Housing Bubble Bursting?

[Alison Swain]

Damn,

My hair wasn't grey when I first saw this thread.

TC

Yep, looks like this thread has a birthday coming up on Saturday.


How shall we celebrate?

 

[Greg Bell]

Foreclosures increased 94 percent last year to 157,417 homes in California, as homeowners struggle with fast-rising home payments and a slow-selling market, according to a Fair Oaks real estate investment advisory firm on Monday. California had the most foreclosures filed nationwide, while Nevada had the largest percentage increase at 175 percent last year compared to 2005, according to Foreclosures.com. Nationwide, almost 971,000 foreclosure filings were reported last year, 51 percent more than the 641,000 in 2005, according to the annual report.

There has been some excitement in the housing market as of late by a small bounce in homebuilder sentiment as well as a small bounce in new home sales. This is like looking for starfish on the beach during the trough that precedes the big wave of the tsunami.

For starters, new home sales do not take into consideration cancellations and cancellations have been soaring. The current methodology is to count “new sales” as soon as a contract is signed, but sales are not subtracted by cancellations. Thus not only are sales overstated but inventories are massively understated. Builders are now scrambling to finish projects and unload as much inventory as possible before the next wave hits.

That second wave will strike when massive layoffs occur as the current projects are being completed followed by a decline on a lagging basis of commercial real estate. Already we are seeing an impact in residential construction employment. But do we really need more Walmarts, Pizza Huts, strip malls, nail salons, grocery stores, Home Depots, Lowes, and restaurants that follow? I think not and historically commercial construction follows residential construction with a lag. That lag is anywhere from 8 to 16 months.

 

[Randolph Kinney]

Problem? What problem? Situation normal

One thing that is fascinating about this market cycle is the degree in which subprime loans has played in the demand for housing. The economy is still growing and showing signs of core inflation that the federal reserve says it is concerned about. The credit availability for residential housing has been reduced.

One aspect of distressed sales that really goes unreported is the short sale. Delinquencies or late payments are tracked and reported. Foreclosures are tracked and reported. What is missing? How many mortgage defaults that would have been a foreclosure are short sales? Is that a problem?

Anyway, here is a nice graphic to ponder.

 

[moh malekpour]

Quote:
But if shrewd investors think it's safe to commit more money to this sector, the end of the meltdown may be closer than we think

Steve,
Any time a conclusion of any idea starts with word "IF", you should be skeptical about it because it is a conditional idea or statement.
If shrewd investors think it's safe to commit more money. what about if they didn't think ? If they are shrewd, they would think twice to commit their money on that particular sector of lending. Would you do it if you were investor? But they were stupid at the first time, they might be even more stupid at second time and be fooled by higher return on their investments. If they do it, I don't call them shrewd. I tell them, you were fooled first by sub prime high return temptation, shame on sub prime. You were fooled second time, shame on you.

 

[Randolph Kinney]

Comptroller Says Abusive Loans Fueled Subprime Crisis

http://www.bloomberg.com/apps/news?pid=20601087&sid=azFPPTc5.yjc&refer=worldwide

March 22 (Bloomberg) -- The Office of the Comptroller of the Currency, regulator of the biggest American banks, said ``abusive'' lending and fraud helped fuel a surge in subprime mortgage defaults.


Emory Rushton, the agency's senior deputy comptroller, told the Senate Banking Committee in Washington today that the OCC is working to correct lending standards that have slipped. He warned against a heavy-handed response to the borrowing binge between 2004 and 2006 that's now turned to bust.

The OCC and Federal Reserve are among regulators chastised by Congress for enforcement lapses as delinquencies climb and threaten to worsen a housing recession that's weakening the economy. The deteriorating subprime mortgage market -- loans to people with poor or limited credit histories -- has pushed some lenders out of business and forced firms such as Countrywide Financial Corp. to tighten standards.


Some economists also speculated that the meltdown in subprime mortgages helped persuade the Fed to drop its tilt toward higher interest rates.

 

[Randolph Kinney]

Fed Gets `Wiggle Room,' Ending Tilt to Higher Rates

http://www.bloomberg.com/apps/news?pid=20601103&sid=a3r.eub2TT8M&refer=us

March 22 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke is giving himself flexibility to respond to slowing economic growth.

The shift indicates officials may have concluded the risks of a deeper recession in the housing market make it hard to raise rates to bring down inflation more quickly. While the statement described inflation as ``elevated,'' some traders interpreted the new language to signal a rate cut as soon as June.

 

[Randolph Kinney]

Subprime Loan Meltdown Spreads, Engulfing Even Borrowers With Good Credit

http://www.bloomberg.com/apps/news?pid=20601070&sid=a0SQHceHJPBU&refer=politics

March 22 (Bloomberg) -- U.S. lawmakers may expand the federal government's role in overseeing mortgage lending as Congress looks for ways to protect borrowers at risk of losing their homes with the implosion of the subprime market.

U.S. Representative Carolyn Maloney said Congress should broaden proposed federal subprime-lending guidelines to cover state-regulated lenders and make them mandatory. Congress should ``lessen collateral damage,'' she said. And Senate Banking Committee Chairman Christopher Dodd will question federal bank regulators at a hearing today over what he called a ``pattern of neglect'' that triggered the subprime crisis.

House Financial Services Committee Chairman Barney Frank said in a March 20 speech that ``assignee liability'' should be a component of subprime legislation. The provision would hold buyers of subprime mortgages partially responsible for flawed loans.

 

[Randolph Kinney]

KB Home's First-Quarter Net Income Plunges on Slump

http://www.bloomberg.com/apps/news?pid=20601206&sid=auRNYDXejcUI&refer=realestate

March 22 (Bloomberg) -- KB Home, the fifth-largest U.S. homebuilder, said fiscal first-quarter profit fell 84 percent as the housing market remained mired in a yearlong decline and that the subprime mortgage crisis may worsen the industry's slump.


Chief Executive Officer Jeffrey Mezger said the market is unlikely to improve this year and that he expects revenue and profit to fall compared with 2006. Rising defaults among borrowers with poor or limited credit histories may increase the supply of homes and push prices down further, he said.


``Having now entered the spring selling season, we continue to observe instability in the marketplace,'' Mezger said today in a statement.


``Moreover, recent problems in the subprime mortgage market combined with tightening credit requirements could exacerbate the already difficult conditions in the homebuilding industry.''

 

[Randolph Kinney]

Subprime shakeout threatens specialists

http://www.marketwatch.com/news/story/subprime-mortgage-crisis-may-leave/story.aspx?guid=%7BB942AE28%2D9E07%2D472D%2D966E%2D1676CC0F6622%7D

SAN FRANCISCO (MarketWatch) -- The subprime mortgage crisis will likely decimate the crop of specialist companies that sprouted during the boom years of the sector, analysts said this week.

Companies like New Century Financial, NovaStar Financial, and Accredited Home Lenders will probably be acquired or will shut down.

Bigger, more diversified mortgage banks such as Wells Fargo, Countrywide Financial, and Washington Mutual will take their place, along with investment banks including Bear Stearns, Morgan Stanley, and Lehman Brothers, the analysts said.

"It's unlikely that any of these mono-line subprime lenders will be around on a stand-alone basis in a year," Robert Napoli, an analyst at Piper Jaffray, said. "Weak players will disappear and the originators that are left will be backed by much stronger players with more capital."

The shakeout is well underway. Of the top 25 subprime mortgage originators last year, only three -- New Century, Accredited and NovaStar -- remain independent specialists. At least 10 have gone bankrupt, been sold or are for sale. Most of the rest are already owned by larger companies.

 

[Randolph Kinney]

Countrywide Tells Senators Subprime Curbs May Hurt Borrowers

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=am2ofAW3rzgo

March 22 (Bloomberg) -- Countrywide Financial Corp., the biggest U.S. mortgage lender, told U.S. legislators today that placing limits on home loans to the riskiest borrowers could undercut the housing market and cause defaults to accelerate.

Sandor Samuels, executive managing director at Countrywide, told the Senate Banking Committee in Washington today the change would prevent people who currently qualify for a loan from refinancing subprime mortgages after the rate increases and exclude first-time buyers.

The hearing is focused on lending practices that led to a wave of defaults and delinquencies on U.S. mortgages and record- high foreclosures. That's prompted calls in Congress for tighter regulation of lenders such as Fremont General Corp., which was ordered out of the subprime business for making loans that borrowers could never repay. Some of the closest scrutiny has been reserved for subprime loans with variable interest rates.

Hybrids ``are a valuable tool for our customers to afford a first home or as a bridge to overcome temporary financial setbacks,'' he said. If they're no longer able to qualify, he said, that could ``materially reduce housing demand.''