Housing Bubble Bursting?

[moh malekpour]

http://www.ocregister.com/ocregister/money/housing/article_1724525.php

Although the poll is unscientific, it does indicate a public perception of which index has the confidence of the majority of people. I took particular note of the next to the least confidence was given to CAR index (which feeds the NAR index). The OFHEO index had the least confidence.

Randolph,
OFHEO indexes exclude 70- 80% of the market. They Exclude All condo sales, all FHA sales, All sales with jumbo loans, All sales with adjustable, sub prime, Alt-A, option arms loans, All 2-4 units sales. They only include sales with conventional fixed rates loans which are sold to Fannie and Freddie. These borrowers usually have good credits and adequate down payment but they are a low percetage of the whole.

 

[moh malekpour]

Nation Doomed To 2 Million Foreclosures

http://realestate.yahoo.com/Real_es...es/item-7a561f8d38111a8d3ce9cf67da8e277b.html

A second study forecasting millions of foreclosures sweeping the nation in the next few years, says it won't matter what the Feds do to fix the problem.

"Foreclosures Will Affect 2 Million Homeowners," by upstart housing market researcher HomePredictor.com says subprime mortgages are the culprit.

Among the independent researcher's findings:


More than 2 million homeowners will face foreclosure in next two and a half years, due largely to loans written that shouldn't have been.

Most, 76 percent of recent foreclosures resulted from high-interest rate subprime loans made to borrowers who could not otherwise qualify for a loan.

Another 15 percent of the failed loans were made with conventional mortgages, but many contained risky low- or no-down payment terms.

The remaining 9 percent of foreclosed loans studied included no- and low-documentation loans that get approved with little if any verification of income.

More than 50 percent of all home mortgages made in 2006 were written with 5 percent or less down.
"The figure is particularly significant since mortgages like this were nearly impossible to obtain except by those with excellent credit histories and strong incomes until two years ago," said Mike Colpitts, editor of HomePredictor.com.

 

[Randolph Kinney]

Randolph,
OFHEO indexes exclude 70- 80% of the market. They Exclude All condo sales, all FHA sales, All sales with jumbo loans, All sales with adjustable, sub prime, Alt-A, option arms loans, All 2-4 units sales. They only include sales with conventional fixed rates loans which are sold to Fannie and Freddie. These borrowers usually have good credits and adequate down payment but they are a low percetage of the whole.

Good point Moh. The OFHEO index doesn't measure or represent the housing market as a whole; just a narrow sub-market. Most likely, then, OFHEO index represents the cheaper areas of the country, excluding significant geographical areas of housing where prices are above the conforming loan limit.

 

[Brad Ellis]

Randolph,

The speakers did not refer at all to NAR's predictions; they simply looked at the data. And it is from the data from both NR and OFHEO that they did the calculations to see if either was better than the other.

They concluded mostly that neither one had an edge on data.

It had nothing to do with predictions.

But you are the one who has been saying all aong that NAR cooks their data. Obviously these economists disagree with you.

Brad

 

[Steve Owen]

His explanation is a contradiction in common sense. If sales volume has shifted away from high price areas to low price areas, how does that produce increasing prices?

Not at all. Price increases (or decreases) are measured against previous prices for property in the same market area. Real estate appreciation can only be measured on the local level. Then, increasing (or decreasing) prices can be viewed in aggragate by comparing the various areas on a percentage of change basis. There is nothing contradictory about this process if what you are looking for is a stat on whether prices are increasing or decreasing for the nation as a whole.

 

[Randolph Kinney]

Randolph,


But you are the one who has been saying all aong that NAR cooks their data. Obviously these economists disagree with you.

Brad

I offer the opinion that your economists are as right as their data source(s) and to the degree they can make a meaningful projection using that data. From what I have read, your economists are not reliable nor accurate with their forecasts or projections.

 

[Randolph Kinney]

Hedge Funds Ask SEC to Look for Subprime Manipulation

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9LOhnBS.L5c&refer=home

June 13 (Bloomberg) -- A group of hedge funds is telling the U.S. Securities and Exchange Commission to be on the lookout for manipulation of bonds backed by subprime mortgages.


Bondholders stand to lose as much as $75 billion on securities made of mortgages to people with poor or limited credit histories because of a rise in defaults, Newport Beach, California-based Pacific Investment Management Co. estimated in April.


More than $800 billion of bonds are backed by subprime mortgages, according to Credit Suisse Group in Zurich.


The hedge fund group consists of about 10 firms and calls itself the ABS Credit Derivatives Users Association, Waldorf said. They've hired former SEC Chairman Harvey Pitt's Kalorama Partners LLC as an adviser, according to John Sampson, a partner at the Washington-based firm. Hedge funds are private, largely unregulated pools of capital whose managers participate substantially in any gains.


The hedge funds are using derivatives to bet against mortgage bonds and would profit from defaults. Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.


The group complained in April to the International Swaps and Derivatives Association, which sets standards for the $370 trillion derivatives market. The group became more concerned after Bear Stearns Cos. asked ISDA to change documentation for default swaps on asset-backed securities to explicitly permit loan buyouts, Waldorf said. New York-based Bear Stearns, the second- largest mortgage-bond underwriter, withdrew the request.

 

[moh malekpour]

Bear Stearns Profit Drops 10% as Mortgage Bonds Slump

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ8zbDPlQks4&refer=home

June 14 (Bloomberg) -- Bear Stearns Cos., the second-biggest U.S. underwriter of mortgage bonds, said earnings declined 10 percent, the first quarterly drop in two years, as mounting home- loan defaults reduced trading revenue.

Second-quarter profit, excluding a one-time charge, dropped to $486 million, or $3.40 a share, from $539 million, or $3.72, a year earlier, the New York-based company said today in a statement. Earnings fell short of the average estimate of $3.51 a share in a survey of 14 analysts by Bloomberg.

Fixed-income revenue, which typically accounts for almost half of Bear Stearns's total, dropped as delinquencies on U.S. loans to homebuyers with poor credit or heavy debt loads rose to a four-year high. Lehman Brothers Holdings Inc., the largest underwriter of mortgage bonds, reported record profit on June 12. Goldman Sachs Group Inc., the world's biggest securities firm, said today its profit rose 1 percent, beating analyst estimates.

``There's been mortgage-related concerns about Bear Stearns since the market started souring,'' said Bill Fitzpatrick, who helps oversee more than $1 billion at Racine, Wisconsin-based Johnson Asset Management, which holds Bear Stearns shares. ``Hopefully, we've bottomed up in that area and will see a recovery in coming quarters.''

Bear Stearns's fixed-income revenue, which includes mortgage-bond underwriting and bond trading, fell 21 percent to $962 million in the second quarter. Revenue from equity sales and trading decreased 3 percent to $543 million, and fees from investment banking climbed 28 percent to $357 million.

Subprime, Alt-A

Declines in residential mortgage lending and securitizations as well as ``challenging market conditions in the subprime and Alt-A mortgage sectors'' contributed to the drop in fixed-income revenue, the firm said in its statement. Subprime loans are made to homeowners with poor credit, while Alt-A mortgages go to those with higher credit scores who don't qualify for prime mortgages for other reasons.

Total net revenue rose to a record $2.51 billion. Return on equity, a gauge of how effectively a firm reinvests earnings, fell to 11.6 during the quarter from 20.1 a year earlier.

Analysts were estimating that Wall Street earnings would be the lowest in two years, even after the U.S. Securities and Exchange Commission allows the industry's five biggest firms to use more of their capital to trade. Shares of Bear Stearns, led by Chief Executive Officer James Cayne, have declined 8.2 percent this year, the worst performance on the 12-member Amex Securities Broker/Dealer Index.

 

[Greg Bell]

An important concept to understand as it relates to money unlike other commodities is that an artificial increase in its supply confers no social benefit.


The price of money—like any other commodity—is by eternal laws of supply and demand. Like any other commodity an increase in its supply lowers it price. Conversely an increase in demand raises its price. As Rothbard reminds us, ”What makes us rich is an abundance of goods, and what limits that abundance is a scarcity of resources: namely land, labor, and capital.


Multiplying coin will not whisk these resources into being. We may feel rich for the moment, but clearly all we are doing is diluting the money supply… Thus we see that while an increase in the money supply, like an increase in the supply of any good, lowers its price, the change does not—unlike other goods—confer a social benefit.


Whereas new consumer or capital goods add to standards of living, new money only raises prices—i.e. dilutes its own purchasing power. The reason for this puzzle is that money is only useful for its exchange value…its utility lies in its exchange value, or “purchasing power.”

What is even more important is that when money is depreciated, it leads to the moral and economic decay of a country.


In the final days of the Roman Empire, its currency was depreciated repeatedly by successive emperors.

 

[Randolph Kinney]

Just for Brad - individual home prices rising?

A Gray May for Home Sales

Though median prices remained relatively stable, a tripling of the region's foreclosure filings over the year sparked some analysts to forecast more pain to come for the local slumping market.

Andrew LePage, DataQuick analyst, said lower-priced neighborhoods saw the most significant drops in sales throughout the six Southern California counties DataQuick analyzed in its report.

"The more affordable the neighborhood, the more likely you are to see slower sales," LePage said. Some of those entry-level neighborhoods were the last to heat up in the real estate boom and had retained more of that strength even into 2006, he said.

"Steadily declining sales, certainly off from what it was last year," he said. "Most people are opting out of the market unless they really have to sell."

With fewer homes selling at the bottom end of the range, the median price -- a midpoint among the prices of all of the homes sold -- reached $492,000, up $2,000 from April but down a little more than 1 percent from $500,000 in May 2006.

Just as in any mathematical average, if there are fewer lower-valued items being measured, the average rises. In the same way, fewer homes selling in the lower price ranges means the median price edges higher. But that doesn't mean the prices on individual homes are rising.

My bold for Brad. It is widely acknowledged now that individual home prices are not rising as represented by the median price or average price reported by NAR or DataQuick.