There will be excitement in Washington today as former WaMu Execs are dragged before Congress kicking and screaming. Now that a Senate panel has had over 18 months to gather information, hopefully some sharp questions will be asked about Washington Mutual's abusive and illegal practices.
Allow me to urge the Congressional panel headed by Senator Carl Levin to refer the entire situation to the Justice Department for criminal prosecution.
'Washington Mutual "was one of the worst," Levin told reporters Monday. "This was a Main Street bank that got taken in by these Wall Street profits that were offered to it."'
Top ex-WaMu executives come before Congress
http://news.yahoo.com/s/ap/20100413/ap_on_bi_ge/us_washington_mutual_investigation
Showing posts with label housing. Show all posts
Showing posts with label housing. Show all posts
Tuesday, April 13, 2010
Tuesday, September 9, 2008
Fannie and Freddie
Obviously the biggest news on Wall Street this week was the Federal Government seizing Fannie Mae and Freddie Mac before both of these mortgage giants failed in a catastrophic manner. These companies have been faltering for many months while looking for lines of credit to bail them out, the government went one step further and completely took over the firms while giving top executives the boot.
The entire situation is also another example of intervention not allowing proper capitalism to play out in the market. The term “moral hazard” comes to mind in which businesses do not take responsibility for their risky behavior; this only entices other businesses to take poor risks. Especially in an environment where it appears that “gains for privatized and losses are socialized”.
While the government takeover may have buffered the mortgage market in the short term and cheered up Wall Street on Monday, the long term picture is much less clear. The U.S. tax payer is going to be stuck with the tab. The question remains on just how big the tab will be – estimates range from $250 billion to $5 trillion. The actual cost is very dependent on how the housing market and associated credit recovers. One recent article outlined how the seizure of these mortgage giant is the taxpayer’s risk (If takeover tanks, we're holding bag).
Similar too many previous government interventions, this action with Freddie and Fannie may help alleviate the short term crisis, but the toll down the road will be much greater and more painful.
The entire situation is also another example of intervention not allowing proper capitalism to play out in the market. The term “moral hazard” comes to mind in which businesses do not take responsibility for their risky behavior; this only entices other businesses to take poor risks. Especially in an environment where it appears that “gains for privatized and losses are socialized”.
While the government takeover may have buffered the mortgage market in the short term and cheered up Wall Street on Monday, the long term picture is much less clear. The U.S. tax payer is going to be stuck with the tab. The question remains on just how big the tab will be – estimates range from $250 billion to $5 trillion. The actual cost is very dependent on how the housing market and associated credit recovers. One recent article outlined how the seizure of these mortgage giant is the taxpayer’s risk (If takeover tanks, we're holding bag).
Similar too many previous government interventions, this action with Freddie and Fannie may help alleviate the short term crisis, but the toll down the road will be much greater and more painful.
Friday, June 13, 2008
Is the Housing Crisis at its apex?
The news cycle continues a downward cycle on housing. Homeowners can not open a newspaper, turn on the news, or browse online without immediately getting hit with the latest negative housing commentary.
On the front page today, US foreclosure filings surge 48 percent in May. The continuous stream of downbeat real estate news may be a sign that the housing market has finally hit the bottom. In the same way, that the endless stream of news on how to get rich speculating on real estate in 2005 marked the real estate market peak. Interestingly, the spin today is how to get wealthy buying real estate foreclosures.
There is continuing statistical evidence that indicates that housing has turned the corner. In many markets, the number of days on the market is falling, along with the amount of unsold inventory. Coupled with the rate of price decreases slowing as buyers and sellers come into alignment of the new expectations regarding the proper value for a house now that the speculative bubble has burst.
The mortgage situation is also easing, as banks have returned to traditional lending standards. Financial institutions now have an improved comfort level for underwriting and re-selling proper quality loans – the credit crunch is slowly moderating.
The summer of 2008 may mark the actual bottom of the real estate plunge on a national level; some markets will face further price correction. However the path out of the crisis across the country will still be lengthy and painful, extending well into 2009.
On the front page today, US foreclosure filings surge 48 percent in May. The continuous stream of downbeat real estate news may be a sign that the housing market has finally hit the bottom. In the same way, that the endless stream of news on how to get rich speculating on real estate in 2005 marked the real estate market peak. Interestingly, the spin today is how to get wealthy buying real estate foreclosures.
There is continuing statistical evidence that indicates that housing has turned the corner. In many markets, the number of days on the market is falling, along with the amount of unsold inventory. Coupled with the rate of price decreases slowing as buyers and sellers come into alignment of the new expectations regarding the proper value for a house now that the speculative bubble has burst.
The mortgage situation is also easing, as banks have returned to traditional lending standards. Financial institutions now have an improved comfort level for underwriting and re-selling proper quality loans – the credit crunch is slowly moderating.
The summer of 2008 may mark the actual bottom of the real estate plunge on a national level; some markets will face further price correction. However the path out of the crisis across the country will still be lengthy and painful, extending well into 2009.
Thursday, May 22, 2008
Countrywide Chairman tells Homeowners they are Disgusting
Countrywide Financial Corp. Chairman Angelo Mozilo reaped $132 million as the mortgage lender got hammered in 2007. It appears this wad of cash has not made him appreciative of his customers; he views homeowners as “disgusting”.
Apparently Mozilo does not know the difference between the reply and forward buttons, setting the stage to send an absurd email response to a homeowner. It does reveal the contempt that the executive holds for homeowners seeking help with unaffordable adjustable-rate mortgages, loans that were pressed on them due to Countrywide’s inappropriate business practices.
As outlined by the government and consumer groups, the mortgage giant has a history of focusing on loans that generate the maximum fees even if they were totally unsuitable for the homeowners, while not properly explaining the terms of the loan. Furthermore many loan agents, as shown in this case once again, made “promises” about refinancing and other loan attributes that would defined in most courts as fraud.
Despite these mortgage companies claiming in Washington that they are taking steps to alleviate the pain of homeowners; the email exchange underlines the stark reality that the mortgage giants actually could give less than two hoots about these mortgage-holders.
Mozilo on distressed borrower's appeal for help: "disgusting"
Countrywide Financial Chairman Angelo Mozilo's e-mail sets off a furor
Apparently Mozilo does not know the difference between the reply and forward buttons, setting the stage to send an absurd email response to a homeowner. It does reveal the contempt that the executive holds for homeowners seeking help with unaffordable adjustable-rate mortgages, loans that were pressed on them due to Countrywide’s inappropriate business practices.
As outlined by the government and consumer groups, the mortgage giant has a history of focusing on loans that generate the maximum fees even if they were totally unsuitable for the homeowners, while not properly explaining the terms of the loan. Furthermore many loan agents, as shown in this case once again, made “promises” about refinancing and other loan attributes that would defined in most courts as fraud.
Despite these mortgage companies claiming in Washington that they are taking steps to alleviate the pain of homeowners; the email exchange underlines the stark reality that the mortgage giants actually could give less than two hoots about these mortgage-holders.
Mozilo on distressed borrower's appeal for help: "disgusting"
Countrywide Financial Chairman Angelo Mozilo's e-mail sets off a furor
Tuesday, May 20, 2008
Your Tax Dollars at work: Housing Bailout
Want to know where $1.7 Billion of your tax dollars are going? Thanks to Congress your money is going directly to bail out speculators and irresponsible lenders.
The Senate leaders moved closer today to passing a bill that would provide $300 billion in direct mortgages to homeowners; requiring a reduction in principal and cost basis so these homeowners will not be under-water. The majority of these homeowners would never have received loans under traditional lending criteria. Many will still go into foreclosure eventually even under a government financing program, leaving taxpayers holding the bag.
This Senate bill will be merged with an earlier bill passed in the House, Congressional analysts have estimated the House version of the bill would cost taxpayers $1.7 billion. It is an open question of how much the Senate measure would tack on to this.
Despite the twisting of words from politicians that Fannie Mae and Freddie Mac are actually “funding” the mortgage measure, the reality is that every last dime of this measure is backed by your tax dollars. So much for moral hazard, the only lesson learned in the housing fiasco will be that it pays to speculate in the housing market for both gamblers and financial institutions. Washington will always be happy to bail you out of your mistakes.
Dodd, Shelby Agree on $300 Billion Mortgage-Insurance Measure
The Senate leaders moved closer today to passing a bill that would provide $300 billion in direct mortgages to homeowners; requiring a reduction in principal and cost basis so these homeowners will not be under-water. The majority of these homeowners would never have received loans under traditional lending criteria. Many will still go into foreclosure eventually even under a government financing program, leaving taxpayers holding the bag.
This Senate bill will be merged with an earlier bill passed in the House, Congressional analysts have estimated the House version of the bill would cost taxpayers $1.7 billion. It is an open question of how much the Senate measure would tack on to this.
Despite the twisting of words from politicians that Fannie Mae and Freddie Mac are actually “funding” the mortgage measure, the reality is that every last dime of this measure is backed by your tax dollars. So much for moral hazard, the only lesson learned in the housing fiasco will be that it pays to speculate in the housing market for both gamblers and financial institutions. Washington will always be happy to bail you out of your mistakes.
Dodd, Shelby Agree on $300 Billion Mortgage-Insurance Measure
Tuesday, May 13, 2008
Recession Proof Cities: Raleigh makes the list
With over 40,000 people moving to the RTP area each year, the Raleigh area has made another list - America's Recession-Proof Cities. Charlotte (NC) also made the top 10 list, as well as many cities in Texas.
Surprising many, San Jose (CA) is also on the recession proof city list due to the strength of the Silicon Valley economy. However Forbes offered the following note of caution regarding San Jose.
And in the San Jose area, the median home sale price is over $830,000. That's 11% higher than it was in the fourth quarter of 2006, helping to land the area at No. 4 on our list. Problem is, that growth has since cooled, and it remains to be seen whether pricey homes coupled with a 5.3% unemployment rate will cause trouble for homeowners this year.
Surprising many, San Jose (CA) is also on the recession proof city list due to the strength of the Silicon Valley economy. However Forbes offered the following note of caution regarding San Jose.
And in the San Jose area, the median home sale price is over $830,000. That's 11% higher than it was in the fourth quarter of 2006, helping to land the area at No. 4 on our list. Problem is, that growth has since cooled, and it remains to be seen whether pricey homes coupled with a 5.3% unemployment rate will cause trouble for homeowners this year.
Thursday, May 8, 2008
Quick Takes: Is the Financial Crunch over? More heads rolling
A slew of articles have appeared recently that the housing-driven credit crunch is over. Merrill Lynch’s Thain is the latest executive to make this claim. Are the financials about to recover or are these characters simply “talking their book” – to state it in Wall Street terms? Thain states that the upcoming losses at banks will be reduced moving forward even though the consumer will exert a drag on the U.S. economy over the next 6-12 months.
Coupled with the Wall Street Journal headline “The Housing Crisis Is Over” – it provides investors with hope that the worst may be in the rear view mirror. Housing may have hit the bottom according to some analysts. “A bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.”
Of course there are pundits who take the other side of the coin, presenting an outlook for housing that shows another 20-30% drop in prices nationwide. This will be coupled with a drop in consumer spending that drives the next wave of the credit crunch further causing chaos at the banks.
Most likely the reality over the next couple years will be situated between the two extremes of rosy forecasts and dismal down-siders. Despite the recent recovery of financial stocks, most investors do not feel confident buying into this sector – most believing that the bounce-back is temporary.
Heads Rolling
The boxes continue to be dropped off in corner offices. The president of bond-rating firm, Moodys, has been sent packing. Brian Clarkson, is viewed as a casualty in the complicity of credit-rating firms in the sub-prime meltdown.
“The resignation comes amid heightened scrutiny by investors, regulators and lawmakers into the role of Moody's and its rivals in the meltdown of complex mortgage-related securities, many of which received top triple-A ratings from the credit raters, only to be downgraded sharply in the past 12 months when the housing downturn worsened.”
Coupled with the Wall Street Journal headline “The Housing Crisis Is Over” – it provides investors with hope that the worst may be in the rear view mirror. Housing may have hit the bottom according to some analysts. “A bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.”
Of course there are pundits who take the other side of the coin, presenting an outlook for housing that shows another 20-30% drop in prices nationwide. This will be coupled with a drop in consumer spending that drives the next wave of the credit crunch further causing chaos at the banks.
Most likely the reality over the next couple years will be situated between the two extremes of rosy forecasts and dismal down-siders. Despite the recent recovery of financial stocks, most investors do not feel confident buying into this sector – most believing that the bounce-back is temporary.
Heads Rolling
The boxes continue to be dropped off in corner offices. The president of bond-rating firm, Moodys, has been sent packing. Brian Clarkson, is viewed as a casualty in the complicity of credit-rating firms in the sub-prime meltdown.
“The resignation comes amid heightened scrutiny by investors, regulators and lawmakers into the role of Moody's and its rivals in the meltdown of complex mortgage-related securities, many of which received top triple-A ratings from the credit raters, only to be downgraded sharply in the past 12 months when the housing downturn worsened.”
Thursday, April 24, 2008
Home Prices: Down 13.3%
In case anyone is not a believer, the statistics firmly demonstrate that home prices not only go up. They can also go down – sharply – in short periods of time. The median price of a home sold in March dropped 13.3 percent when compared to one year ago. This is one of the largest declines ever, exceeding even the 14.4 percent drop in July 1970 when the U.S. was buried under high interest rates and stagflation.
The sales of new homes in March dropped to the lowest level in 16 ½ years, the slowest pace since 1991. The early part of the 90s was not merely memorable for outlandish music videos on MTV but for the S&L crisis that left many sub-divisions incomplete and housing market in absolute chaos. Having a housing market with lower sales then one of the worst real estate periods in recent memory can not be considered a positive sign. Not even NAR (National Association of Realtors) could spin this as good news.
New home sales plunge to lowest level in 16 1/2 years
New home sales plunge to lowest level in 16 1/2 years, prices drop by largest amount in 38 years
The sales of new homes in March dropped to the lowest level in 16 ½ years, the slowest pace since 1991. The early part of the 90s was not merely memorable for outlandish music videos on MTV but for the S&L crisis that left many sub-divisions incomplete and housing market in absolute chaos. Having a housing market with lower sales then one of the worst real estate periods in recent memory can not be considered a positive sign. Not even NAR (National Association of Realtors) could spin this as good news.
New home sales plunge to lowest level in 16 1/2 years
New home sales plunge to lowest level in 16 1/2 years, prices drop by largest amount in 38 years
Wednesday, April 16, 2008
Watch out for Foreclosure Rescue Scams
ABC News recently presented a good segment on avoiding foreclosure rescue scams. There are two types of common scams; the first is where a firm charges you hefty upfront fees to negotiate with your bank and then promptly disappears while doing nothing. The second is where the firm buys your house for below market value, and leases it back to you on unfavorable terms. Eventually the former homeowner can not keep up with the rental payments and is evicted, leaving the firm owning the house.
Catch the ABC News clip:
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=7408730&ch=4226721&src=news
Catch the ABC News clip:
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=7408730&ch=4226721&src=news
Tuesday, April 1, 2008
Triangle Housing Update
When driving around town, the pull-back in the Triangle real estate market is obvious to the casual observer. Houses sit on the market for many months and are still not sold. Land that developers planned to use for the next state of sub-divisions suddenly has large for-sale placards. Some developments have come to a screeching halt with no further construction
Most of the builders and real estate agents are absolutely glum about the local prospects. Many are fleeing to pursue other career opportunities.
Still the local real-estate organizations cheerlead, publicizing that the Triangle market is better off than other regions. Considering the state of real estate nationally, this is merely the equivalent of stating that being trampled by a wildebeest is preferable to being squashed by a hippo.
An N&O article today outlined that sales of the Triangle's existing homes fell for the eighth consecutive month in February. The local foreclosure rate has sky-rocketed while unemployment is now at 5%. Despite over 40,000 people coming to the region each year, most of the new-comers have not been able to unload their existing homes in other markets.
Despite the rise in inventory and drop in sales, the average price has managed to rise 3.1% from a year ago. Despite the attempts of the real estate industry to tout this, the news is actually dismal. Each month the average price rise decreases; shortly the figures will turn negative based on any type of statistical evaluation.
Local realtors are hoping for a strong spring/summer selling season, any type of evaluation of the market over time demonstrates that it is likely that their hopes will be crushed. There are no meaningful figures that indicate the local real estate market will improve during 2008. While the Triangle may not be as negatively impacted as other speculative markets, by no means is the region immune from real estate downside.
Sales of Triangle homes off again
Most of the builders and real estate agents are absolutely glum about the local prospects. Many are fleeing to pursue other career opportunities.
Still the local real-estate organizations cheerlead, publicizing that the Triangle market is better off than other regions. Considering the state of real estate nationally, this is merely the equivalent of stating that being trampled by a wildebeest is preferable to being squashed by a hippo.
An N&O article today outlined that sales of the Triangle's existing homes fell for the eighth consecutive month in February. The local foreclosure rate has sky-rocketed while unemployment is now at 5%. Despite over 40,000 people coming to the region each year, most of the new-comers have not been able to unload their existing homes in other markets.
Despite the rise in inventory and drop in sales, the average price has managed to rise 3.1% from a year ago. Despite the attempts of the real estate industry to tout this, the news is actually dismal. Each month the average price rise decreases; shortly the figures will turn negative based on any type of statistical evaluation.
Local realtors are hoping for a strong spring/summer selling season, any type of evaluation of the market over time demonstrates that it is likely that their hopes will be crushed. There are no meaningful figures that indicate the local real estate market will improve during 2008. While the Triangle may not be as negatively impacted as other speculative markets, by no means is the region immune from real estate downside.
Sales of Triangle homes off again
Sunday, March 9, 2008
So how many homeowners will be underwater?
Sometimes you have to wonder if press headlines indicate the bottom of the economic downside in some sort of contrary manner. The most recent incarnation, It's So Much Worse Than You Think, actually focuses on the number of homeowners that will have negative equity as housing prices continue to fall.
As outlined in the article, currently housing prices are down 8.4% placing 13.5% of homeowners in a situation where they have negative equity in their homes. The downside of housing prices is likely to reach 15% without a recession and 30% with a recession. A 30% decrease in housing prices would leave 39% of U.S. homeowners with negative equity in their homes.
Owning more money than the home is worth; many of these homeowners may simply walk away from their homes. We have seen this occur with local housing crashes in the past, such as Texas during the oil bust. Now the table is set for a nationwide incarnation of this scenario.
This of course will place the banks under additional stress that normally plan for a mere 1 or 2% default rate; rather than the 5 or 6% default rate from prime loans which would be seen with this type of recession.
On one hand the article may be on target that vicious cycle of additional housing driven downside remains; on the other hand it could serve as a signal that it is time to start buying rental housing on the cheap.
As outlined in the article, currently housing prices are down 8.4% placing 13.5% of homeowners in a situation where they have negative equity in their homes. The downside of housing prices is likely to reach 15% without a recession and 30% with a recession. A 30% decrease in housing prices would leave 39% of U.S. homeowners with negative equity in their homes.
Owning more money than the home is worth; many of these homeowners may simply walk away from their homes. We have seen this occur with local housing crashes in the past, such as Texas during the oil bust. Now the table is set for a nationwide incarnation of this scenario.
This of course will place the banks under additional stress that normally plan for a mere 1 or 2% default rate; rather than the 5 or 6% default rate from prime loans which would be seen with this type of recession.
On one hand the article may be on target that vicious cycle of additional housing driven downside remains; on the other hand it could serve as a signal that it is time to start buying rental housing on the cheap.
Friday, February 29, 2008
Quick Takes: UK Real Estate Update, Consumers Stall, Vista Anyone?
UK Real Estate Update
Real Estate issues are not only a prevalent issue in the U.S., home prices in the United Kingdom fell for the fourth straight month in February, dropping 0.5% from January. Mortgage approval rates remain at the lowest level in nine years as recent rate cuts have not been passed along to mortgage consumers; factors that are likely to cause the continued decline of the housing market.
Similar to the U.S., the U.K. housing boom “powered consumer spending over the past decade”; the decline in real estate prices is likely to cause further consumer economic fallout.
U.K. House Prices Fall in Worst Streak Since 2000
Consumer Spending Stalls
The stall in consumer spending is a likely sign that a recession is in the outlook. Consumer spending accounts for over two-thirds of the economy in the U.S.; the second month of a flat reading is not a positive sign.
Consumer spending stalls in January
Data seen raising new concerns about a possible recession
http://www.msnbc.msn.com/id/23406764/
Who wants this Operating System?
Microsoft plans to cut prices of its Windows Vista operating system with the Service Pack 1 release. Vista has not been well received and still accounts for less than 10% of the installed Windows operating systems. Similar to many others, after experiencing Vista on a PC purchased for my family – my first step was to install Windows XP.
Fortunately, Microsoft will continue to sell Windows XP until June 2008, delaying a forced transition to Vista. Despite hyping the figure of 100 million licenses sold of Vista (many of them uninstalled), and pointing to the strong earnings component related to these sales (many charged for and not used on new pre-purchased systems) – analysts need to start questioning the actual relevance of Vista and if Microsoft will take the necessary measures beyond a price reduction to improve actual uptake.
Microsoft cuts Vista prices to urge upgrades
Real Estate issues are not only a prevalent issue in the U.S., home prices in the United Kingdom fell for the fourth straight month in February, dropping 0.5% from January. Mortgage approval rates remain at the lowest level in nine years as recent rate cuts have not been passed along to mortgage consumers; factors that are likely to cause the continued decline of the housing market.
Similar to the U.S., the U.K. housing boom “powered consumer spending over the past decade”; the decline in real estate prices is likely to cause further consumer economic fallout.
U.K. House Prices Fall in Worst Streak Since 2000
Consumer Spending Stalls
The stall in consumer spending is a likely sign that a recession is in the outlook. Consumer spending accounts for over two-thirds of the economy in the U.S.; the second month of a flat reading is not a positive sign.
Consumer spending stalls in January
Data seen raising new concerns about a possible recession
http://www.msnbc.msn.com/id/23406764/
Who wants this Operating System?
Microsoft plans to cut prices of its Windows Vista operating system with the Service Pack 1 release. Vista has not been well received and still accounts for less than 10% of the installed Windows operating systems. Similar to many others, after experiencing Vista on a PC purchased for my family – my first step was to install Windows XP.
Fortunately, Microsoft will continue to sell Windows XP until June 2008, delaying a forced transition to Vista. Despite hyping the figure of 100 million licenses sold of Vista (many of them uninstalled), and pointing to the strong earnings component related to these sales (many charged for and not used on new pre-purchased systems) – analysts need to start questioning the actual relevance of Vista and if Microsoft will take the necessary measures beyond a price reduction to improve actual uptake.
Microsoft cuts Vista prices to urge upgrades
Thursday, February 14, 2008
Home Prices Fall and Foreclosures Achieve New Heights
Investors only have to tune into the evening news to understand that foreclosures are reaching new dismal highs while home prices are quickly diving. A couple of new figures came out recently which reinforce how badly the housing market struggled in the last quarter of 2007.
The National Association of Realtors announced that home prices fell in 77 U.S. Metro areas in the fourth quarter. “The median sale price of a U.S. home dropped 5.8 percent to $206,200 in the last three months of 2007 from $219,000 in the same period of 2006. Prices fell in 77 of 150 metropolitan areas, the most since the group began tracking values in 1979. The decline was 10 percent or more in 16 metro areas, the Chicago-based realtors group said.” Hard to find any upside with this type of report, nor did NAR attempt to provide any. The situation facing the real estate market in 2008 is even more bleak.
The Rust and Sun Belt cities lead the U.S. in ‘07 foreclosures according the RealtyTrac. Of the 100 largest U.S. cities surveyed, 86 reported higher foreclosure rates. Naturally the areas in the country such as California and Florida that lead the country in the real estate boom have some of the highest rates in the bust. The other side of the coin is that cities facing overall economic problems like Detroit landed top spots. Many of the top cities have more than 4% of their homes in foreclosure.
Certainly housing situation is not going to improve much during the first six months of 2008. The slump is likely to cause further turmoil at new inflection points in the economy as the credit debacle flows over into the consumer and auto loan market. Many businesses as diverse as local banks to landscaping firms are likely to be vulnerable in 2008.
The National Association of Realtors announced that home prices fell in 77 U.S. Metro areas in the fourth quarter. “The median sale price of a U.S. home dropped 5.8 percent to $206,200 in the last three months of 2007 from $219,000 in the same period of 2006. Prices fell in 77 of 150 metropolitan areas, the most since the group began tracking values in 1979. The decline was 10 percent or more in 16 metro areas, the Chicago-based realtors group said.” Hard to find any upside with this type of report, nor did NAR attempt to provide any. The situation facing the real estate market in 2008 is even more bleak.
The Rust and Sun Belt cities lead the U.S. in ‘07 foreclosures according the RealtyTrac. Of the 100 largest U.S. cities surveyed, 86 reported higher foreclosure rates. Naturally the areas in the country such as California and Florida that lead the country in the real estate boom have some of the highest rates in the bust. The other side of the coin is that cities facing overall economic problems like Detroit landed top spots. Many of the top cities have more than 4% of their homes in foreclosure.
Certainly housing situation is not going to improve much during the first six months of 2008. The slump is likely to cause further turmoil at new inflection points in the economy as the credit debacle flows over into the consumer and auto loan market. Many businesses as diverse as local banks to landscaping firms are likely to be vulnerable in 2008.
Friday, January 25, 2008
Wrap Up: A Wild Week
An astounding week on Wall Street with a wild roller-coaster ride in the market. The market started deeply down on Tuesday following significant drops in world markets on Monday, which was the MLK holiday in the U.S. By the end of the week, the markets have recovered most of their losses while rising in significant counter-trend rallies on Tuesday and Wednesday.
The business news flow this week was no less shocking; starting with the story about the lack of risk control at Societe Generale. This French bank revealed that a low level trader was able to cost the firm $7.2 Billion in unauthorized bets on stock markets. More interesting, the trader did not make any money off of his actions.
In the meantime, the 31-year-old employee at the center of the situation, Jerome Kerviel, has magically disappeared according to most press reports. Some reports claim he has fled while others state his lawyers say he will be available for questioning.
The major banks and brokerages have constantly harped on how they have improved risk control over time. Once again this appears to be a fantasy! First the CDO / SIV crisis, and now a situation where a low-level employee has perpetuated the largest financial fraud in history by an individual.
The absurdity of the situation has led many pundits to question if Societe Generale is being truthful about the situation, or if this “news” has just been cooked up to cover their CDO losses. It seems ludicrous that an employee would be able to by-pass even basic risk control systems at this level of magnitude. Especially since the sell-off earlier this week in European markets is now being tagged to the need of Societe Generale to exit these unauthorized positions.
In the meantime, the housing situation in the U.S. does not appear to be improving. Two key reports underlined the dismal condition of real estate. The sales of single family homes dropped by the largest amount in 25 years. The median price of a home fell for the first time in four decades, dropping 1.8% to $217K. The entire country has not experienced a decline in home prices for an entire year since the Great Depression.
The outlook is not pretty; the housing bottom is not likely to be reached for many months. In some reports, prices nationwide will fall by another 5%. This implies that the drop in hot speculative markets will be much greater. Lasting Housing Woes Paint a Grim Economic Picture
Hoping to improve the economy, law makers in Washington implemented a stimulus plan that will provide most tax payers an additional $600 to $1200 in their refund. The hope is that people will spend this money and stimulate the economy rather than simply paying off debt or shoving it into their bank account. The concept seems counter-intuitive, but with a consumption driven economy it is understandable. Some press questions if the American consumer is too strapped to spend.
Offsetting the news from Washington, the unemployment rate continues to increase. The major banks were at the front of the employment press; Citi announcing more cuts, Goldman Sach’s about to axe 1000, Morgan Stanley trimming another 1000, and the expectation that Bank of America & others will add to this trend.
The Bond insurance situation continues to play out with regulators from New York and other states urging that institutions rescue these firms which insure most municipal bonds. Most states are very concerned because their ratings on existing bonds will dive and cost to borrow additionally money will rise immediately when these insurers become insolvent. Wilbur Ross may be stepping up to purchase Ambac (ABK). MBIA Inc (MBI) appears to be treading water hoping for a deal of some type. ACA Capital Holdings (ACAH.PK) has a mere month to live after receiving a forbearance extension to February 19th from its creditors.
The question remains if the market has arrived at the bottom. Stock markets normally approach the bottom in a very volatile manner, with many violent upside counter-rallies over a period of months. Usually the bottom is re-tested multiple times before a new significant uptrend starts. This can be seen by studying the charts of past troughs in the markets. This also implies that the probability is that this week has not been the local bottom for the market; in light of weakening economic conditions there will be a further slide over the upcoming months. Only time will tell how the entire situation plays out.
In the meantime, investors should focus on the long term with their retirement savings and not attempt to trade the market. Maintain a properly diversified portfolio and understand that the stock market moves in cycles… and in due time will bounce back.
The business news flow this week was no less shocking; starting with the story about the lack of risk control at Societe Generale. This French bank revealed that a low level trader was able to cost the firm $7.2 Billion in unauthorized bets on stock markets. More interesting, the trader did not make any money off of his actions.
In the meantime, the 31-year-old employee at the center of the situation, Jerome Kerviel, has magically disappeared according to most press reports. Some reports claim he has fled while others state his lawyers say he will be available for questioning.
The major banks and brokerages have constantly harped on how they have improved risk control over time. Once again this appears to be a fantasy! First the CDO / SIV crisis, and now a situation where a low-level employee has perpetuated the largest financial fraud in history by an individual.
The absurdity of the situation has led many pundits to question if Societe Generale is being truthful about the situation, or if this “news” has just been cooked up to cover their CDO losses. It seems ludicrous that an employee would be able to by-pass even basic risk control systems at this level of magnitude. Especially since the sell-off earlier this week in European markets is now being tagged to the need of Societe Generale to exit these unauthorized positions.
In the meantime, the housing situation in the U.S. does not appear to be improving. Two key reports underlined the dismal condition of real estate. The sales of single family homes dropped by the largest amount in 25 years. The median price of a home fell for the first time in four decades, dropping 1.8% to $217K. The entire country has not experienced a decline in home prices for an entire year since the Great Depression.
The outlook is not pretty; the housing bottom is not likely to be reached for many months. In some reports, prices nationwide will fall by another 5%. This implies that the drop in hot speculative markets will be much greater. Lasting Housing Woes Paint a Grim Economic Picture
Hoping to improve the economy, law makers in Washington implemented a stimulus plan that will provide most tax payers an additional $600 to $1200 in their refund. The hope is that people will spend this money and stimulate the economy rather than simply paying off debt or shoving it into their bank account. The concept seems counter-intuitive, but with a consumption driven economy it is understandable. Some press questions if the American consumer is too strapped to spend.
Offsetting the news from Washington, the unemployment rate continues to increase. The major banks were at the front of the employment press; Citi announcing more cuts, Goldman Sach’s about to axe 1000, Morgan Stanley trimming another 1000, and the expectation that Bank of America & others will add to this trend.
The Bond insurance situation continues to play out with regulators from New York and other states urging that institutions rescue these firms which insure most municipal bonds. Most states are very concerned because their ratings on existing bonds will dive and cost to borrow additionally money will rise immediately when these insurers become insolvent. Wilbur Ross may be stepping up to purchase Ambac (ABK). MBIA Inc (MBI) appears to be treading water hoping for a deal of some type. ACA Capital Holdings (ACAH.PK) has a mere month to live after receiving a forbearance extension to February 19th from its creditors.
The question remains if the market has arrived at the bottom. Stock markets normally approach the bottom in a very volatile manner, with many violent upside counter-rallies over a period of months. Usually the bottom is re-tested multiple times before a new significant uptrend starts. This can be seen by studying the charts of past troughs in the markets. This also implies that the probability is that this week has not been the local bottom for the market; in light of weakening economic conditions there will be a further slide over the upcoming months. Only time will tell how the entire situation plays out.
In the meantime, investors should focus on the long term with their retirement savings and not attempt to trade the market. Maintain a properly diversified portfolio and understand that the stock market moves in cycles… and in due time will bounce back.
Thursday, December 27, 2007
Triangle Housing Bucks National Trend
As of the third quarter, the home prices in the Triangle were up over 7% from the previous year. The final tally for 2007 in the region is expected to be a price rise of at least 5% year over year. While the housing rise has cooled in the most recent quarter, the Triangle area has matched the trend of neighboring Charlotte in bucking the nationwide real estate price drop.
A recent Fortune magazine article predicted that the RTP area housing prices will likely drop 14.7% over the next five years based on rent to price ratios. However there is an expectation that the large number of people moving to the region to take advantage of the strong job market will buoy the local housing picture. Many real estate specialists are expecting 2008 to be flat in the Triangle, but this is still a much better outlook than most metro areas in the nation that are expecting significant drops in the year ahead.
Prices holding up in Triangle
A recent Fortune magazine article predicted that the RTP area housing prices will likely drop 14.7% over the next five years based on rent to price ratios. However there is an expectation that the large number of people moving to the region to take advantage of the strong job market will buoy the local housing picture. Many real estate specialists are expecting 2008 to be flat in the Triangle, but this is still a much better outlook than most metro areas in the nation that are expecting significant drops in the year ahead.
Prices holding up in Triangle
Sunday, December 23, 2007
Time to Ask for a Reassessment?
For homeowners who purchased at recent peaks, it may be time to ask your local property tax authority for a reassessment. This is especially true for homes in very pricey areas such as Santa Clara County in California, as well as locations where home prices have tumbled greatly such as Florida. Most communities have a different appeals process, the best way to find out how the reassessment procedure works in your area is to call the local government office. A number of homeowners land up saving hundreds if not thousands in property taxes simply by filing some appeals paperwork.
Taxes Are Reassessed in Housing Slump
http://www.nytimes.com/2007/12/23/us/23tax.html?_r=1&th&emc=th&oref=slogin
Taxes Are Reassessed in Housing Slump
http://www.nytimes.com/2007/12/23/us/23tax.html?_r=1&th&emc=th&oref=slogin
Wednesday, December 19, 2007
Quick Takes: The biggest crisis of the last half century?
We can thank the mortgage industry and the wizards on Wall Street for brewing the huge subprime credit crisis. Smug in their beliefs that real estate values always rise nationwide, people always pay their mortgages, and that generating new finanical vehicles will eliminate risk, a catastrophe has been created. One that will be with us for years probably causing $6T or more in housing wealth to evaporate.
The Wall Street Journal provides their perspective:
U.S. Mortgage Crisis Rivals S&L Meltdown
http://finance.yahoo.com/loans/article/104050/US-Mortgage-Crisis-Rivals-S&L-Meltdown
The Wall Street Journal provides their perspective:
U.S. Mortgage Crisis Rivals S&L Meltdown
http://finance.yahoo.com/loans/article/104050/US-Mortgage-Crisis-Rivals-S&L-Meltdown
Friday, December 14, 2007
Where is the Real Estate Bottom?
Most falling real estate markets follow a standard historical pattern. The first year is the year of the slide, while the bottom is established during the second year. Clearly 2007 established itself as the year of the slide which means the bottom for most local markets should occur in 2008.
This is good news for many homeowners; if they can just make it through 2008 then they are likely to start seeing their home prices increase in 2009. However for owners that must sell during the upcoming year, the real estate market experience is likely to be even more painful than those who are marketing their homes today.
A good number of seasoned real estate investors are hunting for the market bottom; many expect to find it during 2008 and start purchasing select properties at low prices. However these types of experts represent a minority of the overall set of speculators, but they normally serve as a great benchmark for establishing the market trough. When homeowners start seeing articles in the press highlighting these type of investors than they can start to fell more comfortable about their real estate prospects. Nonetheless owners should understand that the recovery from the bottom is normally slow and requires many years. Usually it takes eight years for a real estate market to recover to its pre-collapse prices; which is still bad news for those who purchased at the peak.
Will Home Prices Hit Bottom in 2008? Yes, But . . .
http://finance.yahoo.com/real-estate/article/104024/Will-Home-Prices-Hit-Bottom-in-2008-Yes-But
This is good news for many homeowners; if they can just make it through 2008 then they are likely to start seeing their home prices increase in 2009. However for owners that must sell during the upcoming year, the real estate market experience is likely to be even more painful than those who are marketing their homes today.
A good number of seasoned real estate investors are hunting for the market bottom; many expect to find it during 2008 and start purchasing select properties at low prices. However these types of experts represent a minority of the overall set of speculators, but they normally serve as a great benchmark for establishing the market trough. When homeowners start seeing articles in the press highlighting these type of investors than they can start to fell more comfortable about their real estate prospects. Nonetheless owners should understand that the recovery from the bottom is normally slow and requires many years. Usually it takes eight years for a real estate market to recover to its pre-collapse prices; which is still bad news for those who purchased at the peak.
Will Home Prices Hit Bottom in 2008? Yes, But . . .
http://finance.yahoo.com/real-estate/article/104024/Will-Home-Prices-Hit-Bottom-in-2008-Yes-But
Monday, December 10, 2007
The National “Rah-Rah” Association is at it again
While the rest of the nation is facing the cold, harsh reality of the housing downturn, the NAR (National Associations of Realtors) is back in hype mode while trying support their membership. The trade group lifted its outlook for 2008 home sales and insisted the market is stabilizing. In fact its outlook for housing in 2008 suddenly appears to be outright rosy considering the current carnage.
Most other market analysts are not buying the NAR perspective however. “Numerous other economists, however, are far less optimistic than the trade group. They predict weak sales and falling prices through next year and beyond and emphasize that those problems could worsen if the economy sinks into a recession.”
The reality is that the U.S. is at least 18 months away from a housing recovery. Both home prices and sales will slide significantly in 2008 according to most economists that evaluate the sector. It will take more than NAR’s rose-tinted glasses to drag the housing market out of the abyss.
Realtors' Forecast Bucks Common Wisdom (not to mention common sense)
http://biz.yahoo.com/ap/071210/housing_forecast_realtors.html
Most other market analysts are not buying the NAR perspective however. “Numerous other economists, however, are far less optimistic than the trade group. They predict weak sales and falling prices through next year and beyond and emphasize that those problems could worsen if the economy sinks into a recession.”
The reality is that the U.S. is at least 18 months away from a housing recovery. Both home prices and sales will slide significantly in 2008 according to most economists that evaluate the sector. It will take more than NAR’s rose-tinted glasses to drag the housing market out of the abyss.
Realtors' Forecast Bucks Common Wisdom (not to mention common sense)
http://biz.yahoo.com/ap/071210/housing_forecast_realtors.html
Friday, December 7, 2007
The Mortgage Plan
The administration rolled out its mortgage initiative late this week. The plan will help 340,000 mortgage holders whose teaser rates are due to reset. Another 60,000 sub-prime customer are already so far behind on payments that they will not qualify for the plan. The standards for inclusions in the plan require that “the loan must have been originated between January 1, 2005 and July 31, 2007 when underwriting standards were at their worst. They must also have been made for at least 97 percent the value of the home, and the borrower cannot be more than 30 days delinquent.” The rate freeze scheme would lock in the initial teaser rates for a period of five years, avoiding payment increases for homeowners.
With an estimated 1.4 million homeowners expected to enter foreclosure in 2008, any plan that will possibly enable nearly a quarter of the houses to escape the situation is likely to be received positively on Wall Street. Reducing the number of foreclosures by 25% clearly reduces the stress on mortgage-backed derivative debt.
However the immediate upbeat reaction ignores the reality that the bulk of outstanding mortgages are still likely to flounder. A report released today shows that mortgage delinquencies have risen to a 20 year high. One in five adjustable-rate sub-prime loans had late payments in the quarter. The deterioration of the housing situation is accelerating. The U.S. is likely to establish new standards for peaks in foreclosures, crests that even exceed those in the 1930s.
U.S. Mortgage Delinquencies Rise to 20-Year High
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNNNcUnDqS_g&refer=worldwide
Subprime plan seen reaching 340,000
http://www.reuters.com/article/ousiv/idUSN0731666420071207
With an estimated 1.4 million homeowners expected to enter foreclosure in 2008, any plan that will possibly enable nearly a quarter of the houses to escape the situation is likely to be received positively on Wall Street. Reducing the number of foreclosures by 25% clearly reduces the stress on mortgage-backed derivative debt.
However the immediate upbeat reaction ignores the reality that the bulk of outstanding mortgages are still likely to flounder. A report released today shows that mortgage delinquencies have risen to a 20 year high. One in five adjustable-rate sub-prime loans had late payments in the quarter. The deterioration of the housing situation is accelerating. The U.S. is likely to establish new standards for peaks in foreclosures, crests that even exceed those in the 1930s.
U.S. Mortgage Delinquencies Rise to 20-Year High
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNNNcUnDqS_g&refer=worldwide
Subprime plan seen reaching 340,000
http://www.reuters.com/article/ousiv/idUSN0731666420071207
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