing boom. It is going to be interesting to see how that caliber of appraiser fares in a tighter underwriting environment.

The AMCs keep a big share of the fees consumers pay, typically at least 30% and sometimes more than half, appraisers and AMC executives say. The AMCs say they provide a valuable service by maintaining networks of local appraisers and controlling quality. “The AMCs pay market rate” to local appraisers, says Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, a trade group.

  • Mortgage Brokers (National Association of Mortgage Brokers) – they want the appraisal industry to self-police and get rid of appraisers who turned in falsified work. Yes that has worked so well already (sarcastic emphasis). While we are at it, let’s tell mortgage brokers not to press appraisers for a higher value than they know is right or withhold payment from an appraiser for not making the number. Unbelievable. This mortgage brokerage group should be ashamed of themselves for taking the scare tactic approach that consumers will be forced to pay much higher fees. How much has the current mess already cost consumers?

  • Appraisers (Appraisal Institute) – Appraisers have flip-flopped on this issue. Initially they applauded the Cuomo agreement but were disconnected from what the industry wanted. The industry has been roiling for the past month over the empowerment of AMCs. I think this trade group, which is inherently commercial appraiser centric rather than focused on the plight of residential appraisers, is so worried about AMCs that they are willing to accept the lesser evil of allowing mortgage brokers to control the appraisal (bingo!). Loss of competent appraisers versus standing up to intense pressure to play ball. Not much of a choice.

  • OFHEO (HUD) – They seem to be detached from this whole situation yet they are the oversight agency for the GSEs. Amazing.

  • FDIC – No comments submitted (yet they insure lenders and provide bank oversight).

  • Federal Reserve – No comments submitted (yet they manage the health of the banking system).

  • Congress – proposing lots of ideas but most of them of no real help or will provide a benefit after it is too late. Hard to parse out grandstanding from heartfelt concern. I’d like to think they are really trying to fix it.

  • OCC (Treasury Department) – No comments submitted and boy are they pissed off. Their turf has been stepped on. Actually, it has been stomped on. I’d expect a lot more statements from the OCC in the near future.

Bottom line: If we want the lending system to have the collateral value estimate free from corruption and influence, then appraisal management companies, bank loan officers and mortgage brokers have no business whatsoever, ordering appraisals directly because they have a vested in their outcome. I believe it is called commingling interests.

Comments or no comments, I find it hard to believe that OCC will allow this to happen without making their own agreement. Otherwise, they will become as non-existent as OFHEO was during the housing boom.

Also check out: The Housing Crisis & The Plague of Potomac Fever


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[Indebtor’s Ball] Subprime Discussion Without The Junk

April 29, 2008 | 9:50 am | | Radio |

Lost a reliable Internet connection at home for the past 3 days so my posting has been non-existent (but I did change a few lightbulbs with my free time)

Back in the day, I loved to read books like Barbarians at the Gate, Den of Thieves and Liars Poker covering the truth and mythology of Wall Street (now I read books like Pontoon). Michael Milken was directly or indirectly connected to many of those stories, as well as the firm he worked for Drexel Birnham Lambert because of the financial vehicle he championed, the fabled junk bonds.

When the subprime crisis first became kitchen table talk last summer, initially there was discussion that it was another “junk bond” crisis. I cringed because junk bonds weren’t bad in and of themselves. The investors that used or purchased them got into trouble, because didn’t appreciate the risks associated with them. Higher returns, equals higher risk. Sounds a lot like subprime market participants doesn’t it?

Andrew Ross Sorkin’s excellent article in the New York Times today called Junk Bonds, Mortgages and Milken addresses this issue:

“The financial crisis we’re in today stems from the invention by Drexel Burnham Lambert of the junk bond,” Martin Lipton, the superlawyer who co-founded Wachtell, Lipton, Rosen & Katz, said derisively at a conference last month. “You can draw a straight line from Drexel Burnham to the financial world today.”

Milken disagrees:

Critics who compare the subprime debacle to the bubble in high-yield, high-risk corporate bonds that Drexel helped inflate two decades ago are “people who don’t understand markets very well,” Mr. Milken said. He suggests that “their rationale is that both types of financial instruments are risky.”

And he says junk bonds, or those rated below investment grade, “have little in common with mispriced subprime mortgages,” which he says are the real culprits.

“Having financed several of America’s largest home builders, I know a few things about the housing industry,” Mr. Milken said. “What happened to housing was not a failure of securitization, but rather a disastrous lowering of underwriting standards and other unfortunate practices.”

Criticizing securitization — the slicing and dicing of debt that he helped popularize — is “like condemning scalpels because a few unqualified surgeons have injured patients,” he said.

With the introduction of new financial instruments, users tend to go overboard at the end of the cycle and then new regulation is introduced that tends to go to far (ie mortgage current underwriting standards will become a self-fulfilling prophecy).

Ultimately what junk Bonds and subprime mortgages really had in common, were the people that used them. They didn’t reflect adequate risk into their pricing. A more pro-active SEC might keep that in check, but then squash innovation.

I need to change some more lightbulbs.


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Lenders Try Workout, But Sweat The Rise In Foreclosures

April 24, 2008 | 1:04 am | |

Banking commissioners have observed that efforts to work with borrowers going into default has been largely ineffective.

The study, compiled by the State Foreclosure Prevention Working Group, made up of banking regulators and attorneys general in 11 states, found that seven out of 10 borrowers who are seriously delinquent on their mortgages aren’t on track to receive any kind of help with their payment problems.

And that is not all.

Pew Charitable Trusts released a comprehensive report on the foreclosure problem called Defaulting on the Dream: States Respond to America’s Foreclosure Crisis which is a good read (homework: try to figure out why large organizations select lame stock photography pictures of houses. PCT did it for this report, and Fannie and PMI do it too – oh, the lack of humanity.)

Foreclosures are rising rapidly and that affects renters too. Housing is pushing the economy into a recession.

Almost every state in the country has seen a significant increase in mortgage foreclosures, largely triggered by defaults on subprime mortgages. Yet greater challenges lay ahead. Based on new foreclosure projections by the Center for Responsible Lending, Pew estimates that one in 33 current U.S. homeowners will be in foreclosure, primarily in the next two years—the direct result of subprime loans made in 2005 and 2006. Among the states hardest hit are Nevada, where one in 11 homeowners could soon be in foreclosure; California, with one in 20; Florida, with one in 26, and Georgia, with one in 27.

Of course there is a growing feeling of resentment by renters, which are one third of all US households, that a bailout of these borrowers is unacceptable.

“A third of the American public rents,” Brandon pointed out. “They’re saying ‘I’ve been saving for a mortgage for years. I could have jumped in on a subprime loan too. Now I’m going to have to pay for a government bailout.”

I don’t see how the Federal government can afford to bailout 1 out of every 33 homeowners. I don’t think it is going to correct the fundamental problem with the housing market. It’s about lack of liquidity in the credit markets. That has to be addressed in order for the free markets to work. Pumping money to borrowers won’t solve the problem.

The issue with the free markets as a solution is one of neutrality. If there is not a functioning structure in place that prevents the kind of collapse we are currently experiencing, it’s not a free market. It’s simply deja vu to the past problems. There was systemic collusion in the mortgage securitization industry – most parties to the ratings and collateral valuation process had their hand in the cookie jar. Until that is fixed, there isn’t much room for improvement and lenders will continue to sweat (and enjoy the large rate spreads).


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[GSE Searchlight] Oversight Is So Not Over

April 23, 2008 | 12:35 am |

There is a whole lot of oversight going on these days. OFHEO [Office of Housing Enterprise Oversight] and others are very concerned about the ability of the GSEs to avoid getting into trouble.

I wonder why there was so little oversight before the credit crunch? Was it an…oversight (sorry)?

It’s pretty scary to think that Fannie and Freddie (and HUD) are seen as the saviors of the housing market in the creation of a jumbo conforming mortgage product, expanded portfolio size and a housing market condition that continues to weaken (default rates rise as prices decline). They are already vulnerable.

Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor’s recently placed an estimated price tag on this worst case scenario — $420 billion to $1.1 trillion of taxpayer’s money.

Fannie Mae and Freddie Mac are getting a lot more attention from the Treasury Department these days.

Treasury officials have stepped up efforts to strengthen the regulation of Fannie Mae and Freddie Mac, the two largest buyers of home mortgages, pressing key senators to break a legislative stalemate that has lasted for years.

In OFHEOs Report to Congress, it summarizes the concerns quite efficiently:

$5.0 trillion in guaranteed mortgage-backed securities outstanding and mortgage investments. Their market share of total mortgage originations grew from 37.4 percent in 2006 to 75.6 percent by the fourth quarter of 2007. There is increasing pressure for Fannie Mae and Freddie Mac to do even more to support the mortgage market, which is problematic in absence of GSE reform legislation to strengthen the regulatory process.

As evidenced by the lack of market enthusiasm for the new jumbo conforming mortgage product that was supposed to help the housing market (allowing some homeowners to refi their way out of trouble – which can’t be good for FNMA’s portfolio). And OFHEO is just wrapping up actions against former FNMA executives who manipulated earnings to enhance their bonus income.

It doesn’t seem reasonable to place all of our hopes for a solution on the GSEs.

Consider oversight in the classroom: How students see their classroom today.


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Akron Is Just Like Iceland, Only With More Rock

April 22, 2008 | 12:05 am | | Milestones |

Every so often a city or location jumps out at me as getting a lot of coverage in the news. Sort of the Six Degrees of Kevin Bacon versus Credit Meets The Housing Market.

I was reading the review of the new blues rock album by one of my favorite bands The Black Keys. They are based in Akron and apparently love it there, despite its deep economic problems including unemployment and foreclosures. Home to Goodyear, Akron has fallen behind other metro areas (incidentally, Rubber Factory is TBK’s best work IMHO).

The following day I read the New York Times article Don’t Hate Me Because I’m Solvent which chronicled an Akron couple who own:

an exquisitely renovated 1913 Tudor house, with six fireplaces, a solarium and a billiards room, which is well within their means, in part because they paid $65,000 (12 years ago).

They have no mortgage and more importantly, the husband is a part time rock musician.

He is 44, the son of an engineer, married for 19 years, and a lifelong resident of Akron. He may also be the only person in the known universe who has both written for “Beavis and Butt-Head” and names “It’s A Wonderful Life” as his favorite movie. Mr. Giffels identifies with the film’s hero, George Bailey.

And what does this have to do with Iceland?

Insofar as Americans think about Iceland at all, it’s as a land whose remoteness belies a vibrant cultural scene featuring hipster titans, like Björk and Sigur Rós, and exceptional social conditions—it’s the top-rated country in the U.N.’s most recent human-development index. But in the financial world Iceland is now a hot topic of discussion for a different reason: many people suggest that it could become the “first national casualty” of the ongoing credit crunch.

Besides the musician reference, Iceland has represented the bright end of the economic spectrum, the opposite of Akron, whose economic problems were in play well before the recent housing boom not unlike it’s rustbelt neighbors, whom the boom largely passed by.

Now analysts are wondering whether the new Nordic Tiger will end up, instead, as “the Bear Stearns of the North Atlantic.”

Although Iceland’s banks avoided subprime mortgages, most of the capital it raised came from foreign investors. With the credit markets drying up, many investors are unwilling to invest in Iceland and the crunch has begun.

Iceland has been swamped by that tsunami because it trusted in the availability of global credit in time for that credit to evaporate. And the fact that Iceland has been so dependent on foreign investors makes those investors even more skittish about investing there: in markets, weakness often begets weakness.

In other words, the global credit crisis is not just about subprime lending. It is about the lack of availability of credit for investment (in Iceland) and an increase in foreclosures (in Akron).

No matter how loud the music was played in either place, everyone’s ears are still ringing.


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[REO Sting] Honey, A Foreclosure Bee

April 20, 2008 | 3:57 pm | |

My assistant is a beekeeper so I have been especially attuned to the strange disappearance of more than 1/3 and perhaps as much as half the US bee population over the past year. For reasons unknown, the bees are flying away from their hives and not coming back.

There was a very good New York Times article by John Lelnad this weekend called Floridian Is the One to Call When Bees Move In that linked the Florida foreclosure problem and vacant housing with bee hives. As properties sit idle, bees take over, but the property owners, if one can be found, are reluctant to pay for their removal.

Foreclosed houses around the country have been colonized by squatters, collegiate revelers, methamphetamine cooks, stray dogs, rats and other uninvited guests. Mr. Councell, 35, only has eyes for bees.

I find it interesting how the bees represent a second occupant of an reo property and they are not able to remain either.

Make sure you watch the video embedded in the story.


[Calls & Puts] Day Trading Housing

April 18, 2008 | 1:55 am | |

Floyd Norris’ blog post gave me one of the more rare moments of clarity I have experienced in a while in his blog post: Ponzi Squared.

Sometimes we all get so close to following the housing market that we fail to see the big picture. The crazy illogical and insane lending practices that applied to subprime:

  • No money down
  • No documentation of income
  • Initial below-market teaser interest rate
  • Negative amortization

…effectively created calls and puts for fledgling homeowners.

Call option
The lender was merely allowing the buyer to have a call option on the house. If the market rose, the owner had a chance to sell. And of course we all know that real estate markets always rise. As markets continued to rise, the rating agency models showed this to be a good risk since the default rates were low (but it was really because the market continued to rise).

Exercising a put option
The seller, who has nothing to lose with their no money down payment, simply turns in the keys to the lender.

Wondering why banks are enjoying such large rate spreads despite the FOMC rate cuts? They need to offset financial damage and mitigate future hemorraging due to mortgage loan losses. And a bunch of it is will be caused by homeowners who should not have been homeowners in the first place by the very same lenders they are handing the keys to.

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Delinquents Gain Momentum, Not Juvenile Anymore

April 13, 2008 | 4:52 pm | |

Click here for interactive charts.

The Wall Street Journal published an interesting article on the phenomenon of rising delinquency rates, because in theory, delinquencies lead to foreclosures.

A new report by Equifax, the credit bureau, and Moody’s Economy.com shows that 4.46% of mortgages were at least 30 days past due at the end of the first quarter, up from 3.98% in the fourth quarter and up 2.92% a year earlier. Delinquencies in the first quarter varied sharply by state, but were highest in Puerto Rico (8.03%), Florida (7.03%) and Nevada (6.59%.)

What is especially disturbing is the expansion of the homeowners being pulled into the foreclosure process.

There are signs that a broader swath of homeowners are getting caught in the housing market’s undertow. In Cleveland, suburban homeowners accounted for 53% of those calling United Way 211 First Call for Help with mortgage problems in the first quarter, up from 46% in the fourth quarter. In Maryland, borrowers in financial distress include government employees, Ph.Ds and others who never had credit problems, says Thomas Perez, Maryland’s Secretary of Labor, Licensing and Regulation.

A graphical conversion of the often maligned month to month RealTrac foreclosure stats has been pulled off by Hotpads.com. They have been in my blogroll for a while as a rental search tool, but have now added foreclosures.



[Up Side Down] The Cart Before The Horse (The Mortgage Before The House)

April 9, 2008 | 11:09 am | |

Assuming the US economy is either in a recession, or on the precipice, it will be the first time in history that housing pulled the economy into a recession. Typically a recession drags housing down kicking and screaming with it.

Who cares? (I find it easier to talk to myself)

It help explains why the federal government has been so tardy in reacting to the impact of housing on the economy. Once the Fed began to raise the federal funds rate in 2004 after keeping rates unusually low for 3 years, actions (and acknowledgements) were taken only after last summer’s credit market implosion. It makes me even more wary of comfort messages like this.

What happened?

The unusually low rates and unprecedented liquidity in the credit markets fueled the housing boom of 2003-2006 across the US (and much of the world). This created a high level of speculation resulting in unusually high sales levels. The differential between normal sales levels and those of this period were represented by investment properties.

The music stopped in July 2007.

Investor demand, flippers, etc. fueled artificial housing demand layering over an above a brisk housing market caused by low rates and non-existent underwriting standards left a high level of unsold inventory and foreclosures behind.

The combination of rental and sales market trends we see now are unusual.

  • Sales activity slowing

  • Sales inventory levels rising

  • Sales prices sliding

  • Foreclosure activity rising

  • Rental inventory levels rising

  • Rental prices slipping

We now have a situation where both sales and rentals are in sync: characterized by price erosion and inventory expansion.

Perhaps we needed a jackass pulling the cart, rather than a horse?


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