Housing Bubble Bursting?

[Randolph Kinney]

OFHEO data finally rolls over

 

[Randolph Kinney]

How bad is the housing bubble?

Per Census Bureau, In the First Quarter of 2007, there were 127.2 Million homes in the US. Of these, 17.5 Million were Vacant. That is a whopping 13.7% of all US Homes were sitting empty.

 

[Randolph Kinney]

Vacant homes for sale or for rent

 

[Randolph Kinney]

Bear Stearns reels from increasing foreclosures

http://www.bloomberg.com/apps/news?pid=20601109&sid=a1IaEO5f_3kQ&refer=exclusive

Bear Stearns, the second-biggest U.S. underwriter of mortgage-backed securities now reeling from the worst housing decline since the 1930s, never planned to take possession of the three-bedroom house.

As foreclosures climb, Wall Street's lenders and investors are claiming a bigger chunk of Main Street. The value of U.S. homes held by commercial banks swelled 53 percent nationwide to $2.3 billion at the end of March, the highest since 1992, from $1.5 billion a year earlier, according to the Federal Deposit Insurance Corp.


Home values and the $6 trillion U.S. mortgage-backed securities market are locked in a downward spiral. Bear Stearns is bailing out one money-losing hedge fund it controls and leaving another to liquidation by creditors. Both funds invested in securities backed by subprime loans.

 

[Pamela Crowley (Florida)]

http://articles.moneycentral.msn.co...Chronicles/FinallyAVoiceOfEconomicReason.aspx

Finally, a voice of economic reason
When a respected financial guru such as Bill Gross says the subprime-mortgage crisis is going to spell trouble for other markets, maybe folks will start paying attention.

 

[Randolph Kinney]

Subprime Loans: Econ 101

http://www.cnbc.com/id/19557215

“The subprime mortgage borrower was really the marginal buyer, and if you remember from econ 101, the marginal buyer is the one who very much set prices so this borrower was the marginal buyer of real estate,” says Weaver. “Last year for example, subprime and Alt-A was about 40% of all purchases. Now the marginal buyer, the subprime guy is running into a lot of trouble. We see foreclosures rising rapidly in that subset and that marginal buyer is now becoming the marginal seller, and that's enough to re-price the whole housing market, it's a very important catalyst.”

Check out the percentage of subprimes in some of the largest cities:
Los Angeles: 35%
Phoenix: 44%
Las Vegas: 38%
Sacramento: 23%
Miami: 36%

Subprime borrowers, who were once thought to populate less wealthy or disadvantaged markets, in the last 5 years moved head first into some of the priciest, or what Weaver calls, “unaffordable” markets. Consequently, this correction, unlike others based on fundamental economic factors, is being driven by a whole new set of variables. So, all those housing prognosticators throwing out all those predictions of a “bottom” in housing, really, in my view at least, have nothing to base their beliefs on. That's until this slow moving freight train of a subprime crisis shows us whether or not it’s going to rumble slowly into its destination--or crash through all the indicators with far more damaging effects.

 

[Couch Potato]

Randolph, there is an easy solution for all the vacant housing. We will simply import more people from Mexico.

 

[Randolph Kinney]

Hedge fund halts redemptions

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3McD.nQwvR8&refer=home

July 2 (Bloomberg) -- United Capital Markets Holdings Inc., a brokerage run by John Devaney, halted redemptions on some of its hedge funds that invest in subprime-mortgage bonds.

``We did that as a defensive move because we had an unusually high number of redemption requests and we didn't want to be a forced seller in this market,'' Gregory said in a telephone interview. One of the redemption requests was from an investor who had put up about 25 percent of the funds' money.

The decision by Devaney, 37, follows the collapse of two hedge funds run by Bear Stearns Cos., which also lost money amid a plunge in bonds backed by subprime mortgages. As the Bear Stearns funds faltered, prices of the securities tumbled on concern the bonds would be dumped on the market at fire sale prices. Owners of similar securities may face $90 billion in losses, Deutsche Bank AG analysts predicted June 29.

``People are very nervous about how deep the revaluations of these securities will have to go,'' said Virginia Parker, who helps advise about $1.8 billion in client money at Parker Global Strategies LLC in Stamford, Connecticut. ``These positions didn't get marked down until June. Nobody's hand was forced in the market until then.''

About 12 percent of subprime mortgages packaged into bonds were delinquent by at least 90 days, in foreclosure or already turned into seized property, according to a report today by Friedman Billings Ramsey Co. in Arlington, Virginia. That's up from 5.37 in May 2005, and the highest since August 1997.

``There is likely to be news around quarter end of more hedge funds that need to recognize large losses, possibly forcing liquidation of the funds,'' Deutsche Bank analysts led by Mustafa Chowdhury wrote in the June 29 report. Chowdhury said total losses probably will range from $70 billion to $90 billion.

The dominos are falling now. More hedge funds loaded with subprime investments will be forced to liquidate their holdings to meet redemption demand.

Bailout coming for these investors?

 

[moh malekpour]

Pending Home Resales Drop to Lowest Since 2001 (Update2)

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

July 3 (Bloomberg) -- Americans unexpectedly signed fewer contracts to buy previously owned homes in May as buyers waited for lower prices and lenders made it harder to get mortgages.

An index of signed purchase agreements, or pending home resales, dropped 3.5 percent to 97.7, the lowest level in more than five years, from a revised 101.2 in April, the National Association of Realtors said today in Washington.

The report underscores the Federal Reserve's view that the housing slump will hold back economic growth into the second half of 2007. Rising defaults on subprime mortgages and higher borrowing costs are contributing to the glut of unsold homes.

``I don't think it'll be a quick recovery by any means,'' said Russell Price, senior economist at H&R Block Financial Advisors in Detroit, who was among analysts who predicted a decline. ``Housing will be an ongoing drag for the economy.''

Economists expected pending sales to rise 0.5 percent, from an originally reported decline of 3.2 percent, according to the median of 27 forecasts in a Bloomberg News survey of economists. Estimates ranged from a drop of 2.5 percent to an increase of 2 percent.

Today's report showed that the May reading was the lowest level since September 2001, when the economy was in the midst of the last recession. April pending home resales were revised to a decline of 3.5 percent.

Pending resales decreased 13.3 percent from May 2006. The realtor group's data on pending home sales go back to January 2001 and the organization started publishing the index in March 2005.

 

[moh malekpour]

Credit crunch will 'shred investment portfolios to ribbons'

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/02/bcncrunch102.xml

The near collapse of two Bear Stearns hedge funds has lifted the rock on our 21st century mutant capitalism, exposing the bugs beneath to a rare shock of naked light.

When creditors led by Merrill Lynch forced a fire-sale of assets, they inadvertently revealed that up to $2 trillion of debt linked to the crumbling US sub-prime and "Alt A" property market was falsely priced on books.

Even A-rated securities fetched just 85pc of face value. B-grades fell off a cliff. The banks halted the sale before "price discovery" set off a wider chain-reaction.

It was a cover-up," says Charles Dumas, global strategist at Lombard Street Research. He believes the banks alone have $750bn in exposure. They may have to call in loans.

Not even the Bank for International Settlements (BIS) has a handle on the "opaque" instruments taking over world finance.

"Who now holds these risks, and can they manage them adequately? The honest answer is that we do not know," it said.

Markets have been wobbly since the surge in yields on 10-year US Treasuries, the world's benchmark price of money. Yields have jumped 55 basis points since early May on inflation scares, the steepest rise since 1994. It infects everything; hence that ugly "double top" on Wall Street and Morgan Stanley's "triple sell signal" on equities{/quote]