Housing Markets “Difficult, Challenging, Under Pressure”
Some housing bubble news from Wall Street and Washington. “Pulte Homes Inc., the No. 2 U.S. home builder, posted a quarterly net loss Wednesday, chiefly because of charges related to the lower value of land and homes it owns. The first-quarter 2007 loss included $132.1 million for impairments and land-related charges.”
“Home-building revenue fell 38 percent to $1.8 billion. The average selling price of a home fell 2 percent to $330,000. Looking ahead, the company said…because of ‘difficult market conditions that exist today,’ the company said it could not provide a forecast for the full year.”
“‘Overall, the homebuilding environment remained challenging during the first quarter of 2007, as elevated inventory levels combined with weak consumer confidence for housing continue to place pressure on results,’ Pulte CEO Richard Dugas said.”
“Ryland Group Inc., the biggest U.S. homebuilder for first-time buyers, said yesterday after the close of regular trading its net loss in the three months ended March 31 was $24.4 million. First-quarter revenue fell 34 percent, the Calabasas, California-based company said in a statement. New orders in the quarter plunged 26 percent to 2,989.”
“Pulte, Beazer Homes USA Inc. and Ryland had a combined $300 million in costs for land and options on parcels they no longer need.”
“‘This is a much weaker year than in the peak year of 2005 and the prospects are still pretty cloudy as to 2008,’ Robert Curran, an analyst at Fitch Ratings said.”
From MarketWatch. “‘We continued to experience extremely challenging operating conditions,’ Beazer CEO Ian McCarthy said. ‘Most housing markets across the country continue to experience lower levels of demand coupled with higher levels of inventory, resulting in increased competition and continued significant discounting.’”
“He said…that so far this spring selling season it’s ‘yet to see any meaningful evidence of a sustainable recovery in the housing market, and we expect current conditions will continue to put pressure on home builders’ operating results.’”
“Meritage Homes Corp. first-quarter net income fell to $15.1 million from $79.7 million a year earlier. ‘We anticipate that margins will continue to be under pressure due to competition in 2007, and would expect some modest improvement in demand during 2008, but are not relying on a rebound in 2007 to achieve our projections,’ CEO Steven Hilton said.”
“Before Thursday’s opening bell, M/I Homes Inc said its quarterly earnings fell 87% from a year earlier to $2.2 million. ‘Our first-quarter results reflect the challenging conditions that we continue to face in most of our markets,’ CEO Robert Schottenstein said.”
From Bloomberg. “Countrywide Financial Corp., the biggest U.S. mortgage lender, said profit declined by the most in more than two years as it lost money selling loans to investors amid a nationwide surge in subprime mortgage defaults. First-quarter net income fell 37 percent.”
“Countrywide’s revenue from making and investing in subprime mortgages fell by $400 million from the fourth quarter. Countrywide recorded a $33 million loss from the sale of subprime loans it produced, compared with profit of $149 million a year earlier. The company increased the amount set aside for future loan losses to $152 million from $63.1 million a year earlier.”
“Deteriorating market prices also showed up in the lender’s prime-quality home-equity loans in the quarter. The declining value of its retained home-equity loans hurt earnings by $119 million, it said.”
From Reuters. “‘Turbulent mortgage market conditions had an adverse impact,’ CEO Angelo Mozilo said.”
“Countrywide has tightened its lending guidelines, and in March stopped making some subprime loans that do not require down payments.”
“Friedman, Billings, Ramsey Group Inc., the investment bank and brokerage, posted a quarterly loss due to the poor performance of its non-prime mortgage businesses.”
“Friedman Billings is trying to sell First NLC, cited ‘an extremely difficult operating environment for the entire nonprime mortgage banking industry.’”
“‘The worst thing that could happen did in the quarter, with investors pulling money from the loans and creating a liquidity crisis,’ said analyst Gary Gordon. ‘Housing downturns don’t take a few quarters, they take years. Prices for subprime loans aren’t going to get better anytime soon.’”
The Associated Press. “Indymac Bancorp, the second-biggest independent U.S. mortgage lender, said Thursday first-quarter earnings shrank 34 percent as a spike in missed payments on home loans choked profits across the industry.”
“CEO Michael W. Perry pointed to ‘challenging conditions’ in the mortgage market, marked by sagging home values, a surge in payment defaults, weak prices for mortgage debt and failed mortgage banks.”
“The proportion of loans in Indymac’s portfolio classified as ‘nonperforming,’ or doubtful to be repaid, more than tripled.”
“IndyMac also said it expects second-quarter earnings performance to be ’similar’ to the first quarter.”
“IndyMac, which is also one of the largest U.S. savings and loans, specializes in ‘Alt-A,’ or ‘Alternative-A’ mortgages, which fall between ‘prime’ and ’subprime’ loans in quality.”
“Standard & Poor’s said it may lower ratings on bonds from 11 different securitizations of home loans made last year, more than doubling the number of its warnings on bonds of so-called Alt A mortgages. S&P said it’s considering the move amid higher-than-anticipated delinquencies.”
“Early delinquencies in the bonds may be high because of ‘aggressive residential mortgage loan underwriting, first-time home-buyer programs, piggyback second-lien mortgages, speculative borrowing for investor properties, and a higher concentration of ‘affordability’ loans,’ S&P said, referring to loans allowing borrowers to initially pay only interest or less.”
“Ten of the deals S&P said yesterday that it may cut were sold in the first half of 2006. The first Alt A bond that S&P warned about, in February, was issued by Countrywide and backed by loans from Impac Mortgage Holdings Inc.”
“Moody’s Investors Service cut the ratings on the payment-collection abilities of sub-prime mortgage lenders Option One Mortgage of Irvine, Accredited Home Lenders Holdings Co. of San Diego and NovaStar Financial Inc. of Kansas City, Mo.”
The LA Times. “Fremont General Corp. employees lost millions of dollars on company stock in their retirement plans when the company was forced out of the troubled sub-prime loan business in March, losses that Fremont’s board should have foreseen and prevented, according to a lawsuit.”
“The suit contends that from 2003 through early this year the company engaged in unsafe lending practices in an attempt to boost Fremont’s stock, a strategy the suit said ‘began to unravel as, predictably, sub-prime borrowers began to default on loans in large numbers.’”
“It contends that the directors knew or should have known the stock was not a prudent investment for Fremont’s Employee Stock Ownership Plan, which held the stock exclusively, and a 401(k) retirement plan where employees had invested about two-thirds of their savings in Fremont shares.”
“The U.K.’s financial stability faces a greater threat than it did in July from low corporate lending rates and growth in markets that transfer credit risk, the Bank of England said today.”
“Britons have taken on a record 1.3 trillion pounds ($2.6 trillion) of debt amid a housing boom where prices rose about 10 percent last year. Higher home values are ‘increasing the equity buffer for most U.K. mortgagees and offering a source of refinancing for homeowners with unsecured debts,’ the bank said.”
“The bank’s heightened assessment of the risk from consumer debt follows record bankruptcies exceeding 100,000 households last year as financial distress ‘picked up sharply,’ the report said. The ’significant rise’ in loan defaults is due in part to tighter lending standards, the report said.”
“Countrywide has tightened its lending guidelines, and in March stopped making some subprime loans that do not require down payments.”
These were one of the Mortage companies we serviced at equifax, one of the worst lenders who had the worst credit applicants. To add to this look out for American Home Mortgage their next.
‘Fremont General employees lost millions in their retirement plans on company stock’.
I thought Sarbanes - Oxley was going to prevent this type of thing from EVER happening again ??
Laws only work when they’re enforced
What’s worse, laws which are not enforced may actually encourage the behavior they are supposed to eliminate, by reminding white collar criminals with deep pockets or borrowing capacity of profit opportunities.
we are not a country of laws we are a country of “can do” attitude.
more like “can screw”
sox= london growing
wall street shrinking
Note that every letter appearing in the name “Enron” also appears in “Fremont General”. Let’s see: “ENRON” plus “F’G ME LATER” equals “FREMONT GENERAL.”
Countrywide Lending - Enron = I C U Wast’d
It’s really hard to legally prevent stupid (and that’s all that can be said of people who keep their 401k in company stock). For example, when Enron unlocked their 401k just prior to bankruptcy, employees rushed to buy MORE Enron stock not bail on it. It’s very difficult for me to mount much sympathy for greedy idiots who don’t read the first rule of retirement funds.
Agreed. When I read about “a 401(k) retirement plan where employees had invested about two-thirds of their savings in Fremont shares.”, I feel no sympathy. Every list of recommendation about investing writes about limiting exposure to the fate of the company where you work. 10% or even 20%, if you believe in your company’s strategy, but 66%. And were they really so blind to believe in Fremont?
When I worked as a lawyer, I produced nothing but commercial loan documents for Fremont for over a year. Very nice people, but let’s just say not the highest quality loans.
“For example, when Enron unlocked their 401k just prior to bankruptcy, employees rushed to buy MORE Enron stock not bail on it.”
Confidence often times peaks immediately before the fall.
“Friedman Billings, the Arlington, Virginia-based investment bank, had a loss of $185.9 million, or $1.08 a share, because of writedowns at its First NLC mortgage unit and costs for “restructuring.” The company, which is trying to sell First NLC, cited “an extremely difficult operating environment for the entire nonprime mortgage banking industry.”
A year earlier, Friedman Billings had a $26.6 million profit, equivalent to 16 cents a share.”
even when taking on all that risk was making FBR money it wasn’t making them THAT MUCH money. i’d love to see Youngblood et al go down in flames. that guy’s one smug ginger.
agree completely, and their idiot analysts keep pumping bank stocks…friggin retards
Reminder: 2007 is going to suck. All 12 months.
Yes, unless you are long U.S. Inc. Didn’t you notice how headline stock indexes keep hitting new highs, no matter how bad the news from Main Street gets?
And HBs up 2-5% accross the board, CFC and other lenders in rally mode. Gold and silver are getting smacked. This is a concerted effort by the Street to get shorts to exit and PM holders to bail at just the wrong moment.
Humpty dumpty is drunk and doing the two step on the wall.
PMs - buy the hard breaks
Well, we’ll see when the Q1 GDP nunbers are revealed tomorrow.
I suspect gold is down due to the passing of Akshaya Tritiya.
Yes, but do you notice what happens every time there is a sharp break down in gold and silver? The damage is done, but after a few days the price comes back up to test the old highs. That tells you that the manipulators are trying to keep the tide back. It won’t work. Gold is still within shouting distance of last year’s high. I think trading in and out of precious metals is a good way to lose your money and your sanity, but buying and holding gold and silver has been a great investment over the past 5-6 years.
The same can be said for real estate
“The same can be said for real estate”
They ain’t making any more gold, ya know, but they are building private U.S. residences faster than people are buying them to the tune of a 600,000+ annual rate.
I would say real estate (at least the private residential homes lots of newfangled Trumps have invested in over the past decade) is a lot more like paper currency than gold under these conditions.
I give to your point on the grandiose houses, but it is the land mostly that is priced higher than normal. The cardboard house is just the marketing package.
The land is fixed in supply just like the gold.
Ever heard of gold mining?
That’s a fallacy. Land isn’t worth anything in itself. It’s only worth money to grow food on or put a house or other building on. And the amount of land with houses on it is growing very rapidly.
This is a concerted effort by the Street to get shorts to exit and PM holders to bail at just the wrong moment
Or you’re just bitter because the market isn’t acting “rationally” like you want it to.
everything that happens in the markets isn’t due to the Powers That Be.
Some of it is because millions of rational people make a decision about what they think the market will do and act on it.
In the long term, yes gold and silver are likely to go up.
however, DO NOT FORGET that gold and silver are being speculated on right now by the hedgies too.
many of them are having to sell their gold/silver to cover their old positions.
Like it or not (I know none of you like it), despite the sickness in our economy, the general news has been good of late.
-Almost EVERY major company except for homebuilders is beating expectations. Some of them are beating by a WIDE margin.
-when corporate earnings go up, the stock market goes up. simple.
-there are tons of “index” investors. So when the general stock market goes up, then people pile into index funds, which bring up THE ENTIRE index, including the crap (aka Homebuilders)
Stocks also have upward momentum because people are LEAVING the “risky” real estate environment and have to put their $$$ elsewhere… and they’re choosing the equities markets.
also, we have significant monetary inflation and thus liquidity everywhere, that cash has to go somewhere.
Hold your horses, gold and silver will likely rise in the future. but it’s going to be choppy .
Gold is up over $100/oz since October. what were you expecting, a parabolic smooth rise?
not everything is a conspiracy.
Also, the weakness of the US dollar is good for US companies who sell goods/services abroad.
That means that the price of gas, 4.35 euros per gal (US) means $8.70 per gal in Carnoustie this Sept. Hope beer and single malt are not as dear.
Companies are global and the dollar is losing value. Sales that US companies make overseas are inflated because of the dollar exchange ratio.
Here’s an example…
Company sells 1 unit abroad for $10 in that local currency. Because of exchange rates that $10 in profit used to equal $8.50 in US currency. Now because of the falling dollar $10 in profit in a foreign country equals $12.50 in US currency.
Big companies will see a huge benifit as profits surge b/c of exchange rates in our favor.
Regular people will experience inflation until local companies start producing the goods foreign companies used to “dump” in our market.
So lower exchange rate for the dollar actually keeps the stock bubble aloft?
All I said was gold & silver are getting smacked, not that I’m unhappy with their returns of late. I think it’s hard to engineer significant moves in gold & silver THESE DAYS, but do you have any opinion on the GATA findings? How about the manner which Band of England sold off its gold reserves to private hands at the nadir?
You’re completely out of your gourd if you don’t think there is Wall St collusion. Fund managers get insider info, headlines cheerlead and are misleading, analysts adjust guidance downward so results still ‘beat the street’, earnings reports bury giant turds and everyone looks the other way, retail brokerages sell gross information such as shares short or long by company and large funds use this to herd retails into and out of positions to maximize profits, max pain is usually achieved or close, buybacks are accompanied by insider sells, etc etc
I think you’re right that there is a bunch of hot money and it’s trying to chase returns, but that doesn’t mean the other stuff doesn’t happen. If the carry trade unwinds, and a real credit crunch kicks in watch out (and I’m not sure what that will do to gold)
House Inspector,
Generally I agree with most everything you say. However, millions investing in the market. I have to take the conspiratorial side on this one.
Just who has the money to invest? Those that do know our economy sucks. The sheeple in this country? Already tapped out. You, as well as anyone here, should know all the fundamentals are out of whack. I am sorry, I have to respectfully disagree. With the market corruption of the last 20 years and the overpricing of these stocks coupled with massive debt and RE, this looks a lot like the makings of the Great Depression II. Doesn’t anyone wonder why there is a PPT? It sure isn’t to plunge the clogged White House toilets.
Current earnings yield of the DJIA is 7.1%. Ten year treasury is 4.8%. As long as risk-free yields are this low, stocks will be attractive to the big institutional buyers.
“Almost EVERY major company except for homebuilders is beating expectations. Some of them are beating by a WIDE margin.”
Hell, anyone can ‘beat the number’ by lowering expectations enough. TXN earnings down 12% but they guided down even lower so the ‘beat the number’. INTC, LLTC, MU, AMAT, the list goes on and on and on…
Fremont General employees lost millions on company stock in their retirement plans ??
Sounds like Enron. I thought Sarbanes-Oxley was going to prevent this from EVER happening again ?
FMT was near 3 in 2003. Shot up to 30 in 2004. People got greedy and forgot history (Enron). No law can completely protect the ignorant.
http://www.economicpolicymonitor.com/2007/04/ranieri-first-time-in-history-median.html
Wednesday, April 25, 2007
‘Father’ of Securitized Mortgage Market: First Time in History Median Home Sales Price is Likely to Decline
Lewis Ranieri, generally regarded as the “father” of the securitized mortgage market, told an audience at the Milken Institute Global Conference that, in 2007, for the first time in history the median home sales price in the United States is likely to decline.
He also added that there will be many technical problems in working out problem mortgages, He said the vast majority of problem loans are securitized and that, in the past, problem loans were in individual portfolios. This time around, because of securitization, there are many, many holders of the securities with an interest in a mortgage. This will mean there will be many more parties that will have to agree to everything. In addition, he added, there are more lawyers and accountants in the picture to complicate matters.
in 2007, for the first time in history the median home sales price in the United States is likely to decline.
Only if “history” started some time after 2006.
“This will mean there will be many more parties that will have to agree to everything. In addition, he added, there are more lawyers and accountants in the picture to complicate matters.”
If this thing blows up in a big way many people may be living rent free for years until someone in outer Mongolia mails back a proxy.
Nah. The mortgage servicer is under contract to deal with defaults in a particular way (how exactly is spelled out in each contract, and can vary). Because of the securitization, the mortgage servicer now has almost no hope of being able to be flexible because they will not be able to get consent from all of the necessary parties. (Remember, these loans got sliced and diced into many tranches, each with their own particular interests that may vary from the interests of other tranches). So, whereas in the past, the lender could work with each distressed borrower based upon the particular facts, here the mortgage servicer must act according to a strict set of rules. Those rules will, no doubt, require the mortgage servicer to foreclose once a borrower is delinquent by X days.
True. However (1) the Fed has come out and said last week (I paraphrase) that ‘reasonable attempts at renegotiation between lenders and borrowers’ will be looked on favorably. If the gov’t decides to push for renegotiation, the CDO holders will probably shut up because… (2) the ‘guarantee’ on paydown of the principle of the CDOs is only as good as the guarantor. If the lender (or anyone foolish enough to have insured the CDO) goes bankrupt, the CDO holders will take catastrophic losses. For instance, if the servicers run out of money due to having to pass money to the CDO while not being able to extract it from foreclosed properties, they might just stop sending money to the CDO altogether. Since MBS credit ratings are based to a great degree on the solvency of the guarantor, the resulting severe write downs will kill all of the derived securities (all tranches AND stripped securities). I think if the lender renegotiates, you won’t hear a peep from the CDO holders, who really are bag holders…
Drats. Now that I think about it, I have to take my comment back (somewhat). The one thing that some speculators might object to is a refinancing, since it would constitute an unexpected prepayment. If interest rates fall, this would PO all of the tranche holders, and REALLY PO the stripped interest only holders. Of course, lenders don’t need the CDO holders permission to offer refinances to borrowers, so I guess my comment still holds…
AKRon: But it’s getting tougher for those borrowers to qualify for a refi, so I don’t think that refis will be much of an issue. As for the servicer, it is my understanding that the servicer gets paid first (i.e., before the CDO investors), including their expenses for foreclosure. I understand and agree with your comment about the Fed’s stance on renegotiating and the value of a guarantee, but a great deal of the CDOs are private (i.e., not issued by any of the GSEs or govt agencies) so I don’t think the Fed’s position will have much, if any, influence on those.
True to some extent. I have heard though, servicers like C-BASS with Litton Loan Servicing in tow, are trying to keep the FB’s in place, making reduced payments under amended loan terms (their specialty, developed in the late ’80’s in TX after the oil bust). My sense is the group is getting exasperated though, since all the tranches in the pool want their pound of flesh first. Hilariously like trying to put Humpty together again. Remember TX in the late 80’s was about whole loans, not 10 owners of 1/10th of a whole loan.
I was just looking at revised guidelines for No Doc Alt-A loans from one company I sell loans to. Now if you want to go the No Doc route on a purchase, it’s 10% down (used to be 5%), par rate on a 30 year fixed is 7.75% (and that’s assuming a 680 fico) score. That doesn’t include mortgage insurance. As far as where ARM’s are in relation to fixed rates, only .25% between the rate on a 30 year fixed and a 3/1 ARM, if you factor in mortgage insurance on 10% down, the rate would be about the same. It looks like 2007 will be the return of the risk premium.
I forgot to compare the rates to where they were before. Two months ago, with a 95% LTV no doc loan, par was at 7.00%, 90% LTV par was 6.75%. One month ago, 95% LTV par was 7.375%, 90% LTV par was 7.00%. In one month, the par rate has climbed .75%. Rates haven’t come close to going up that much on the conforming side, maybe .25% at the most.
The higher downpayments and interest rates for alt a and subprime loans can’t be good for home prices. This will be the next shoe that drops, buyer/borrowers not wanting/able to pay the higher mortgage payment for the liar loan.
Just curious - was there ever such a creature as a zero down alt a loan. Can someone truly walk into an office and get a huge loan without a down payment. Also, is there such a creature as a no document / option arm?
You’re kidding, right?
No - I am serious - are these types of loans truly common?
in some markets they were very common, in other markets not as much. But yes they did exist.
There is still a zero down alt-a loan in the form of a fully documented or no ratio (job verified, income not), but the reserve requirements have gone up, as have minimum credit scores. As far as no doc, I have seen some fly by night subprime outfits saying they could finance 100% no doc loans, but I never followed up on it. The lender I described above would do 95% no doc assuming your credit score was 660+. There are now payment shock requirements for no doc loans (old house/rent payment v. new house payment). There weren’t any prior to that.
As far as a no doc, option arm, I never done one (an option arm). The lender I am referencing does have a no doc option arm up to 90% LTV. This one is different in that assets are verified. They also have stricter reserve requirements, 12 months reserves in a non-retirement account. I have seen other lenders offer no doc option arm’s as well. To my knowledge, there isn’t such a beast as a 100% LTV option ARM, but you never know in this business.
I have a question. When a lender requires X months reserves, how is the amount of (not the number of - i.e., not the X) the monthly reserve calculated? Is it the amount of the mortgage payment or PITI? Monthly take home pay? Something else? Thanks. (I’ve never bought a house, but I am saving for when prices come down enough for it make sense, so I’m trying to get an idea on what amount I will need and this is one number that I’m having a hard time putting a figure on).
Monthly reserves are determined by the liquid assets + investments / total house payment (PITI + HOA + PMI + Flood) . For example, a borrower refinancing has $5,000 in checking/savings, $10,000 in 401k, their house payment is $1,500, they would have 10 month reserves ($15,000 / $1,500 = 10 months). Usually, stock investments are computed at 70% value so if you would have $10,000 in stocks,on the 1003, for qualification purposes the value would be $7,000. If you are buying a home, then you have to account for what you have left over. Let’s use the above example again, $5,000 in the bank, $10,000 in the 401k, you have a seller willing to pay all of your closing costs, you put $5,000 as a downpayment, for qualification purposes you have $7,000 in reserves ($10,000 x .70 = $7,000).
Assuming you have good credit and get financing via conforming financing (using real income and figures) and your loan is graded by an automated underwriting scoring system (FNMA - Desktop Underwriter - FHLMC - Loan Prospector) reserves can mean the difference between an approval and either a turndown or a lower credit grade if you are a borderline borrower. This is especially important if guidelines are tightened and you don’t have a large downpayment. I can attest that I have seen a DU or LP A- grade turned into an approve/accept rating by increasing the reserves. Usually it involves increasing the checking accounts. You need to make it clear to the borrower how much they need after the loan closes. Sometimes it can come down to $100 or so.
Question: Do government pension funds buy securitized mortgages? And if so, is it possible to identify which particular loans ended up (in whole or in part) in those funds’ portfolio?
I can’t wait for these dumb-azz Brits to take one up the rectal sluice.
I fear that the US market will emulate the UK. Their bubble popped, but now its back up and then some.
This is what everyone in the mortgage/realty/construction industry is hoping for every night. Hence all the bandaids to defer the crash.
Thats the scary thing. I am sitting on cash right now. As the money supply continues to grow, they really may be able to engineer the soft landing they are after at the expense of anyone holding cash, money markets, etc.
or a match touches this gas filled bubble off, and we are back in 1930’s depression…..one little spark, could come from anywhere.
Only the shadow knows…..
pt_barnum, that’s why you have to have some of your money in foreign currencies.
Whats the cheapest way to do this? Certainly not in a bank. What I’d like to do is open up foreign bank accounts (Norway in particular).
Goal is to engineer a orderly decline. Because a decline is coming.
Follow Ben’s link to EVERBANK, so he gets a commission. You can open FDIC insured accounts using American dollars but denominated in Francs, Euros, Yen, whatever you want. I did it a few months ago and I’m already up, should’ve put in more $$…
pt_barnum: there is a EURO ETF on the NYSE. However, it doen’t pay interest.
I’d talk to a broker and buy European Gov’mt Bonds or a low MER mutual fund that is indexed against euro demoninated debt.
Everbank pays interest if you invest over 10K
This is the time to cover in your dollar shorts. Or liquidate non-dollar longs. The $ is down 12 1/1% from its 11/05 highs, a MASSIVE move in a currency. Especially one as big and liquid as the dollar. The mkt is so bearish on the dollar that even retail, retail (as the sheeple are called by the street) are short dollars. The selloff is over for now.
12 1/4% not 12 1/1% - sorry for the error above.
gab-thanks for the information, you’re probably right that the dollar’s decline is done for now. Personally, I’ll keep a part of my everbank account not so much as an investment, but more for insurance.
I wouldn’t want to open a bank account in Norway…..
I would guess that the USD has hit bottom now and will rally against the EUR and all the anglo currencies. If it keeps falling more then we are in crisis mode. The fed will have to support the dollar or we get increased inflation expectations, etc., etc. EUR 1.40 would be a huge shock. Then that is going to decimate real estate. He-he. Good for my Hovanian puts.
The Yen, I dunno. I am long the yen. I have been buying Yen whenever it crosses 120 in small chunks of 1 million or so. Of course I am not happy about this….. I cashed out all my Euros in Jan 2005 at the peak, which we are at a again.
This just in from Tucson: We have an extreme buyer’s market. The MSM tells us so…
http://www.tucsoncitizen.com/daily/local/49519.php
The ’significant rise’ in loan defaults is due in part to tighter lending standards, the report said.
Wow. What an odd thing to say. “We’ve tightened our lending standards and this has caused our previous loans to go sour at an elevated rate.” WTF?
That’s as good as “will the subprime catagion spread?” What contagion? It’s not like my neighbor defaulting is all of the sudden going to make me default on my 30-yr fixed that I took out 5 years ago!
They can’t “just refi”.
Wow. What an odd thing to say. “We’ve tightened our lending standards and this has caused our previous loans to go sour at an elevated rate.” WTF?
Ah yes, all the FB’s who won’t qualify for a re-fi under tighter standards, and they’re probably underwater if they bought in the last year or two.
So when does the AltA meltdown become a MSM story? When will these defaults start to hit the 5 o’clock news?
The flipper game unravels quickly without funny money.
It is simple. If your ARM went up, you’d refinance, rolling the refi costs into the new loan. You got to pay the low teaser rates for an extended period of time, but the amount you owed constantly went up.
Now, you can’t just refi the interest only ARM into another interest only ARM. You’re forced to actually have some equity, a descent credit score, and documentable income.
If you can’t refi, and can’t make the higher payments… default.
Does anybody think the FED is trying, and succeeding, to compensate for the loss of liquidity and the loss of consumer confidence, caused by the real estate collapse, by pumping up the market in order to recreate the wealth affect. Looking at the results from HB’s and lenders and then looking at the stock market is like being in Bizarro World. BZR is up over 4% today, CFC is green. The market goes up everyday. Are we trading one bubble for another then back to another??
12% M1, M2 and M3 creation in the past few months(i.e. money out of nowhere) will do that to a market…classic case of pump and dump…..I buying silver on the lows…wait these smucks out….won’y be long….
“… by pumping up the market in order to recreate the wealth affect.”
Someone appears to be pumping up the market, though I am not sure how you can prove the Fed is responsible. At any rate, the objective appears to be to inflate corporate asset prices in order to take the common man’s eye off the collapsing housing market. This works well for gamblers with deep pockets who are very long on stocks, but not so well for savers, who will inevitably lose the battle in the War on Savers, as the deck is heavily stacked in favor of gamblers.
You got it LA_RENTER…..FED is desperately trying to keep the balls in the air…..not sure how it all ends but either massive stock sell off or crushed dollar or both…..inflating US equities is not going to get the $$$$ into the school teacher’s hands that overbought an $800K McMansion in Corona in time for the loan re-set…(GOLDMANFELLAS might just get another fat bonus though).
Someone periodically posts a chart here which shows the dollar-value-adjusted DJIA to have treaded water or worse since the tech stock bust. I believe the same story would carry through for the gold-adjusted value of the DJIA. This is a bit of a conundrum…
Worse, much worse…
The Dow is Crashing
LA and Swiss,
I made that argument yesterday. There is no question in my mind that someone/somegroup power that be is pumping up the market. This thing is so ouddawhack it isn’t funny. And yet we wonder why M3 isn’t posted anymore. Besides, where do you think that 12% increase of printed money is going? Not into wage increases, retirement funds, or companies, do you? It sure as heck isn’t RE. That game has been played and is now unwinding. That’s right, the stock market. Sad, but when the big boys have had their fill and pull out of Wall Street, look out below. One big bubble burst after the RE/Debt bubble will collapse everything. At least all the fat cats will go screw up the Cayman’s and leave the rest of us alone to clean up their mess here. Don’t say I haven’t warned everyone that this 13K DJ is just another bubble. Believe me these bubbles will get larger and larger, sooner and sooner after each one pops. These guys can’t control their greed. No omore 50 years of wise investment and then retire at 70. No, no, no. Fleece the sheeple, take advantage of everyone, break every law to make gadzillions before 35! What a country!
Amen. The sheep are the last ones to learn.
There’s more than one bubble in a pot of boiling water but the frogs are usually too busy dying to notice.
The market gains is due to the weak us dollar, so everyone (including new home sales) is going to show gains. how convenient………
of course the FED is trying to compensate, that is why gold is going to absolutely explode
it’s nature’s source of wealth…
when you see stocks go up and gold go down, you are looking at market manipulation pure and simple
Think: Wizard of Oz, the Man Behind the Curtain
“when you see stocks go up and gold go down, you are looking at market manipulation pure and simple”
This is simply not true. You have either:
1) market manipulation
or
2) a market that as a whole believes that inflation is contained and that equities are not overvalued. big difference.
Is it your stance that the gold price was manipulated from 1980 all the way to 2002 or so?
because during that time gold FELL in value (adjusted for inflation) while equities skyrocketed.
if you think the gov’t can successfully manipulate gold for 22 years, why can’t they do it another 22 years?
I’m sorry to repeat this:
but gold is not the magical perfect thing you think it is. It is HEAVILY speculated upon by us, by the hedgies, by the central banks, and by governments. (Fort Knox comes to mind)
you will see vascillations of gold UP and DOWN. It is not a conspiracy, it’s a market.
Funny how you all think gold should/can grow to the sky, but then think it’s foolish when people thought that Real Estate could.
they’re both hard assets. and both have been commoditized.
“it’s nature’s source of wealth…”
Please. It is simply a means of exchange that has been generally accepted longer than many other means of exchange.
Before you slam me too much:
I own 15% of my wealth in gold. so I’m a believer that it should do well. but I’m not so naive to think that it MUST do well, or that it is the ONLY thing that will do well.
Thanks Clouseau for confirming the subtlety of my sarcasm.
“Funny how you all think gold should/can grow to the sky, but then think it’s foolish when people thought that Real Estate could.
they’re both hard assets. and both have been commoditized.”
Yep. Funny how a RE website is the worst kind of fraud but a gold website is full of all sorts of wondrous financial wisdom.
Gold is not about central banks, or investments, or ETFs or even wealth. Gold is about jewelry. Look at the demand numbers, for goodness sakes.
Thanks, Inspector, for the comments.
I find it fascinating that so many believe that manipulation goes on continously. Why did the manipulators of gold stop in 1980 at $800? Why did they let gold drop to $260 in 99?
Why did the market tank in 74? Wasn’t the master “manipulator”, Nixon, in office? Why did Bush and his “rich cronies” allow the market to continue to tank in 01 and 02? Why did Clinton “allow” the market to decline in 00? Mightn’t a good market have pushed Gore over the threshold? Certainly a poor market didn’t help him. Why wasn’t the market up more than a lousy 4% by October 04? Wouldn’t a good market then at least been somewhat helpful to a struggling Bush candidacy?
I don’t doubt for a minute that, sometimes, central banks and other players may TRY and influence markets but the notion that anyone can successfully hold up or push down a market for a sustained period of time, particularly in this global day and age of finance, is ludicrous.
Ask yourself what you’d do with “perfect” market knowledge over a sustained period of time? Wouldn’t you leverage yourself to the hilt and become one of the richest people in the world? Using futures alone would do it for you in short order, no? And how many of the players in this game (Paulson, Rubin, Bernanke, Greenspan) are significantly more wealthy now than from where they started? Or where they could have made money just staying, or getting back into, the private sector?
Somehow I doubt that wealthy men like Paulson and Rubin get into the public sector to manipulate markets….AFTER they are already fabulously wealthy.
“I find it fascinating that so many believe that manipulation goes on continously.”
————————-
uh, losers looking for a scapegoat?
But if you could manipulate either sporadically or continuously as a matter of choice, wouldn’t you choose the latter? I don’t see anything at all remarkable about this conjecture; the Fed controls the price of U.S. dollars with rocket science minute-by-minute precision, so why not expand the reach into other asset classes, in order to amass more power?
I hear that gold-foil hats block 60% more CIA mind-control rays than the typical tin-foil hat. At least that is what the voice in my head just told me…
“Somehow I doubt that wealthy men like Paulson and Rubin get into the public sector to manipulate markets….AFTER they are already fabulously wealthy.”
The last conquest open to those who have amassed more wealth than they can ever possibly enjoy is to satisfy the will to power.
“I don’t doubt for a minute that, sometimes, central banks and other players may TRY and influence markets but the notion that anyone can successfully hold up or push down a market for a sustained period of time, particularly in this global day and age of finance, is ludicrous.”
When did the futility of a ludicrous conquest ever stop a megalomaniac from pursuing it?
M1 is pocket change. It doesn’t drive M3 because there is essentially no banking reserve requirement. The Big Money supply expands to the limit of risk taking, or confidence or greed. This is my weak perception anyway. Like a bully, the greedy turn on a dime when fear enters. Subprime has not brought fear. What will? I am imagining that there might be a stampede when it does. I don’t see how the Fed can really force continued credit expansion, though they have enabled it.
I’ve been a gold/silver bug since 1964. It would be indespensible if these greenbacks meet their ultimate fate while I still have an interest in regular meals. Still I have more $$ than PM. I’d really like to buy a house and plant a garden, but it is out of reach and reason (you know). So seems the gold to me, the price doesn’t match the mood of the world. I see it as fodder for the buy-everything-on-credit frenzy.
I cannot get a grasp on what will happen when spending stalls and credit contracts. Is deflation a likelyhood? Even a possibility? Can I catch the juncture of sunken house prices and scarce dollars or will BB bury me in the green stuff first?
“Friedman Billings is trying to sell First NLC, cited ‘an extremely difficult operating environment for the entire nonprime mortgage banking industry.’”
The not ready for nonprimetime bankers?
“Standard & Poor’s said it may lower ratings on bonds from 11 different securitizations of home loans made last year”
So, what the h-ll good is S&P? It seems like their business model is “warn people the barn door is open after the cows have run away”. What good is it to lower bond ratings after the disaster has hit? It would be a tad more useful if they tell investors about problems in home loan securities before every one and their brother knows about it.
The point is to warn others not to buy these bonds. This function is useful. It’s good for the open market to know which entities’ credit is deteriorating, even if it hurts the current holders of those entities’ debts.
Some housing bubble news from Wall Street and Washington. “Pulte Homes Inc., the No. 2 U.S. home builder, posted a quarterly net loss Wednesday, chiefly because of charges related to the lower value of land and homes it owns. The first-quarter 2007 loss included $132.1 million for impairments and land-related charges.”
Luckily for Pulte shareholders, homebuilder stock price levels have near-zero and possibly negative correlation with bad news about fundamentals. The market has such a great crystal ball that it perfectly anticipates and discounts bad news releases far in advance of when they occur.
“Pulte Homes Inc., the No. 2 U.S. home builder, posted a quarterly net loss Wednesday”
and
“Ryland Group Inc., the biggest U.S. homebuilder for first-time buyers, said yesterday after the close of regular trading its net loss in the three months ended March 31 was $24.4 million.”
This shows again that despite the fact that builders USED to have large margins on homes, and now have somewhat large margins on homes, they may not be able to drop prices as far or as fast as people think they can.
These guys are already in the red, or close to it, and they’ve barely shaved off anything. They may be bankrupt before they can drop to a level we find acceptable. This is what happens when you leverage and have lots of floating loans and are a credit-dependent entity.
HIC
Part of their problem no doubt is that they bought a lot of land (on credit no doubt) to build future houses no one needs.
More accurately…they bought a lot of land at insane bubble prices to build future houses based on then-current bubble sales rates and demand. Buying land at bubble prices based on bubble forecasted demand equals serious crisis in 2007-2010.
Another part of their problem is that they burned through a bunch of their cash by doing stock buybacks. If they had held onto that cash, then they could survive negative cash flows a lot longer. Of course, they needed to do the buybacks so that their top execs could sell as many shares as possible for a higher price.
RYL burned through 140M in Q1, down to 70M. What are the odds that will be gone in Q2? (so did PHM)
“Indymac Bancorp, the second-biggest independent U.S. mortgage lender, said Thursday first-quarter earnings shrank 34 percent as a spike in missed payments on home loans choked profits across the industry. IndyMac, which is also one of the largest U.S. savings and loans, specializes in ‘Alt-A,’ or ‘Alternative-A’ mortgages, which fall between ‘prime’ and ’subprime’ loans in quality.”
This Indymac earnings shrinkage must be a fluke, because everyone knows subprime lending problems are contained, and they only make loans to better credit risk borrowers.
I thought that when borrowers miss payments, it’s booked as profits because it is added to the value of a loan! Or has the option expired on the Option-ARMS.
Bleak earnings (or, in many cases, losses) reports from HBs, yet the stocks rally today. What’s with the disconnect?
Either a pump-n-dump or folks think the worst is over.
It is too simplistic BY FAR to think that stock prices should move in lockstep with news headlines. If this were true we would all be stinkin rich.
meritage said the market has bottomed.
“Standard & Poor’s said it may lower ratings on bonds from 11 different securitizations of home loans made last year, more than doubling the number of its warnings on bonds of so-called Alt A mortgages….”
Yeah, let’s close the barn door. The horse is in the next county.
A little OT and FWIW:
“And did you know, that more houses are generally sold between Superbowl Sunday and the middle of April than in any other period? We didn’t either. But that’s what the Financial Times says. Actually, two thirds of the sales for the entire year normally happen during this period. And if they don’t pick up a bit, the whole year’s housing revenues are in jeopardy”.
Remember: As stated by the Financial times.
I just don’t buy that two thirds of the sales for the entire year normally happen during this 2.5 month period. All of the statistics I’ve seen show that the summer months are biggest sales months (for existing houses - as these are reported as sold when the sale closes). Even for new houses (which are reported as sales when the contract is signed, and so usually have their highest sales months a couple of months earlier than existing homes), I still don’t think that the 2/3 stat would hold up.
pnc: I recognize that this is not your comment/view, just you quoting what the Financial Times reported.
I agree with WOC. This observation has no credibility. Look at sales histories. What might be said is the whole year trend is set during that time frame.
house sales are totally dependent on the weather - ask Lereah
A bunch of schemers. Not a one of them stopped the foolish lending until it was to late to deny it anymore.
Friggen phoney schemers covering their tracks because of all the stock sales. Lots of lawsuits will be swarming the reic for years to come. deservedly so too.
I don’t know much about stocks and all this other financial stuff you guys talk about (I stick to basic fundamentals) but it also struck me as odd (the average guy on the street) that there is all this bad news, yet the stock market is breaking records. Like an old wise man once told me “Make sense? Hell, if it makes sense, it aint happenin round here.”
as a few people stated above, the stock market is up in nominal dollar terms, reflecting (among other things) the weakness/worthlessness of the dollar itself.
Rich people don’t put their money under the mattress. If they are no longer using it to buy bonds, then it has to go somewhere. Commodities are high and unlikely to go higher. They don’t want to put it overseas where the falling dollar will eat away at it.
So, where can they put it?
Expensive call girls and Kobe beef?
“They don’t want to put it overseas where the falling dollar will eat away at it.”
How about putting it overseas where the falling dollar will translate into higher returns on the trip back home? Me thinks you need to read up on your international finance…
I heard Bernanke has an ultra version of Sony Playstation 3 that he uses to set all the 6000 different stock prices, plus bonds and commodities, etc. every day.
I wonder if they flip virtual real estate in Second Life?
yes they do… or did when there was a bubble in the game… it’s a fascinatign place for economic theory.
Why are the markets up?
Companies know that headlines move the market, and lowering guidence isn’t as much of a hradline as beating expected earnings. So, over the last few months they’ve carefully “managed expectations” down to a level where they could easily beat them.
Last year, companies were reporting 10% year-over-year profit increases. This year they are reporting 6%, Could you imagine the markets direction if the headline was “Profits off 40%”?
So, companies carefully manipulated expectations down to only 3%. This way, the headlines are “Profits double expectations”.
We know analysts work for brokerages, and brokerages make money when poeple are trading. We accept the analysts were willing participants in the 1990s bubble, becsuse companies only dealt with analysts that helped them. Well, why should we suspect that times hvae changed? Because they now have to disclose their relationships? Well, the disclose those relationships when they publish expectations well in advance of the earnings release, but they are still counted in “consnesus” expectations. When I read the headline that a company beat consensus expectation by a huge margin, I don’t see all those discolsures of how the companies have relationships with the brokerages that issued the expectation.
learning the ropes with links.
i found the non mexican constructions workers in and around carlsbad, ca. check out page two on above link to see all the action in business construction.
also featured: a drive thru garage. and a pretty golf course home for sale.
i had trouble linking links yesterday, hope its not double post.
comments - yes
A non-Mexican construction worker?!! That’s ethnically impossible!
Update on the Hummer driving, FB in Las Vegas that I reported on the other day. It turns out he’s a NINJA, and he’s been seen driving a former girlfriend’s car. LOL!
(For the lurkers who don’t know, a NINJA is a person with no income, no job or assets . This is a prime example of some of the people who fueled this craziness and locked out people who qualified with REAL documentation, jobs, assets, etc.)
People like this (NINJA applicants) I have absolutely NO sympathy for.
BayQT~
“NINJA” — I love it!
BayQT: There are 14 single family homes on the Dublin MLS right now below $600K. These are 1960s tract units (the kind I like). 8 of them were bought with 100% financing during 2003-2005. A couple are now REO and a couple are short sales. The average asking price is $583k, and the median is $589K. I looked up old records, and it appears that these same homes sold for about $275-285K back in 2000. In summary, we have seen 100% appreciation here during the past 6-7 years. This comes with flat wages. Yeah, that all makes perfect sense. Dublin needs a 30-40% hair cut to get back in line with fundamentals and I will be laughing as it corrects. No FB sympathy here either. Let it crash and burn.
So long as NINJA loans are still made in significant numbers, nobody with a job and a credit rating should buy a home, unless they don’t mind losing tens or hundreds of thousands of dollars when credit standards revert to historic norms.
GM announced it may discontinue or offload Hummers…
I guess they will go the way of the Volkswagen Thing. Remember those? They didn’t last very long either.
http://en.wikipedia.org/wiki/Volkswagen_181
BayQT~
re: Companies “beating” expectations. The game this year was to really LOW BALL the earnings in the 3% range, then averaging 6% to look ‘good’- sooner or later all irrational buying and any manipulations will have to be washed out. [does 6% even maintain 'breakeven' status against the REAL inflation rate mind you?]…You need to go with the LONG TERM view and there can be no conclusion other than a major PROBLEM for the entire US economy. The fundamental laws of supply and demand WILL adjust housing. The fact that FORD ‘only” lost $282 million this time is still BAD. GM losing number one status after SEVENTY years is BAD. A $9+ trillion debt is BAD and UNPAYABLE. David Walker the GAO LEAD comptroller accoutant has been touring the country stating that we are indeed in effect ‘bankrupt’ - Pensions are deteriorating. the DEMOGRAPHICS assure us that the PONZI SS system can not work for long, Medicare will soon be ‘toast.’ The Euro is perched at a record. Too many “EVERYDAY LIFE” negatives– flat wages- $3 gas. Leverage buyout [DEBT MONEY} deals are at record and pre crash levels. Couple this with brewing Arab [and soon to be Asian]resentment of the USA and rejection of its weakening currency and insane credit “liquidity” and you have to KNOW the FINAL Answer here. If you feel the need to play ‘ostrich’ or delude yourself with fantasy for self preservation , that is fine. But truth is the emperor HAS NO CLOTHES and he doesn’t even have 5 bucks to go the Salvation Army to buy a T-shirt. Any freshman economic student should be able to see the whole picture if they haven’t partaken of the Kool-Aid. It is time to get PREPARED for the storm, or to ask Neil for some cyanide laced popcorn [if you can't bear to watch. ] Only the stupidity of the masses can delay the INEVITABLE. So I guess in the interest of ‘buying’ more time- pray for more narcotic Anna smith Nicole bimbo whoever and more Maury DNA tests [along with american idol reruns] –do I hear a fiddle and is something burning?
Yeah, but the problem is, all of this has occured again and again the past 30 years. We Americans always pull through. Our country is a country of laws. Laws that are enforced (sarcasm). We are consumers. The weak dollar will allow our companies to compete.
is this from a goldinsect site?
Unfortunately for the doom and gloomers, there is an enormous amount of flexibility in the system, and adabtibility in human behavior. That is why perennial forecasts of impending collapse never materialize. Extrapolating a current trend unchanged into the future is just plain foolish. RE goes up. Then it goes down. Lending goes up. Then it goes down. Spending goes up. Then it goes down.
———————-
“–do I hear a fiddle and is something burning?”
————————–
my 6th grade teacher in 1965 was going to take his young family to live in a tiny town with no TV so they wouldn’t be corrupted by Rock n Roll, he was scandalized by Elvis and the Beatles on the Ed Sullivan Show. The cliche of comparing the Roman Empire to the U.S. are old, boring, and silly.
Unless you own a goldinsect site. Then they are profitable.
Don’t sugarcoat it Jeff. Give it to us straight.
SAD, SAD, SAD…..
Let me start packing and storing my can goods, this is going to be long ride down.
All I know is my ticket to Burning Man is bought and paid for, so i’m going…
HB perp walk:
http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20070426/NEWS/704260335
Take a look at that guy’s picture and tell me he hasn’t been smoking some weed with the deposit money.
Looks more like a crack head to me..LOL
One would think it won’t be too long before Jesse Battle has a similar picture taken.
I’ll get a more detailed response later [I am at work so while there is still work to be had before the crash--I must take advantage of that] Just briefly I would say the comment wasn’t truly ‘real estate’ based - and I was not drawing an exact parallel to Rome [although warranted on some level] the analogy to fiddling and burning refers to IGNORING a REAL PROBLEM and just going about as if NOTHING is WRONG when it most certainly IS! forget the up and down on sectors— just look at the VALUE of a US dollar since the feds ‘funny money” I believe on the FED StL site it will show you the dollar is now worth FOUR CENTS [gold went from $20 to $675 +/-] — somehow I am not seeing the ups and downs. I live near Cedar Point and the graph on the dollar for 90 years looks like you are STARTING at the peak of the Magnum coaster and you are now just about ready to hit Lake Erie. If you think the GENERAL state of the Union is better with MOST FAMILIES post 1970 having to have TWO people instead of ONE working, most jobs post ‘85 having little to no Hospitalization, Pensions replaced by ponzi 401 3b to the fifth power scams. Children “outsourced” to the day care and the like- you evidently have had a wiff of the Kool Aid - the fact is these developments have at least been SUSTAINABLE and not so “in your face” direct- my concern is that the burner is going to be turned up a notch SOON with the accelerating factors FASTER and FASTER. Global market gaming [markets] and slavery [labor wage supression] along with instant 24/7 communication are accelerating factors! Perhaps you have heard of the GINNY CURVE. Perhaps you have read of the Savings rate as bad as the 1930’s? Did you read PRINCETON professor Blinder’s recent report on 40 million GOOD JOBS possibly soon outsourced [he was on Charlie Rose last night!] what if he is ONLY 10% right? Hey, I would like status quo - I have 15 years on a state pension at a communty college, half way paid off on a nice house in the burbs, my oldest daughter [of five] just got a four year FULL tution scholarlship to a nice private college [Don shula and Tim Russert's alma mater] so I really don’t feel like having Chicken Little’s sky fall in— but I am semi literate and have had enough experience to realize that ignoring the radar on the weather channel will NOT cause the tornado to miraculously disappear. There are STORM CLOUDS on the horizon that unfortunately have worse implications than the famous Cleveland Blizzard of 1977/78 if you get my “drift.” By nature I truly am an optimist [heck we have the Browns and I grew up rooting for the Vikings to win the Super Bowl] –my wife on the other hand….not only is the glass half empty, it is loaded with poison. Reality will trump Perception and DELUSION in the end.
…you know they always try to kill the messenger….Even on this blog there are great differences in how individuals are willing to connect the dot’s. I agree with you, you don’t have to be a rocket scientist to see the picture. My question is, now that we see it what are we going to do about it?
in Phoenix, here are the fundamentals….
GREATER PHOENIX REAL ESTATE MARKET
Single-family Housing Affordability
Annual
1988-2006
Resale Homes New Homes
Median Gross Effective Median Monthly Resale Median Monthly New
Monthly Interest Sales Housing Affordability Sales Housing Affordability
Year Income Rate Price Payment Index Price Payment Index
1988 $2,490 10.8% $78,000 730 95 $103,950 $970 72
1989 2,600 11.0 78,000 740 98 105,850 1,010 72
1990 2,725 10.5 79,000 720 106 109,300 1,000 76
1991 2,800 9.4 80,000 670 118 107,500 845 87
1992 2,835 8.6 83,000 640 123 108,800 850 94
1993 2,890 7.4 84,000 580 139 112,500 780 104
1994 2,985 8.5 87,225 670 125 124,475 960 87
1995 3,150 8.1 90,500 670 132 127,600 945 93
1996 3,280 7.9 97,000 705 130 130,750 950 97
1997 3,425 7.5 105,000 735 131 136,130 950 101
1998 3,595 6.9 113,585 750 135 139,070 915 110
1999 3,780 7.2 120,000 815 130 146,710 995 106
2000 3,900 7.9 128,900 935 117 150,770 1,095 100
2001 3,965 6.9 136,000 890 124 156,560 1,030 108
2002 4,025 6.4 144,900 905 124 159,990 1,000 113
2003 4,060 5.7 155,000 900 126 173,235 1,005 113
2004 4,120 5.7 174,815 1,015 114 195,000 1,130 102
2005 4,190 5.7 240,500 1,395 84 251,795 1,460 80
2006 4,260 6.3 260,600 1,615 74 306,355 1,895 63
What this says is that until 2004, the median household could afford the median house. However, from 2004 to 2005, house prices jumped 38%, putting the medain house out of the affordability range of the median household. How? ARM, Alt-A, sub-prime… All the things we now like to call preditory lending.
From 2005-2006, prices continued to climb while interest rates jumped.
So, are housing prices going to drop 25-30% to return them to the level where they are affordable? Banks are doing everything they can to keep that from happening. If they fall 10%, the number of people walking away from their loans will skyrocket, creating a downward suck like not seen in a long time.
Or, are we going to drop interest rates to 4.5%, killing the dollar on the global markets, causing rampant inflation, and sucking the purchasing power out of anyone with money in the bank?
Sorry, that table is hard to read.
Here is the data:
http://www.poly.asu.edu/realty/marketupdate/affordability/Annual%20Affordability.xls
In 2003, median income was 125% of what is needed to comfortably buy the median existing home. Today it is 74%.