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Housing Bubble Bursting?

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America's savings rate in 2006 was minus-1 percent, the first time that has happened since the 1930s during the Great Depression. That's why foreigners, as of November 2006, own about $2.2 trillion in U.S. treasury securities, or about half of the national debt not held by the federal government. This compares to about 20 percent in the early 1990s. The current national debt is about $8.7 trillion.
 
America's savings rate in 2006 was minus-1 percent, the first time that has happened since the 1930s during the Great Depression. That's why foreigners, as of November 2006, own about $2.2 trillion in U.S. treasury securities, or about half of the national debt not held by the federal government. This compares to about 20 percent in the early 1990s. The current national debt is about $8.7 trillion.
That goes along with the need for cash out refinance; negative savings = more debt.
 
Economists say no recovery until midyear; prices face record fall

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BD3228219%2D2D28%2D4B44%2D8796%2DE63E9AD525ED%7D&siteid=mktw&dist=nwhpm

Housing still on down slope
Economists say no recovery until midyear; prices face record fall

By Steve Kerch, MarketWatch
Last Update: 3:35 PM ET Feb 7, 2007

(This is an update to correct a typographical error.)


ORLANDO, Fla. (MarketWatch) -- The U.S. housing market has not reached bottom and will likely not begin to recover until the middle of this year, three housing economists said Wednesday.

The weakness will extend to existing-home and new-home sales and housing starts as well as to home prices, which are likely to show their first full-year decline nationally since records have been kept, the economists told home builders at their annual convention here.

Berson said he expects the home-price index calculated by the Office of Federal Housing Enterprise Oversight will show a nationwide decline in values for 2007, the first time that will have happened since the data began being collected in 1975. Unlike other measures, the OFHEO data measure the price changes on the same homes over time, meaning the index is less likely to be skewed by the types and locations of sales.
 
HSBC's bad debts top $10.5 billion

http://edition.cnn.com/2007/BUSINESS/02/07/hsbc.debts.reut/index.html

HSBC's bad debts top $10.5 billion

LONDON/NEW YORK (Reuters) -- Europe's biggest bank, HSBC Holdings, said its charge for bad debts would be more than $10.5 billion for 2006, some 20 percent above analysts' average forecasts, due to problems in its U.S. mortgage book.

HSBC said in a shock trading update late on Wednesday that slowing house price growth was being reflected in accelerated delinquency trends across the U.S. sub-prime mortgage market, particularly in more recent loans.

Analysts had expected HSBC's 2006 loan impairment charge to be $8.8 billion, according to the average of 11 analysts' forecasts, the bank said.
That figure is now expected to be about $1.8 billion higher, or near $10.6 billion.

"It is clear that the level of loan impairment provisions to be accounted for as at the end of 2006 in respect of Mortgage Services operations will be higher than is reflected in current market estimates," HSBC said in a statement.

It said HSBC Chief Executive Michael Geoghegan will take direct action to manage the group's response to the U.S. mortgage problem.

Apart from its U.S. mortgage services operations the performance of its businesses for 2006 was in line with expectations, it said.

HSBC said in its statement: "We have taken account of the most recent trends in delinquency and loss severity and projected the probable effects of resetting interest rates on adjustable rate mortgages, in particular in respect of second lien mortgages."

HSBC, the world's third largest bank by market value after Citigroup and Bank of America, was not alone with its U.S. housing problems.

Earlier on Wednesday New Century Financial, the No. 2 U.S. sub-prime mortgage lender, warned of poorer results as home sales and prices decline, and defaults increase.

The problems follow warnings from experts throughout last year that a slowing U.S. economy and rising borrowing costs would lead to an increase in bad loans by homeowners. HSBC already warned about problems in its U.S. mortgage business on November 13 and said three weeks later that the housing market had deteriorated further.

The warning will increase criticism that HSBC's credit-scoring system has been poor in the mortgage arm.

It will also add to criticism of HSBC's purchase of Household International for $14.8 billion in 2003. Even at the time of the deal there were complaints Household -- subsequently renamed HSBC Finance -- would expose the bank to too much sub-prime U.S. consumer lending.

The bank's North American operations, which include HSBC Finance, last year generated 31 percent of total profit, but 65 percent of bad loans.
HSBC shares have fallen 8 percent since its November 13 warning. They closed on Wednesday at 931 pence, valuing the bank at 108 billion pounds ($212.9 billion).

It has been the worst performing UK bank stock in the last three years.
 
Same frantic building in 1989..oops a 1991 recession..
 
Actually, Greg, if you're talking about the article I posted, I wouldn't characterize what's happening here as frantic building. There is some more activity than usual around the hospitals... partly because of new road construction that is ready to get underway.

Still, overall, our residential market is down slightly, with particular weakness in the high end markets. Commercial activity is also off slightly overall. January is something of an anomaly. I always caution people not to put much stock into any one period of building permit data as it tends to be cyclical and can be influenced by one or two large projects.

And, this just came into my in box while I was writing...

http://www.realtor.org/press_room/n...ndex_rises.html?&WT.mc_t=LS020707&WT.mc_n=App
 
There is another little twist to this saga some may not have thought about. I posted a couple of hundred pages back about a local client that keeps building new apartments and strip commercial centers in a grossly over-built market, knows what he is doing but is doing it with a smile on his face. Why you ax? He is playing the same game in commercial real estate I have always played in the appraisal business. He owns a lot of property and a large commercial strip in a satellite community 10 miles west of town. Other competing operations are competing in the area and all the competition is fairly new construction on sites they paid an arm and a leg for. He already owns the land, he already has a property management setup, he trades land to builders for building costs, he manages his own property and he can rent for 75% of what the others are renting for and still get a higher rate of return. His operations are filling up and the others set vacant because they can’t compete with his rental rate.
Adjoining our farm is a new residential development. As bad as things are they are throwing up houses like you would not believe in a slow to stagnant market. Why you ax? Because the builder got stuck with the lots and he has to unload them and the only way he can unload them is put houses on them and sell them for less. If he gets rid of the lots he is happy.

I see this as the natural unraveling of the bubble. It turns into a limbo game of lets screw the other suckers. In the long run this just prolongs the agony and speeds up judgment day. The competition is always at the bottom and the bottom feeders are the first ones to suffer. I can show you literally hundreds of foreclosure sales in which the lender took losses on the order of 50 to 75% of what was owed on the property and it always happens on the low end of the value range, specifically $60,000 and down. The sub-sub prime market. I would love to get my hands on the appraisals backing up these loans.
 
Follow up on Randolph's last post

Stocks drop on lending, housing jitters:

http://today.reuters.com/news/artic..._01_N08196689_RTRUKOC_0_US-MARKETS-STOCKS.xml

NEW YORK (Reuters) - U.S. stocks fell sharply on Thursday as worries about mortgage delinquencies hurt bank shares and a warning from home builder Toll Brothers Inc. (TOL.N: Quote, Profile , Research) underscored weakness in the housing market.
Shares of JPMorgan Chase & Co. (JPM.N: Quote, Profile , Research) and Citigroup Inc. (C.N: Quote, Profile , Research) were among the top drags after Britain's HSBC Holdings (HSBA.L: Quote, Profile , Research) warned that bad debts from its U.S. mortgage lending business would hurt results.
 
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