Housing Bubble Bursting?

[Terrel L. Shields]

Actually, I wrote it was going to stop in November 2005. A condo developer spent two hours explaining to me why I was wrong.

Instead, I listened to economist Hank Fishkind, whose simple calculation of customers versus number of condos did not add up.

duh, don't need calculations to see in the middle of a craze that the merry go round has to stop somewhere and let the passengers off...

 

[Randolph Kinney]

National City First-Quarter Profit Falls 31 Percent on Mortgage Losses

http://www.bloomberg.com/apps/news?pid=20601208&sid=avG7wWn6HOr8&refer=finance

April 30 (Bloomberg) -- National City Corp., the Ohio bank that sold its subprime mortgage unit to Merrill Lynch & Co. last year, said profit fell 31 percent as it set aside more money to cover bad loans.


National City put $107 million into a reserve to cover bad loans, quadruple the amount from a year earlier, citing a ``difficult environment'' in the mortgage market. Delinquencies reached a four-year high last year, cooling demand from investors who buy loans and package them into securities. National City said last month it would hold on to more of its mortgages rather than selling them at depressed prices.


``Mortgage industry problems continue to affect this company,'' Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, said in an interview. ``Their basic banking lines were unable to offset the weakening in the mortgage business and the deterioration in credit quality.'' Cassidy rates National City ``underperform.''

Non-performing assets, or loans and other investments no longer paying interest, increased to $801 million from $647 million in the first quarter of 2006. National City's $107 million bad-loan reserve compares with $27 million a year earlier.


National City said last month it scrapped plans to sell $1.6 billion of loans including subprime mortgages, those considered at the highest risk of default. The move cost the bank $28 million in writedowns to reflect their current market values and other costs.


The bank sold its First Franklin Financial subprime unit to Merrill at the end of last year for $1.3 billion. The part of the portfolio the bank is holding onto is running off at a rate of $600 million to $700 million a quarter, Chief Executive Officer David Daberko said in an interview.

 

[moh malekpour]

Housing? What Housing? I Don't See Any Housing

http://www.bloomberg.com/apps/news?pid=20601039&sid=aKHxvJuBB3FE&refer=columnist_baum

Excluding housing, the U.S. economy is doing just fine.

That's the latest rationalization of a select group of operators who think that the Bush administration's 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate can protect the economy from any and all ills.

To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush's Middle-East policy is a rousing success.

How valid is the claim that outside of housing everything is hunky dory? Let's go to the videotape to see how housing- centric the U.S. economy's weakness really is.

The Commerce Department reported Friday that real gross domestic product rose 1.3 percent in the first quarter, the slowest pace in four years. The year-over-year growth rate slipped to 2.1 percent, also a four-year low.

One year ago, capital spending was growing at a 9 percent year-over-year rate, he points out. Now it's zero.

``A year ago, people said capital spending was going to rescue us as housing slowed,'' he says. ``Capital spending is down to zero (year-on-year). There's been an unambiguous slowdown.''

In only one quarter of this entire expansion did capital spending add 1 percentage point or more to growth compared with an average contribution of 1 percentage point from the end of 1992 through the middle of 2000. The first-quarter contribution was 0.1 percentage point.

Another quarter of growth with a 1 percent handle is apt to make Fed officials nervous for the simple reason that there is no mandate for a recession with inflation running at 2-something percent. When growth is that slow, all it takes is a big quarterly inventory decline to thrust a negative sign in front of GDP, which in turn leads to a diminution in confidence.

While Fed Chairman Ben Bernanke's reaction function is different than Alan Greenspan's -- he's not a politician, looks uncomfortable at hearings, and keeps his answers short and to the point -- he isn't immune to what's going on around him.

Imagine how it would look if Congress were to ask him to explain why the Fed let the economy slip into recession with inflation so low. Would Bernanke be able to keep a straight face when he told them that GDP ex-housing was solid?

Heck, GDP excluding consumer spending, business investment, housing and exports was robust in the Great Depression, too.

 

[Randolph Kinney]

American Home Mortgage Says First-Quarter Net Income Declined 44 Percent

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

April 30 (Bloomberg) -- American Home Mortgage Investment Corp., a lender specializing in adjustable-rate mortgages, reported a 44 percent drop in first-quarter profit as rising defaults and falling home prices pushed up loan-loss estimates.

American Home is one of several ``Alt-A'' mortgage lenders to report earnings declines or losses in the first quarter as more borrowers missed monthly payments. Alt-A loans, short for Alternative A, are made to borrowers with strong credit scores who don't meet standards for conventional ``prime'' mortgages.


IndyMac Bancorp Inc., the biggest Alt-A lender, last week said first-quarter profit fell 34 percent. IndyMac, like American Home, has said Alt-A mortgages have lower default rates than the ``subprime'' mortgages made to people with weak credit records or heavy debts. Investor concern about rising subprime defaults depressed prices for Alt-A loans in the first quarter.


American Home was the 17th-biggest Alt-A lender last year, with $6.61 billion of the loans, according to industry publication Inside Mortgage Finance. The category includes option-ARM loans as well as the ``stated-income,'' or ``low- documentation'' loans granted to applicants who can't or don't want to provide proof of income.

 

[Randolph Kinney]

David Lereah - No Longer With NAR

http://www.marketwatch.com/news/sto...x?guid={400443CB-51C2-4690-9132-C392B1D62488}

WASHINGTON (MarketWatch) -- David Lereah, chief economist of the National Association of Realtors, is leaving NAR to join Move Inc. as chairman and partner of a new business entity next month, NAR said Monday.


Lereah has directed NAR's research division, regulatory and industry relations division and other activities. He will leave the association in mid-May, NAR said.


As chief economist and senior vice president, Lereah is the NAR's spokesman on the U.S. economy and the housing and real estate markets.

 

[Dee Dee]

Oh dear...what'll we do without David Lereah to tell us all what we should be thinking about the housing market.

Good Riddance!

 

[Randolph Kinney]

NAR trying to make sense of 2nd home data

http://www.marketwatch.com/news/story/vacation-home-sales-set-record-2006/story.aspx?guid=%7B4E1B438D%2D8E0B%2D46ED%2DB8FA%2D35B108088597%7D

CHICAGO (MarketWatch) -- A sharp drop in investment-home sales offset a record number of vacation-home purchases to bring down the overall share of second-home purchases in 2006, the National Association of Realtors reported Monday.


The share of second-home sales was 36% of all existing and new residential real estate transactions in 2006, down from 40% of all sales in 2005, the group said.


Vacation-home sales went up 4.7% to a record 1.07 million homes in 2006 from 1.02 million in 2005, driven largely by demographic trends. Meanwhile, investment-home sales dropped 28.9%, falling to 1.65 million homes in 2006 from 2.32 million in 2005, according to the group's annual survey of investment- and vacation-home buyers.

For comparison, primary-residence sales fell 4.1% during the time; in 2006, there were 4.82 million primary home sales, down from 5.02 million in 2005.


"We expected the drop in investment sales because speculators left the market in 2006, which caused investment sales to fall much faster than the primary market, but the rise in vacation-home sales is based on strong demographic and lifestyle factors, with only modest interest in renting their properties to others," David Lereah, the association's chief economist, said in a news release.


The median price of a vacation home was $200,000 in 2006, down 2.0% from $204,100 in 2005. Investment-home prices were also down, with the typical home costing $150,000 last year, down 18.3% from $183,500 in 2005.


"The drop in investment prices comes as no surprise, but for vacation-home prices to edge down in a record market is a bit puzzling," Lereah said. "It may result from a large dumping of inventory on the market by speculators, especially in the condo sector, with long-term, second-home buyers taking advantage of the glut and buying at negotiated discounts.

 

[Randolph Kinney]

Lenders made record underwriting exceptions

http://www.cnbc.com/id/18399329/for/cnbc/

MIAMI (Reuters) - Subprime mortgage lenders created a surge in delinquencies in the past year by repeatedly breaking their own underwriting guidelines to capture business, analysts said on Monday.


So-called "exceptions" to loans were made as written standards did not change much, Michael Youngblood, a managing director and portfolio manager at FBR Investment Management Inc., said on a panel of an Information Management Network asset-backed securities conference in Miami.


"The amount of loan exceptions made in 2006 must be historically the highest," he said.


Youngblood said lenders have not been providing information on how many times they strayed from their own underwriting standards, even when he asked. In any event, it is clear they represented the "wholesale" relaxation of underwriting practices that sent delinquencies to a business cycle high of about 11.4 percent, he said.


Subprime lenders -- both those that have failed and those still standing -- in the last year also paid scant attention to "soft" guidelines, such as how they analyze "FICO" credit scores for each applicant, Mark Milner, chief risk officer for PMI Mortgage Insurance Co., said on the panel.


For instance, relying on a credit score that was generated by an applicant paying back bills to a doctor and securing a $200 credit line "is just not enough," he said.


PMI chose not to insure many of the subprime loans outstanding, he said.


Delinquencies and foreclosures on subprime loans have soared in the past year as lenders such as New Century Financial Corp. <NEWC.PK> increasingly "layered" risks, such as allowing first-time homebuyers to state, rather than prove, their income and to finance as much as 100 percent of the property's value. Fallout from the loosened underwriting practices occurred as the U.S. housing boom came to a halt.

 

[Terrel L. Shields]

what'll we do without David Lereah

better?

Actually I would short Move, Inc. stock and will miss his stimulating howbeit way off predictions.

 

[Randolph Kinney]

David Lereah's last call

http://www.marketwatch.com/news/sto...={7ED4F887-E6BB-423E-AA50-115FA524D416}&dist=

U.S. March pending home sales fall 4.9%

WASHINGTON (MarketWatch) -- Pending sales of U.S. homes fell by 4.9% in March, indicating sales closed in April are likely to remain soft, the National Association of Realtors reported Tuesday. The group's pending home sales index was down 10.5% from March 2006 and is the lowest in three years. David Lereah, the NAR's chief economist, predicted that home sales will be "relatively sluggish" in the second quarter but that a "modest uptrend" is on the horizon for the second half of 2007.