Housing Bubble Bursting?

[Brad Ellis]

Randolph,

So the hedge fund took the wrong position. Even so-called experts get it wrong, but the whole idea of hedging is AVOID the risk. You left that part out. Even after losing a billion on this fund they are stil going to make near a billion overall.

Gas prices dropped 65% and it never made the news the way the housing market is making the news. And the housing market thru July was still going UP. Now I've already said I think we are in the bear market for residential property and that the numbers will probably show a decline in national prices.

Just not very much.

So, here we have one market that go almost no national news outside the places where natural gas investors look- nothing on TV that I saw- nothing that the general public was particularly aware of, anyway, and what- prices dropped like a stone.

Now to the housing market and probably every homeowner (70% +/- of all Americans or near that) knows about the "bubble". It is unavoidable. I expect to see billboards on buses soon! And what are they doing? They are staying put.

Am I concerned about defaults? Of course. Am I worried? Not yet. Everything is happening in that part of things as has been forecast- up 300%. Why am I not worried? Even though the majority of loans from 2005 and 2006 are adjustable, in aggregate, they do not amount to all that much for anyone excpet the sensationalist reporters. Lenders expected it. Investors ecxpected it. Wall St. has discounted it already.

So OK, the gas market was a bubble- I agree. So, are you saying housing must decline in a similar way to be in a bubble?

You know, I'll admit that my actually presenting my targets gives you guys all you need to post all this. If it disagrees with my targets than I must be wrong- is that it?

Bye.

Brad

 

[moh malekpour]

Brad,

Also, you do NOT have to be a legal immigrant to buy a home here.

But how many of them can afford to buy a home. Those that I see cannot afford to buy a hamburger.

Gas prices dropped 65% and it never made the news the way the housing market is making the news. And the housing market thru July was still going UP. Now I've already said I think we are in the bear market for residential property and that the numbers will probably show a decline in national prices.

Just not very much.

So, here we have one market that go almost no national news outside the places where natural gas investors look- nothing on TV that I saw- nothing that the general public was particularly aware of, anyway, and what- prices dropped like a stone.

Now to the housing market and probably every homeowner (70% +/- of all Americans or near that) knows about the "bubble". It is unavoidable. I expect to see billboards on buses soon! And what are they doing? They are staying put.

You cannot compare the stock market with housing market. Oil marekt is a liquid asset that can go up and down at any minutes and can be bought and sold within a second.
Housing asset is a non liquid asset that takes a long time to sell or buy. You never see the housing crash similar to overnight stock crash.
It took the housing market 3-4 long years to get to the current bubble point and will take the same time to deflete and get back to normal.
Declining oil is not a warning news, it is not a sad or bad news. The housing decline is warning news and it is the big part of US economy. it makes a big dent in household spending and economy. Most natational and international investors are depending on it.
No body was counting on oil market bubble ,expect energy investors, to go out and borrow against it and spend but many homeowners were counting on housing market increase and borrowed against it. No one is going to be on street if oil price goes down, many poeple are going to be on street and without a home and job if housing price decline. Housing decline means Economic recession, Oil decline means slightly economic recovery but not much as we saw today with oil at $60, the Dow still declined.

 

[Randolph Kinney]

Brad,

So the hedge fund took the wrong position. Even so-called experts get it wrong, but the whole idea of hedging is AVOID the risk. You left that part out. Even after losing a billion on this fund they are stil going to make near a billion overall.

One fund does not make the market, or does it? Amaranth looks like a fund that was $10 billion in assets and now with $3 billion in losses from natural gas investments coupled with distressed sales of other assets to meet investor's demand to withdraw their funds, is worth around $3.8 billion. And the game is not over. Just imagine yourself as a retiree of San Diego or some other pension system that had invested with Amaranth. There is no such thing as AVOID the risk; you can transfer risk, you can minimize the risk, you can maximize the risk with leverage but there is risk in everything. The risk in any one form of investment is not constant however, it changes with time according to forces that affect that investment. Some people believe that they can AVOID risk by investing in U.S. Treasury debt but they have the risk of inflation, the risk of tax law changes, the risk of interest rates changing adversely.

Gas prices dropped 65% and it never made the news the way the housing market is making the news.

Most people are not interested or don't care about anything until it has an adverse affect on them. Lets look at gasoline prices, for example.

The above chart is the price of unleaded gasoline futures contracts as traded on NYMEX. Notice this is the real price of gas, sans any taxes, sold at wholesale. Were you aware that the price of gas has been headed down, by this much? The news is out there Brad, you just don't want to know it.

So, here we have one market that go almost no national news outside the places where natural gas investors look- nothing on TV that I saw- nothing that the general public was particularly aware of, anyway, and what- prices dropped like a stone.

You have just stated my point, again. You and people in general are not interested in this kind of news until it affects you adversely. Housing is different in that almost 70% of the population owns a house and people can see what is happening in their neighborhood and they talk to their neighbors, especially if they are selling or have bought. It becomes very apparent to people who own houses in So Cal that there is a problem and it does not need to be on TV for them to know about it. People walk into new construction developments and talk to the sales people to get the idea of price and what incentives are being offered. Organization like NAR do a real disservice with the pollyanna portrayal of the housing market. People know better by first hand experience. It is like knowing the price of gasoline at the pump; you know what it is, don't you Brad, you fill your tank once or twice a week.

Am I concerned about defaults? Of course. Am I worried? Not yet. Everything is happening in that part of things as has been forecast- up 300%. Why am I not worried? Even though the majority of loans from 2005 and 2006 are adjustable, in aggregate, they do not amount to all that much for anyone excpet the sensationalist reporters. Lenders expected it. Investors ecxpected it. Wall St. has discounted it already.

I suppose then, I won't see any news items about some investor fund holding sub prime mortgage backed securities or a hedge fund with same having problems like Amaranth.

So OK, the gas market was a bubble- I agree. So, are you saying housing must decline in a similar way to be in a bubble?

Brad, I do not use the word "bubble" to describe market activity. You have just said that you use the word "bubble" to describe market activity. Market price changes can be volatile; a sudden, unexpected, large price movement compared to historical records. Look at the above chart on unleaded gasoline prices. Bubble? Maybe according to your way of looking at data or characterizing same. Correction? I would not characterize the price movement as correcting either. Are investors affected by these price movements? Yeah, some are long and others are short positions. The good news for the consumer is that gas prices at the pump should be declining more so, unless, a state like California passes proposition 87 or slaps another tax on gas so that the state can reduce carbon dioxide. You did see where our attorney general filed suit against all the auto makers for green house gas emissions?

You know, I'll admit that my actually presenting my targets gives you guys all you need to post all this. If it disagrees with my targets than I must be wrong- is that it?

Brad, in case you did not take note of it, we have been posting whatever we like before you joined in on this last round. You can post whatever opinions, articles and data you want. It is free you know.

 

[Randolph Kinney]

Foreclosures spiked in August

Foreclosures spiked in August

Rising payments on adjustable-rate mortgages contribute to 53% jump in foreclosures.

By Les Christie, CNNMoney.com staff writer
September 15 2006: 8:17 AM EDT

NEW YORK (CNNMoney.com) -- With real estate markets slowing and mortgage rates well above levels of recent years, times are getting tougher for homeowners - the number of homes entering into some stage of foreclosure is surging, according to a survey released Wednesday.

In August, 115,292 properties entered into foreclosure, according to RealtyTrac, an online marketplace for foreclosure sales. That was 24 percent above the level in July and 53 percent higher than a year earlier.

California foreclosures are increasing at an even faster annual rate, up 160 percent since last year to 12,506. And the formerly red-hot Nevada market recorded a spike of 24 percent compared with July and a whopping 255 percent increase from August 2005.

Rick Sharga, RealtyTrac's vice president of marketing, says the rising foreclosure numbers are in part the result of rising monthly payments on adjustable-rate mortgages, which have a low introductory interest rate that heads higher after an initial period.

"Usually, foreclosures are a lagging [market] indicator," he says. "But we've never had a situation like this with adjustable-rate mortgages amounting to $400 billion to $500 billion coming up for adjustment over the rest of the year."

These exotic mortgages, which have been issued by lenders at much higher numbers the past few years, default at a higher rate than do fixed-rate mortgages. And sub-prime loans, which are much more common than in the past, have a higher default rate as well.

But, Sharga says, "The real wild card is the nature of the loans themselves. Historically, ARMs were underwritten pretty conservatively. There has been a loosening of standards with lower credit worthiness and smaller down payments."

When housing markets were hot, homeowners could often avoid default through two ready made options, according to Sharga: They could sell to a ready market or they could use the increase through appreciation in their equity to refinance their homes. Increasingly, both those options are evaporating.

 

[Randolph Kinney]

Stock Price Falling - Sub Prime REIT

Aames Investment Corporation (AIC), a mortgage real estate investment trust (REIT), manages a portfolio of subprime residential mortgage loans. The company, through its subsidiary, Aames Financial Corporation, focuses on originating, selling, and servicing residential mortgage loans through both wholesale and retail channels. It offers one-to-four family, residential mortgage loans, and hybrid/adjustable rate mortgage loans.

Aames Financial originated loans through its network of 76 retail branch offices; and 5 regional wholesale operations centers throughout the United States. AIC has elected to be taxed as a REIT under the internal revenue code. As a REIT, the company would not be subject to federal income tax to the extent it distributes 90% of its REIT taxable income to its stock holders. The company was founded in 1954 and is headquartered in Los Angeles, California.

Market perceived risk on sub prime mortgages - high.

Price declining indicates investor's expectation of future events in the sub prime debt market.

 

[Randolph Kinney]

Another Risky REIT - High Dividend Yield

Impac Mortgage Holdings, Inc., through its subsidiaries, operates as a mortgage real estate investment trust (REIT) in the Unites States. The company acquires, originates, sells, and securitizes various mortgages. It also provides repurchase financing to originators of mortgages. The company’s operations include long-term investment, mortgage, and warehouse lending. The long-term investment operations retain adjustable rate and fixed rate Alt-A mortgages that are acquired and originated by its mortgage operations, as well as originate and invest in multifamily mortgages and commercial mortgages that are primarily adjustable rate mortgages. Its long-term mortgage portfolio consists of mortgages held as collateralized mortgage obligations and mortgages held-for-investment. The mortgage operations acquire, originate, sell, and securitize primarily Alt-A adjustable rate mortgages and fixed rate mortgages, as well as subprime mortgages from correspondents, mortgage brokers, and retail customers. The warehouse lending operations provide short-term repurchase facilities to mortgage loan originators by funding mortgages from their closing date until sale to preapproved investors. The company has elected to be treated as a REIT for federal income tax purposes and would not be subject to federal income tax, if it distributes at least 90% of its REIT taxable income to its stockholders. Impac Mortgage Holdings was incorporated in 1995 and is based in Newport Beach, California.

P/E (ttm):2.70
EPS (ttm):3.26
Div & Yield:1.00 (11.20%)

Day's Range:8.77 - 8.98
52wk Range:7.17 - 12.49

 

[Steve Owen]

Looks like I sold my REIT pretty near the top.

Now, if I can just get out of those danged commodites before they tank. (When the local news starts reporting on vandals stealing AC units for the copper you know it's just about time.) :icon_arrow:

 

[Randolph Kinney]

London Metal Exchange
Copper Grade A price graph
Cash Buyer

Steve, it does not look good for copper prices; note lower highs, lower lows - bad trend. Since copper is an industrial metal used in worldwide manufacturing, it bodes for a slow down economically.

 

[moh malekpour]

Looks like I sold my REIT pretty near the top.

Now, if I can just get out of those danged commodites before they tank. (When the local news starts reporting on vandals stealing AC units for the copper you know it's just about time.) :icon_arrow:

It depends on the Fund. There are different Reit funds. Fund that invest on residenitals, sub-prime mortgage, new constructions, commercial and offoce building in US and international. The last fund is doing just fine. The one investing on new construction is the worst.

 

[Randolph Kinney]

Another Hot Market Declines

Market stalls in Oregon

Once the strongest market in the Northwest, the Jackson County, Ore., housing market has cooled considerably in the past few months, according to a Mail Tribune article. There is a significant increase in the number of homes up for sale -- the article quotes one local real-estate agent who refers to the housing market as a "candy store" for buyers. The countrywide inventory of homes on the market has increased 120% from a year ago, the paper says. In August, the median price for a home decreased for the first time since 1984, falling 2% from the year before to $269,900. The drop was greatest in East Medford, where the median price fell 10% to $267,000, the newspaper says. Yet, one local real-estate agent remains optimistic. "In another three to five years there's going to be a big boom," she is quoted as saying.