Housing Bubble Bursting?

[Randolph Kinney]

I have done some research at the county recorder site:

http://arcc.co.san-diego.ca.us/arcc/services/grantorgrantee/search.aspx

I have collected data for Default notice and Notice of Trustee Sale going back to 1990. It is a real eye opener. The notice of trustee sales are climbing so rapidly this year and in particular the last 4 months. For the month of September 2006, the number is around 373 for notice of trustee sale. Going back in time and looking at the month of September for notice of trustee sale, it looks as follows:

Sept 1990 167
Sept 1991 289
Sept 1992 354
Sept 1993 490
Sept 1994 384
Sept 1995 397
Sept 1996 482
Sept 1997 383
Sept 1998 294
Sept 1999 186
Sept 2000 130
Sept 2001 122
Sept 2002 166
Sept 2003 104
Sept 2004 83
Sept 2005 126
Sept 2006 373

From OFHEO for San Diego MSA, price index history by quarter 1991 through 1996:

1991 1 0.52
1991 2 -0.44
1991 3 -1.66
1991 4 -0.09
1992 1 -0.53
1992 2 -0.65
1992 3 -0.79
1992 4 -2.22
1993 1 -3.09
1993 2 -3.16
1993 3 -3.72
1993 4 -3.11
1994 1 -2.76
1994 2 -3.83
1994 3 -3.98
1994 4 -4.73
1995 1 -4.17
1995 2 -1.53
1995 3 0.31
1995 4 1.29
1996 1 1.74
1996 2 -0.68
1996 3 -1.66
1996 4 -0.66

My conclusion is that there is going to be some price declines that compare to previous years of similar quantity of notice of trustee sale. And, it may be a lot worse this time because unlike the previous years, San Diego is not having base closing or reduction in defense spending but the notice of trustee sale is on par with that time era. These notices of trustee sales appear to be related to 100% financing and subprime loans.

 

[moh malekpour]

Bernanke says substantial housing downturn or substantial housing correction

What is the different between substantial housing downturn or substantial housing correction and housing crash or bust?
http://www.bloomberg.com/apps/news?pid=20601087&sid=ah6TAhIScG0M&refer=home
Bernanke Says `Substantial' Housing Downturn Is Slowing Growth

By Craig Torres and Scott Lanman

Oct. 4 (Bloomberg) -- The U.S. housing market is in the midst of a ``substantial correction'' that will lop about a percentage point off economic growth in the second half and remain a drag on expansion next year, Federal Reserve Chairman Ben S. Bernanke said today.

The Fed chairman also said in response to questions after a speech in Washington that the central bank remains ``concerned about inflation'' because it remains above ``what we would consider price stability.''

Taken together, the remarks may reaffirm the view of some investors that the central bank will keep the benchmark lending rate unchanged at 5.25 percent for the remainder of the year.

``There is currently a substantial correction going on in the housing market,'' Bernanke said. The decline residential housing construction is one of the ``major drags that is causing the economy to slow.''

The Federal Open Market Committee has left the federal funds rate unchanged since August, following two years of increases, betting on an internal forecast that slowing growth and a decline in energy prices will reduce inflation.

Part of the Fed's forecast appears to be panning out. The economy expanded at a 2.6 percent annual rate in the second quarter, down from a 5.6 percent pace in the first three months. Crude oil prices are down 9 percent from a year ago.

Housing Construction

Service industries in the U.S. expanded at the slowest pace in more than three years in September as the housing slump deepened. The Institute for Supply Management's index of non- manufacturing businesses fell to 52.9, the lowest since April 2003. Home construction fell at an annual rate of 11.1 percent in the second quarter, the biggest decline since the same three months in 1995, the government said last week.

Still, inflation has remained stubbornly high, rising 2.5 percent for the 12-month period ending Aug. 31. That's above Bernanke's ``comfort zone'' of a 1 percent to 2 percent rise in the personal consumption expenditures price index minus food and energy.

``Inflation, honestly, right now is too high,'' Kansas City Fed President Thomas Hoenig said in a speech in Albuquerque, New Mexico yesterday. The current level of the Fed's benchmark rate is ``modestly restrictive,'' he added. ``It's not tight, but modestly restrictive.''

Fed Vice Chairman Donald Kohn will speak on the economy later today to the New York University Money Marketeers Club.

Bernanke also said the Fed should share its economic outlook and the risks that surround that outlook, and called the central bank's communication strategy ``a work in progress.''

 

[JSmith43]

I haven't contributed anything for a while, but a LO friend of mine that is a number cruncher and a bit of a technical analyst sent me a graph with someone's theory superimposed on the trend line for 30 year mortgages.

It is cute & plausible. Of course, trend lines are backward looking and if you are on a hilly road looking backward you don't see brick walls or cliffs just ahead

 

[moh malekpour]

I haven't contributed anything for a while, but a LO friend of mine that is a number cruncher and a bit of a technical analyst sent me a graph with someone's theory superimposed on the trend line for 30 year mortgages.

It is cute & plausible. Of course, trend lines are backward looking and if you are on a hilly road looking backward you don't see brick walls or cliffs just ahead

Who are those investors who buy those higher price 10 year T Bills with low yields. What are they thinking? the yield for 3 month bills was 4.94% for 10 year T bills was 4.58%. You got .36 between 3 month and 10 year and .67 between 3 month and fed short rate. What that inversion tells those investors? How do they know that in the 10 year T B price is going to go higher in the long run and its yield is going to go lower than what is right now?
We got bull stock market, bull bond market and bear real estate market. 30 years fix mortgage rate is as low as it was a year or two ago. Why it doesn't move up the real estate bear market?
Do you think if the rate goes even lower than this, the real estate market is going to recover? I don't think so. It seems that the oil market is the mover and shaker of the stock market. The market cannot make its own mind.

 

[JSmith43]

Who are those investors who buy those higher price 10 year T Bills with low yields. What are they thinking? the yield for 3 month bills was 4.94% for 10 year T bills was 4.58%.

The investors that desire a safe parking place for money clearly are passing up short term yield advantage for a long term rate lock in. On average, they think the spiff for short term securities will not last and they want to lock in 10 years of return.

Some bond buyers are marginally motivated to be long term safe parking investors. If they see sustained corporate profits and/or sustained dividend payments/stock appreciation, they may jump ship to the stock and/or junk bond markets as bond rates go lower.

Read the chart, Moh. We're going negative in 15 years

I think there is a hard bottom somewhere around 3%. It is special programming built into HP calculators since the '70's. If investors plug in rates of return approaching zero, there will be massive malfunctions of HP 12 C's throughout the nation . Y2K was nothing

There is not enough penetration of 100% financing, negative amortization, or equity collapse to panic the expanding base of buyers needing shelter as long as the job market holds together and we don't do something stupid, like mandate a disorderly exodus of illegal aliens over a highly compressed timeframe.

So, the lower rates will shore up markets that have collapsed a bit, buyers will be scared to act imprudently for a year or two (make that 3-6 months)and many potential sellers will forever remember trying to sell their home unsuccessfully for 6 months. Control rods have been lowered into a reactor that was overheating & a semi-orderly correction is taking place. JMHO.

California, Nevada, Arizona and Florida and home investors in general, don't count....except for Florida Nov 7th

 

[moh malekpour]

Moody's economy study of house price decline in some areas

http://sev.prnewswire.com/real-estate/20061004/NYW03804102006-1.html
Moody's Economy.com Study: Housing Market Downturn in Full Swing


WEST CHESTER, Pa., Oct. 4 /PRNewswire-FirstCall/ -- Led by the Southwest coast of Florida, house prices in many U.S. metropolitan areas could see double-digit declines in the coming months and even into 2009, according to a new study that assesses the severity of the unfolding downturn.

Sharp declines, some nearing 20 percent, are forecast by a new study, "Housing at the Tipping Point," released today by Moody's Economy.com of West Chester, Pa. The greatest price drops, apart from Southwest Florida, are forecast in many metropolitan areas of California, Arizona, Nevada, and the greater Washington, D.C., and Detroit areas.

"The housing market downturn is in full swing," said Mark Zandi, chief economist of Moody's Economy.com, who added that "to date, the housing downturn has been generally orderly and is characterized best as a correction and not a crash. Whether the housing correction unravels into a crash will largely depend on the secondary or indirect effects from the housing downturn."

Those effects include the impact on the job market, on consumer spending via the housing wealth effect, on lending institutions, and on the global financial system as mortgage credit quality weakens.

"The larger these effects, the more serious the blow to the broader economy, which, in turn, will reverberate back onto the housing market," said Celia Chen, director of housing economics at Moody's Economy.com, adding, "So far, the indirect effects from the housing downturn have been very modest."

The unwinding of the long housing boom began in the summer of 2005, when interest rates began to creep up. While the long-term interest rates that govern the costs of fixed-rate mortgages have risen modestly, short-term rates and adjustable mortgage rates have risen substantially more. The housing downturn has become more dramatic with the departure from the market of the "flipper," the so-called buyers who intend to re-sell their properties quickly at a profit in an environment of rising prices.

"All of this has seemingly occurred overnight," said Zandi.

The study's results are drawn from mathematical models that incorporate many types of data, including housing prices and statistics on supply and demand, affordability, employment, and population movement.

Moody's Corporation (NYSE: MCO) is the parent company of Moody's Investors Service, a leading provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets, Moody's KMV, a leading provider of credit risk processing and credit risk management products for banks and investors in credit-sensitive assets serving the world's largest financial institutions, and Moody's Economy.com, a provider of economic research and data services. The corporation, which reported revenue of $1.7 billion in 2005, employs approximately 2,900 people worldwide and maintains offices in 22 countries. Further information is available at http://www.moodys.com/.

Metropolitan Areas That Will Suffer House Price Declines

Peak-to-Trough Peak Trough
% House Price Decline Year/Quarter Year/Quarter

Cape Coral, FL -18.6 05:4 07:2
Reno, NV -17.2 05:4 08:4
Merced, CA -16.1 05:4 09:2
Stockton, CA -15.7 05:4 08:4
Sarasota, FL -14.0 05:4 07:3
Naples, FL -13.8 05:4 07:3
Tucson, AZ -13.4 06:1 08:2
Las Vegas, NV -12.9 05:4 09:2
Chico, CA -12.6 05:4 08:2
Fresno, CA -12.5 06:1 09:2
Atlantic City, NJ -12.2 05:4 08:2
Vallejo, CA -12.1 05:4 09:2
Washington, VA -12.0 05:4 08:2
Redding, CA -11.8 06:1 08:2
Detroit, MI -11.7 05:3 06:4
Riverside, CA -11.4 06:1 08:4
Bloomington, IL -11.1 05:3 06:4
Bakersfield, CA -11.1 06:1 09:2
Greeley, CO -10.7 06:1 08:2
Salinas, CA -10.3 05:4 08:2
Santa Ana, CA -10.0 06:1 08:4
Sacramento, CA -9.9 05:4 08:2
Carson City, NV -9.8 06:1 09:2
Phoenix, AZ -9.3 06:1 08:2
Punta Gorda, FL -8.9 06:1 07:2
San Diego, CA -8.5 05:4 08:2
Warren, MI -8.4 05:3 06:4
Allentown, PA -8.2 05:4 08:2
Nassau, NY -8.1 06:1 08:2
Fort Walton Beach, FL -7.9 05:2 06:3
Santa Rosa, CA -7.9 05:4 08:2
Ocean City, NJ -7.6 07:1 10:2
Visalia, CA -7.3 05:4 08:4
Rockford, IL -7.3 06:1 09:1
Santa Barbara, CA -7.2 05:4 08:2
Worcester, MA -7.0 05:4 07:2
New Orleans, LA -6.7 05:4 07:3
Saginaw, MI -6.5 06:1 09:2
Oakland, CA -6.4 05:4 08:2
Fort Collins, CO -6.1 05:3 07:2
Portland, ME -5.9 06:1 07:1
Fort Lauderdale, FL -5.9 05:4 07:3
West Palm Beach, FL -5.7 05:4 06:3
Miami, FL -5.5 06:1 08:2
Edison, NJ -5.2 06:1 08:2
Los Angeles, CA -4.8 06:2 08:4
Denver, CO -4.6 06:2 08:2
Napa, CA -3.8 06:1 06:3
Providence, RI -3.6 05:3 07:2
New York, NY -3.5 06:2 08:4
Champaign, IL -3.5 05:4 09:1
Essex County, MA -3.1 05:3 06:3
Bethesda, MD -3.0 05:4 08:2
Boulder, CO -2.8 05:4 06:3
Yuba City, CA -2.6 05:4 06:3
Salt Lake City, UT -2.3 06:1 06:3
Boston, MA -2.2 06:2 06:3
Pueblo, CO -2.1 06:1 06:3
Prescott, AZ -2.0 06:1 08:2
Madera, CA -1.8 07:1 09:2
Colorado Springs, CO -1.6 06:2 06:3
Grand Junction, CO -1.3 06:2 06:3
Portland, OR -0.8 07:3 09:2
Lewiston, ID -0.8 07:1 08:2
St. George, UT -0.5 07:3 08:2
Honolulu, HI -0.3 07:2 08:4
Milwaukee, WI -0.3 07:2 08:3
Hagerstown, MD -0.2 07:3 08:2
Medford, OR -0.2 07:3 08:2
San Jose, CA -0.2 07:1 07:2

 

[moh malekpour]

Read the chart, Moh. We're going negative in 15 years

Roger,
I read the chart. I saw the trend of last 20 years. If the trend keeps going that way, we are going to have negative within few years. Are we going to be the next Japan? The fed has done very good job in last 20 years to lower the interest rates and maximize the employment but how about the price stability? Look at the prices. Since the rates started to come down, the prices started to go up and that is not good for economy. That is inflation. If the rates keep going down and prices keep going up, we are going to repeat the 70th inflation and the fed is not going to let it to happen. The core fed monetary policy is price stablitity and inflation control is the basis of price stability.
Anyone who reads that chart and thinks the future trend of 10 year T bills is going to be the same as last 20 years is making a big miscalculation.

 

[JSmith43]

Anyone who reads that chart and thinks the future trend of 10 year T bills is going to be the same as last 20 years is making a big miscalculation.

You should consider a more limited statement. For example, I believe the trend depicted may continue for 6 months After that...who knows

Say employment comes in at a weak+50,000 Friday. Oil slips below $60 again in the face of OPEC bluster about cuts (but really back door cheating erupts by members wanting to grab near 60 pricing before they suspect 35 is all that is possible).

The events of tomorrow could override the normal weekend bias of higher bond rates.

It is silly to decrease money supply based upon higher energy prices in the pipeline or some other price increase data, if it involves little or no speculative behavior among those that will suffer from the hypothesized decrease in money supply, simply because it will not inhibit inflationary behavior. However, such restrictive money policy thinking could screw up productivity and work to increase inflation!

It does appear to be the view of a growing number of analysts that either the bond market is wrong or the stock market is wrong.

 

[murray stroupe]

Fed

What is the different between substantial housing downturn or substantial housing correction and housing crash or bust?
http://www.bloomberg.com/apps/news?pid=20601087&sid=ah6TAhIScG0M&refer=home
Bernanke Says `Substantial' Housing Downturn Is Slowing Growth

By Craig Torres and Scott Lanman

Oct. 4 (Bloomberg) -- The U.S. housing market is in the midst of a ``substantial correction'' that will lop about a percentage point off economic growth in the second half and remain a drag on expansion next year, Federal Reserve Chairman Ben S. Bernanke said today.

The Fed chairman also said in response to questions after a speech in Washington that the central bank remains ``concerned about inflation'' because it remains above ``what we would consider price stability.''

Taken together, the remarks may reaffirm the view of some investors that the central bank will keep the benchmark lending rate unchanged at 5.25 percent for the remainder of the year.

``There is currently a substantial correction going on in the housing market,'' Bernanke said. The decline residential housing construction is one of the ``major drags that is causing the economy to slow.''

Housing Construction

Srvice industries in the U.S. expanded at the slowest pace in more than three years in September as the housing slump deepened.

Bernanke also said the Fed should share its economic outlook and the risks that surround that outlook, and called the central bank's communication strategy ``a work in progress.''

==============================
Saw the same ''substantial correction '' remark in [IBD]Investors Business Daily;
website,
investors.com

And also, more than a few places homes are still strong, very strong;
double didget gains[%%]

Bloomburg , like IBD ,is amoung the few very accurate news outlets

And inventory is favorable to uptrends, in more than a few places.

 

[murray stroupe]

Trend is your friend

Partial

-Moh M
haven't contributed anything for a while, but a LO friend of mine that is a number cruncher and a bit of a technical analyst sent me a graph with someone's theory superimposed on the trend line for 30 year mortgages.

It is cute & plausible.

============================
Roger;

For the diligent;
trendlines help with probabilities,Not a prediction.
Will not help with insane leverage ,other stupid stuff.

Neat chart,;
money to be made at 30 year, 10% apr [off your chart, he he ha ha]