‘Payment Shock Risk Growing’: Fitch
Fitch Ratings has this release. “Beneath the strong performance of U.S. subprime interest-only (IO) mortgages in recent years may lie substantial payment shock to borrowers as the housing climate continues to cool and refinancing becomes more difficult.”
“‘The payment increase for an IO at the rate reset is high even if rates do not rise, and is mostly due to the rate reset with only a small portion comprising principal amortization,’ said Suzanne Mistretta. ‘Because subprime IOs have high margins and low initial rates, the payment increase from the rate reset could range from 40% to over 50%, and the high margins assure that the initial rate cap, which hovers around 3%, is reached.’”
The sector is the subject of a new report. “Many U.S. homeowners with adjustable rate mortgages are in store for a serious financial burden when their loans reset, but the losses from any defaults are unlikely to weigh much on the mortgage industry as some analysts fear, according to a study released on Tuesday.”
“The report by the real estate information service estimated there may be up to $110 billion in losses as homeowners with the riskiest adjustable rate mortgages, especially mortgages with so-called teaser rates under 4 percent, default to escape the cost of rising rates.”
“Those are the people that mail in their keys,’ said Christopher Cagan, the information service’s research director. ‘Some of these people don’t have much of a downpayment so they don’t have much to lose.’ Cagan estimated 1.4 million of 7.7 million adjustable rate mortgages sold in 2004 and 2005 will be at risk of default.”
“If households with those mortgages were to default, the financial fallout would be limited, according to Cagan.”
Peter Millers’ take at Realty Times. “HUD’s 2007 Budget Summary (is) a document which ought to make a lot of people take notice. ‘Congress recognizes that today’s high cost loans negatively impact consumers, communities, and the economy. To address the problem, Congress is considering legislation to regulate these types of loans and the lenders who originate them.’”
“HUD, in a few years, will be able to cite the quote above as evidence showing it was aware of the toxic loans available today. But HUD does not regulate lenders. At the federal level, that’s a job for other departments, offices and agencies.”
“Ask yourself: Why is it that only hardworking subprime borrowers are impacted when ‘mortgage payments escalate or balloon notes become payable’? Why have federal banking regulators allowed, and continue to allow, the origination of loans which clearly represent a looming national debacle?”
“This is not a problem that can be ignored by those who own their homes free and clear. This is not something that does not impact those who have financed with dull, boring self-amortizing loans that required something down. In either case, guess what will happen to the value of your home if nearby properties are dumped on the market or foreclosed?”
“If it’s true that ‘Congress recognizes that today’s high cost loans negatively impact consumers, communities, and the economy,’ then why hasn’t Congress or the executive branch done something meaningful to resolve the problem?”
Closing the door on these high-risk “unaffordability” loans would be the last pinprick needed to burst the bubble. It’s much too late to do anything about it now.. Well, except pray.
grim
Northern NJ Real Estate Bubble
Or prey, such as the case may be.
“….. then why hasn’t Congress or the executive branch done something meaningful to resolve the problem?”
because they have too much time on their hands to where they are now about to start a senate investigative committee to question why Cheney shot an attorney, as if that is a bad thing to do.
The problem was caused by regulation (Fannie/Freddie and the Fed printing press) so why are people calling for more regulation/bureaucracy? Maybe because politicians are bureaucrats.
“This is not a problem that can be ignored by those who own their homes free and clear. This is not something that does not impact those who have financed with dull, boring self-amortizing loans that required something down. In either case, guess what will happen to the value of your home if nearby properties are dumped on the market or foreclosed?”
Prepare for whining from homeowners about how borrowers defaulting on toxic mortgages are ruining property values for everyone. Of course it was these toxic loans that gave the bubble a new lease on life the last few of years.
As has been said here before, the barn door has been open for quite some time and the horses are long gone.
Given that most of us on this blog are not bankers/finance industry specialists and we figured out that something was really wrong, why has it taken people who regulate this industry so long to figure out there is danger ahead?
It hasn’t taken them that long to figure out something is wrong…only to admit that there is something wrong. Otherwise, they couldn’t have profited from it.
It is now painfully obvious to me that Congress and our “democratic” representational government is truly a self-serving system for the rich. Special interest groups donate and graft so much money to our representatives that they are drunk on it. Yeah, when they need to get elected again, they need to do something by bringing up the obvious well after the fact (and after they have profited and there is no money left).
With the internet and the shear speed of news stories, a representational government is really no longer needed in our democracy. Each representative (senator/congressman) should really just tally OUR votes on each issue or bill and then cast their vote based on it. Majority rules. Or like California with their Propositions. For better or worse, any person can create a bill to be voted on. This helps eliminate special interest groups. Not perfect, but I think this would send a real message to countries like China. I think the average American (read majority) does not want slave-labor created goods and H1-B Visas for any company that does not want to pay the prevailing wage.
Globalization can’t be stopped. Technology makes the world more connected. The truth the politicians dare not utter is that this means that the First World’s standard of living is going to drop drastically as capital moves to the Third World where it can be more profitably deployed.
True. We are now more of a capitalistic first society rather than a democracy first. I think globalization benefits the minority most (including those of us who post here). I just think that the majority (middle class working), would vote for standard of living over globalization and wage pressure. But since they don’t vote or really end up voting for 2 seperate people with the same self interests (Democrat or Republican), nothing changes.
They’re already voting with their dollars, and they’re voting “yes”.
I agree with you. People want it both ways. My bet would be (in my argument for a “direct democracy”) that people would vote for trade restrictions and protectionism.
My main point is that citizens really should be voting directly on bills, not thru a representative (who has his/her best interests, $$$$$ in mind firstly).
Way OT, but California initiatives are a pet peeve of mine. If you think that those aren’t owned by special interests think again. It costs a lot of money to post an initiative and the more you have the better off you are. Special interests offer signature collectors extra money to put their initiative on top of the stack. Plus the intiatives always have some “gotcha” one-liner that masks the true intent of the initiative.
I think represetnative government is the best way to go, but only when the representative isn’t too cowardly to say “Yes, I voted no, because I read the entire document. Did you?”
I think most bankers/finance people fully understand whats going on. The way to deal with it is to spin it. Maybe the problems will just go away if you keep telling everybody how swell things are. For the average person, if it’s not “in your face” they just don’t pay much attention. If the US government sent a bill out to each citizen asking for payment for $27,000 for their share of the debt (growing every day) they might wake up.
“Given that most of us on this blog are not bankers/finance industry specialists and we figured out that something was really wrong, why has it taken people who regulate this industry so long to figure out there is danger ahead?”
1) They are too busy partying and preparing for high paid consulting positions with the lenders once they leave government work.
2)There is too much of if it is ‘good now’ for the economy the future can be f*cked. We just need to make the presenty look good.
David
Bubble Meter Blog
“Given that most of us on this blog are not bankers/finance industry specialists and we figured out that something was really wrong, why has it taken people who regulate this industry so long to figure out there is danger ahead?”
Part of the problem is that those who are closest to an industry are often among the last to see the writing on the wall. This is often apparent with stock analysts. When Enron hit a brick wall and essentially all of the bad news was out there the stock was still at $7. There were many analysts and money managers recommending Enron as a “buy.” Ditto when Refco blew up but the stock was still at $15.
The temptation is to ascribe these boneheaded calls to greed or corruption or conflict of interest. That may be true in some cases. But mostly it shows how those closest to the company are often the last to realize that today is a new day and yesterday’s reality is but a distant memory. Sometimes these “experts” have to be whacked on the head with a baseball bat three or four times before they get it.
Similar article with local spin on it.
ARMs put at risk $300 billion in loans, study finds
But rising O.C. home values will likely ease the crunch locally, expert says.
The Orange County Register
The nation’s love affair with adjustable-rate loans could end badly, with some $300 billion worth of loans at risk of default over the next three years.
However, Orange County should see just a tiny share of defaults.
That’s how Christopher Cagan, author of a study on adjustable-rate loans released today, sees the county stacking up against the nation.
His study, based on data collected by First American Real Estate Solutions, a unit of Santa Ana-based title insurer First American Corp., outlines risks to the U.S. economy posed by homeowners with adjustable-rate loans, whose low introductory rates will start rising between now and 2008. Such loans have helped buyers afford more house – or any house at all – in pricey markets like Orange County.
Homeowners who got a loan with a “teaser” rate as low as 1 percent in 2004 and 2005 are most at risk, the study said, because they have less of an equity cushion to fall back on than people who bought a home before 2004. These owners will find it harder to refinance or sell their home, especially in markets where prices are flat or have dipped.
However, homeowners in Orange County are better off than borrowers in markets where home-price appreciation has stalled, said Cagan, director of research and analytics at First American Real Estate. He said price appreciation in the county, which should slow to single digits this year, is better than in some other markets.
When these introductory rates expire,Cagan said, 7,000 to 8,000 homeowners in Orange County could lose their homes. He said losses would be spread out over the next four years.
Those numbers aren’t high enough to sink a housing market with sales of 50,000 or so homes a year, he said.
“That’s not something that will break Orange County,” Cagan said. “If you are one of those people, that’s bad.”
Cagan mined First American’s massive database on home sales. He looked at first mortgages, assuming that people who default on a second mortgage would also stop paying the first one.
Nationwide, banks could see losses of $100 billion as they foreclose on homes in which the owner had little or no equity. That amounts to about 1.4 percent of all mortgage debt.
That’s far from a doomsday scenario, according to Cagan.
Cagan sees bank losses as a minor drag on the U.S. economy, perhaps slowing GDP growth by 0.3 percentage point.
The progression of RE think…
2004 and 2005
- RE only goes up, there is definetly no bubble in this market
2006
- Well RE does go down once in a blue moon, but this market is nowhere near a market that is going to collapse. RE will be just fine in the next few years and we will just return to single digit appreciation
Not to hard to see the direction of this slippery slope… Should be fun to watch how the downward trend continually gets spun.
Cagan overlooks the total dollar amounts, though. In markets with less appreciation people have smaller total amounts of debt, so if they do end up upside down the total dollar amount they’ll have to cough up to get out is a lot smaller (and lenders lose less total dollars too).
Also, most states have recourse loans, so the debtor will have to negotiate with the bank, they can’t just walk away.
Most other states aren’t nearly so overvalued compared to median salaries either.
Cagan is a statistician, not an economist. He does not understand mutiplier effects very well, or if he does, then he is trying to put a rosy spin on the situation at hand.
Notice how the rhetoric has changed from “There’s no bubble here!” to “The bubble here won’t crash!”
The reasons given for both are invariably sophistic and self-serving, and they’re wrong both times.
“When these introductory rates expire,… 7,000 to 8,000 … could lose their homes. … spread out over the next four years. Those numbers aren’t high enough to sink a housing market with sales of 50,000 or so homes a year, he said.”
Except that sales won’t continue at 50,000 annual. They’ll drop to less than half that. And it won’t be only the people with teaser rate ARMs who’ll be foreclosed. (I seen to recall having seen that in the mid-90s foreclosures peaked in SoCal at 19,000 — can anyone here confirm or correct that?).
Elsewhere Cagan is reported as saying also that, “Our nation is a $10 trillion-per-year economy currently possessing $19 trillion in household asset value and $11 trillion in homeowners’ equity. Losses of $110 billion - spread over several years - would come to only about one percent of the total national homeowners’ equity, …”
But four or five trillion of that homeowners’ equity could easily disappear. And it’s reported that more than a third of the jobs generated in this “recovery” have been real estate related.
The multiplier effects may be quite significant.
“Why is it that only hardworking subprime borrowers are impacted when ‘mortgage payments escalate or balloon notes become payable’? Why have federal banking regulators allowed, and continue to allow, the origination of loans which clearly represent a looming national debacle?”
This is the same logic that people use when they blame the drug DEALERS for a drug problem. I don’t see anyone forcing crack or IO loans on citizens.
As someone alluded to in another thread, the underlying problem to all of this is America’s addiction to consumption. And now us consumers are blaming those that handed out the money. “It’s the GOVERNMENT’S fault that I bought this plasma TV using a HELOC!”
faulty logic here. The commodization of crack was a big factor in spreading it into poor neighborhoods. There was scarce demand for cocaine in inner-city america before a clever fellow figured out how to make the cocaine high a cheap high.
So where is the downside. I bought my house 5 years ago and have a 15 year mortgage. If house prices in my community go down 50% how does that hurt me? I’d be upside down in my current mortgage, but I’d be able to trade up to a really nice house and end up with less mortgage and smaller monthly payments. Taxes would at least stabilize if not decline modestly.
The only way responsible people will be really harmed by house prices going down is having to listen to the crying of people who were less than savvy with their finances.
In the long run, we’ll all be better off if our housing needs could be met at a lower cost. If we’re really becoming more “productive” house prices should go down as we learn to build them more efficiently.
Well, I know a lot of people locally who think they’re rich all of a sudden because the value of their home has doubled, and from their perspective their net worth has increased $150,000-$250,000. Some people I know really think they’re that much closer to retirement… and realistically they would be if they had sold their property 5 months ago and moved into a rental (temporarily).
“So where is the downside. I bought my house 5 years ago and have a 15 year mortgage. If house prices in my community go down 50% how does that hurt me?”
If your house was worth $1m on paper last year, then it hurts you by $500K. Is this math more complicated than it seems to me?
Or anybody who bought recently and now has negative equity is completely f@cked if they, say, lose their job and need to relocate…
Good luck selling your house.
It won’t be hard if he drops the list price by 50% from the neighbors’.
My point is that Cagan far overestimates the harm to prudent homeowners of a price decline while he does not even try to address the harm that the continuation of this catastrophy will be.
The downside is in the “opportunity costs”. You might not do bad…but maybe you can do better.
If you hold out, your home will likely fall a lot in the next few years and will probably rise in value again so in 10 years from now you will be exactly were you are now.
Can you do better? I think you could. What if you sold this past fall (top of the market), invested the profits in bonds (which would cover your rent payments) and then repurchased when things are very low in a couple years. You would be WAY ahead.
Not loosing…is very diffrent from making the best investment choices.
mad_tiger said-
“Part of the problem is that those who are closest to an industry are often among the last to see the writing on the wall.”
I would also add that those who are closest to the bubble areas are often among the last to see the writing on the wall.
Your observation, which I don’t really dispute, is an amazing comment on people.
I live in Miami where people seem blind to ridiculous overbuilding. But to me, it’s beyond obvious. Having lived here all my life, I’ve never seen building that’s close to today’s activity. Construction cranes are everywhere. Condo advertisements are breathless. Prices are crazy. The builders are crazy. And the “populace” remains unshakeably commited to the belief that owning your own home, at any price, is a high yield, risk free investment.
Been there, done that.
In the early 90’s, there was a huge bubble in office construction in Sydney, Australia. I attended an AGM of a company group where one of the companies was a commercial REIT, and stated the view to one of the REIT executives (in the coffee-n-biscuits chit-chat after the formal meeting) that the sector was topping out and they should consider cashing in. Response was a friendly, but fairly condescending, rebuttal.
12 months later, same company AGM, REIT valuation had dropped 20% over the year, same executive and he remembered me. Grim smile, and “you were totally right, the industry was wrong”. Then he asked me how I had formed my view the previous year, and I told him it was simply looking at the incredible number of tower cranes compared to 5 years before that when I had last been in Sydney.
He looked gobsmacked, and commented half to himself that when you work in a city every day and walk past cranes all the time, you tend to take them for granted and you don’t particularly notice that there’s more and more of them because they arrive one at a time.
I love the full page condo ads that plaster the real estate section of the Miami Herald. I think 500K - 1M is a small price to pay when you get nude and semi nude super-model quality babes that hang out in your condo pool (at least that’s what the ads imply).
Not so…Honest real estate appraisers victimized by a corrupt and unregulated mortgage loan industry have been warning of this problem for years now.
“If it’s true that ‘Congress recognizes that today’s high cost loans negatively impact consumers, communities, and the economy,’ then why hasn’t Congress or the executive branch done something meaningful to resolve the problem?”
Is this question being asked in all seriousness?
The reason they haven’t done something about it is that people who live under the delusion that they are well-off will tend to re-elect sitting politicians. I would be very surprised if politicians were motivated to do anything about this until long after the cause was lost.
OT: Mobile Homes at a Crossroads
Amid a Florida real estate boom, parks are being bulldozed. But some residents find they have no place to go.
http://tinyurl.com/cvm6g
This is not a problem that can be ignored by those who own their homes free and clear. This is not something that does not impact those who have financed with dull, boring self-amortizing loans that required something down. In either case, guess what will happen to the value of your home if nearby properties are dumped on the market or foreclosed?
I own my home free and clear. Yes, its value in today’s insane market has greatly increased. Have I earned this increase? Has anybody? Of course not. Any increase above historical amounts is due to the bubble effect itself - and when my home’s value returns to its historical value, at the end of this bubble, I will have lost nothing, unless speculative hot air has value. Comments like those above are a thinly vieled attempt to diffuse the emotional impact of the coming house price collaspe - and I for one don’t buy any of it.
But but these loans are the new paradygm with all the baby-boomers buying their six retirement homes and immigrants buying mcmansions how are entry level buyers supposed to afford new homes?
I seem to recall this summer when these new loan products where designed to help people afford homes?
I mean values only go up up up 20,30,40% a year… they just own the home for a year and sell it before the teaser rate shoots up… right?
The turnover at the top of the Fed is not going to help the payment shock situation one bit. Helicopter Ben’s big concern of the moment is to shed the label that has been unfairly stamped on his forehead. The subprime sector will be one of the collateral casualties of this effort.
http://tinyurl.com/8×7zm
Scratch the above link (not sure what happened to my tinyurl!):
http://tinyurl.com/8×7zm
If you replace the multiplication sign with the lower case letter ex, the URL is fine.
Someone has hijacked tinyurl.com. Try this:
http://www.bloomberg.com/apps/news?pid=10000087&sid=aMm7Wnf5wkXs&refer=top_world_news
Shopping for cameras, Mr. Stucco?
The prediction for Bernanke is spot on. He will administer the pain early, to gain Wall Street cred. The playbook is right out of George Orwell’s famous essay “Shooting an Elephant.” Read it if you have never heard of it.
Well, it looks like American consumers are spending us into a stock rally today.
Look’s like we’re all wrong and the housing market will probably follow suit in the coming spring selling months.
I really thought that we were all on to something, but the numbers don’t lie - even with a negative savings rate, Americans continue to find money somewhere, or are continuing to charge themselves into oblivion to keep buying things.
I wouldn’t worry about a January retail bounce…the sheeple still think they’re house-rich and are spending on credit accordingly. Wait till February’s figures before you cancel the revolution.
Question one… are these strong retail sales fueled by increases in consumer income or increases in consumer debt. (I suggest the latter.)
Question two… if housing prices stumble, does anyone believe consumer spending will stay strong? (Again, I suggest no.)
Question three… even if housing does not fall, is there any reason to expect prices to continue rising above their historical norm? (None whatsoever).
Comment by Loren
In the long run, we’ll all be better off if our housing needs could be met at a lower cost. If we’re really becoming more “productive” house prices should go down as we learn to build them more efficiently.
Bingo! Nice call Loren. The price of just about every good falls over time (food, clothing, and shelter). And that’s a good thing for everyone. The quicker that this silly housing price bubble pops and prices fall to where they should be, the better off we will be. Of course, there will be winners (those who sold at the top) and losers (those who bought at the top) but this is simply a redistribution of wealth. As long as the prices come back down (and they will) then people can spend money on other goods besides a huge mortgage.
Of course, the huge danger is that of a government bailout for all the losers after the pop. I’m more worried about *that* than the popping of the housing bubble.
I’m with you. A government (aka taxpayer) bailout of subprime lenders and IO homeowners worries me the most. Sadly, you can almost sense the congressional hearings coming.
Regardless of predatory practices of people in the RE game (on both sides — lender and borrower), whatever happenned to living with the consequences of your actions? I guess there’s not much room for that in the “New Economy”.
“Those are the people that mail in their keys,’ said Christopher Cagan, the information service’s research director. ‘Some of these people don’t have much of a downpayment so they don’t have much to lose.’”
OK CAGAN, ARE YOU A LIAR OR AN IDIOT? THESE PEOPLE WILL BE BANKRUPT SOON, AND FOR ALL YOUR STILL-BORN-AGAIN CHRISTIAN SELF-RIGHTEOUSNESS, THE BEST YOU CAN SAY IS “THEY DON’T HAVE MUCH TO LOSE”??? DEBT SLAVERY IS NOT MUCH FUN, PAL.
P.S. Regarding Cagan’s Other Job:
http://www.rlhymersjr.com/Articles/05-18-03EyeWitnessReports.html
Scary –this guy is slamming Billy Graham of all people for not being evangelical ENOUGH!! Now, there’s a rational-minded clear thinker for you…
Rudekarl,
American households have three salaries — (1) husband, (2) wife, A(3) home appreciation. The third category will continue to provide nearly unlimited spending power — that is, until it doesn’t.
You’re right — this could easily pick up steam again and go for another few years.
If this picks up steam again for another few years i’m leaving the country.
Given the salaries Americans make and what it costs to live here, the US is still one of the best places to be. Where are you going to go?
“Given that most of us on this blog are not bankers/finance industry specialists and we figured out that something was really wrong, why has it taken people who regulate this industry so long to figure out there is danger ahead?”
——————————
We are on the front lines. A unique position in that we see the financial snapshots of borrowers and the loan program they receive.
Our escrow company is on the front lines and being that i’ve experienced working in the last recession/real estate adjustment, I feel that this current market could be particularly painful for many. We just closed a couple uniquely different I/O loans that I may write about soon. But, alas, the 100% financed refi’s and purchase deals continue onward.
Another crazy sampling of Seattle/metro market: New home purchased/closed on 9/05 for $580K. Financed to $550K. Just went on market Feb1 for $799K!!, reduced yesterday to $750K. This is a brand new home folks, where the kitchen oven probably has yet to bake a cake. What are the agents saying to their clients? I don’t understand this.
Whenever I consider making an offer on a property i ALWAYS check the previous sale date and price.
How can someone fork out $750k for a property without doing this? Or perhaps they do and don’t care? Un-freaking-believable!
Ditto.
I was interested in a house in the Los Gatos mountains. Looked it up on domania.com - saw they wanted $100k more than they paid for it one year ago. Sorry, not with my hard saved money.
Curiousity question how does that help you in making your decision. The market is what the market is right. If it sold in December for 650k and it sold in January for 750k and it appraises how does having the previous information help you.
Just a curiosity question. And the scenario above is highly unlikely. I was just trying to give an example
Extending your logic - why look at what the neighboring houses sold for? After all, the market for this house is the market for this house, right?
Any collateral information, whether from neighboring houses, or the sale history of the house provides guidance in terms of what this house is worth vis-a-vis the area averages, and this can be used to make a more informed offer. If it increased in price by 100k over a year, the buyer may wish to question what exactly merited the increase - was it a home improvement, overall appreciation, or did they find an oilwell under their kitchen. Or did it sell for an unreasonably low price last year because of mold damage.
I have purchased many homes at auction and resold them for much more than I paid. Sometimes buyers question the price increase, most do not. The truth is, what matters is what I am asking for the house and what other similar houses are selling for. If the buyers think they are getting a good value they really do not care what I paid.
The same thing will be true in the near future with many seller that think thier home is worth more than it is just because they paid too much for it a year ago.
WHAT THE SELLER PAID DOSE NOT AFFECT THE CURRENT PRICE/VALUE. This applies to both appreciating and depreciating markets.
Gene-
Exactly, I was just trying to get the logic behind it. I don’t know many sellers that’ll take a 100k dip because of mold. When all they need is bleach, brush and a day worker.
At the end of the day it doesn’t matter what the seller wants for it. What matters is how much the lender thinks it worth damn the idiot buyer and his research and the seller’s wishful prayers and the quality of the appraisers ghanja.
I would think that todays retail spending is stricly a blip- I would hardly expect this to continue. Also re: Dr. Cagan- his right wing Christian Billy Graham credentials tend to make his progastications rather suspect.
Faith-based prognostications always are suspect, IMO.
Prepare for whining from homeowners
Not much sympathy from me. When prices were rocketing up you didn’t hear any complaining and those with enough sense to see this bubble for what it is and stayed out or played it a little and then got out have had to endure the arrogance and smug comments of the house owners. Heck, even a new term was coined — “bitter renter”. I’d like to coin a new term — “whining owner”.
How about ’subsidiser’ for those landlords (intended or not) who have to pay money every month into a property which is losing value?
My guess… GDP slows dramatically Q1, goes negative Q2. Bush squeezes Benji to lower rates, which he does, creating short-lived housing bubble “third wind.” It’s not enough to turn the ship, and with the majority of Americans becoming economically frustrated, Dems take over House in the fall and impeachment of the Administration begins in 2007.
I think the GDP first quarter 2006 will easily be over 4%- but will fade by years end to 1.5 to 2.0. The retail sales number was a blowout- but with RE sinking as it is- it will quickly kill retail sales later this year. ‘I think Benjy Boy will raise rates 2 more times- then stop when the economy begins a big slowdown in the last 4-5 months of the year. In 2007 the economy could go negative- then when rates will drop, to prevent the economy from totally tanking- just my thoughts on it all.
I think Peter has is right. Bernanke will raise rates twice, then stop, but not retreat fast enough to stop the 07 recession. Everyone in DC is still drinking the koolaid, so why address a problem no one wants to acknowledge. Of course, attitudes might change if the DC bubble bursts. So far the inventory overhang in NoVa is impressive, but the deluge hasnt started.
If Bernanke raises interest rates, it guarantees two things.. First, it guarantees even greater “shock” as ARMs reset. Second, it guarantees the yield curve remains inverted.
mad tiger wrote:
. Sometimes these “experts” have to be whacked on the head with a baseball bat three or four times before they get it.
That made my day. dosage: 3-4 times ..no more no less.
SidneyPrice
I think this entire economy has been based on an extreme amount of liquidity and debt- same as during the 1920s. The retail sales number today was largely fueld by still excessive liquidity- while adding more debt, and going into savings. At this point you could have 3 bubbles; stocks, houses, and commodities. The storm will break- and with a FED fund rate @ 5% lets see if the inventory is reduced in NOVa DC SD and elsewhere- I think not- and therin is what my above predictions are predicated on.
Don’t know why, but reading about those folks whistling in the dark (”what real estate bubble???”) I am reminded of our local weather forecasters…(live in AZ, land of extreme and unrelenting drought)…they always say, with a big smile, on the 6 o’clock news, “another beautiful day in Phx!”…as if the dismal forecast of no rain is somehow…”beautiful”.
I hope I never confuse optimism with stupidity.
A year or so back here in Oz one of the TV weather forecasters stopped using the word ‘fine’ and started using the word ‘dry’ to describe a sunny day. We’ve had some reasonable falls since then, so now it’s back to ‘fine’.
Much as I think 103% “interest only” loans with teaser rates and balloon payments are silly, and responsible for inflated home prices, I’m not sure I want to see congress doing anything about it. Should we really pass laws against stupidity?
Robert,
Seeing as how the taxpayers are somewhat backing these mortgages, something should be done.