Housing Bubble Bursting?

[moh malekpour]

If the speculators, skippies and fraud were the cause, why they were not stopped when they were booking and cooking all those deals? Where are speculators, flippers, fraudulent actors and skippies now and why they are not doing their heinous crimes anymore? Do you think they have been eliminated or there is no market for them anymore? What happened to the market that changed from going up up to going down down? The answer to all is the source of money from investors of mortgage bonds dried down and the blood for those vampires stopped to come in. If investors still were not aware of those faulty loan bonds and were not scared of buying them, the money source still was coming to subprime market and those wheeling and dealing still were going on. The trigger point was tightening the source of money. I am not trying to say that your three were the victims, they were as guilty as hell and should be punished for their crimes because they took advantage of public trust but they got the tool to commit the fraud and the tool was the source of money but lets face the door was open and it was free for all.

 

[Steve Owen]

The nature of bubble bursts.

...is that you have to have an unsupported run-up in values first. Now that is not an axiom... another way it could happen is if there were factors at work in the market that change, causing the bubble to pop without there ever being a bubble to start with (I know, it sounds like an oxymoron).

Think of it this way... the housing bubble is similar to the tulip scandals and the dot com bust in that prices were pushed beyond what the economics of the situation would support. When the market wakes up and realizes this, you have a crash.

On the other hand, the Great Depression was caused by outside factors (in addition to some speculation), which were mainly controlled or made worse by government ineptness. The two situations are not really very similar.

Without the easy credit, it is possible that all the flippers and scammers could never have run the real estate market up to such unreasonable and unsupported levels. It could be a chicken/egg question. But, the facts seem to indicate that in those markets seeing a housing bubble bursting that is what happened, in most cases. The same easy credit was available everywhere else... why is the bubble not bursting in those other places? Answer: there never was an unrealistic run-up and (so far) there has not been any other outside force or other factor to cause a depression of prices. To the extent that these other markets are feeling some downward price pressure, it is most likely caused by a combination of media mind-set and outside pressure from the areas having the pop.

 

[moh malekpour]

Are you saying that .003 nationwide foreclosure rate or .006 in some states like Nevada has not convinced you that there was an unrealistic run up that finally is deflating gradually and constantly. We are talking about the real estate bubble market and bubble deflation not about the great depression or the end of the world. What do you expect to see to call it a bubble and bubble burst?

 

[Greg Bell]

Watch the Dollar...fell again today against the Euro.Lowest in history..

 

[Greg Bell]

Whats next 1 to 1...Dollar wallpaper..

Dollar Slumps to Record Low Versus Euro on Bear Stearns Losses

By David McIntyre and Stanley White

July 18 (Bloomberg) -- The dollar fell to a record low against the euro after Bear Stearns Cos. reported hedge fund losses, fueling speculation the Federal Reserve will cut interest rates to support the economy.

The U.S. currency also fell against the yen as investors scaled back carry trades, where they buy higher-yielding assets with money borrowed in Japan. Fed Chairman Ben S. Bernanke may be asked about financial industry losses caused by mortgage defaults when he testifies before Congress today.

``The subprime woes may weigh on the broader U.S. economy,'' said Yuji Saito, head of the foreign-exchange sales department at Societe Generale SA in Tokyo. ``There's a bias for selling the dollar.''

The dollar fell to a record low of $1.3822 against the euro before trading at $1.3816 at 9:41 a.m. in Tokyo from $1.3781 in New York yesterday. It dropped to 121.94 yen from 122.34. The U.S. currency may decline to $1.3830 per euro and 121.50 yen today, Saito said.

The dollar fell to a 26-year low of $2.0495 against the pound. It was quoted at 87.53 U.S. cents against the Australian dollar, near an 18-year low of 87.60. The dollar has fallen against 15 of the 16 most-active currencies since Bear Stearns said June 22 it had to bail out its hedge fund because of wrong- way bets on securities backed by subprime loans

 

[moh malekpour]

The historical exchange rate of US dollar VS. Euro:
1/1/2002: 1 euro was equal to 88 cents
Today : 1 euro was equal to $1.38. The differnt is 50 cents decline which means the dollar has lost 56% of its value to Euro since 2002. If you had bought Euro Stocks in 2002, you would have not only your asset value increase since then but you would have 56% more on the top in dollar when you sell your stocks in euro and exchange it to dollar.

 

[Greg Bell]

Got change for a Euro?..Housing starts up , Permits down???Is someone cooking the books???

 

[Randolph Kinney]

Quote:
Originally Posted by Randolph Kinney
The stock market indices (DOW, S & P) are now back to the levels they were in 2000, before the decline, correction, or bubble busting, whatever you would like to call it. Now, inflation adjusted, it appears to me that the stock market may not correlate well with the economy at present or future.

FYI, the DOW reached $14k today. The above is a mis-characterization, IMO. I heard on the radio today that the $14k compares with a low point of about $7.2k just six years ago... shortly after the DOT com debacle. Almost double! There is no way that inflation over the last six or seven years can account for that.

Not only that, but every other major index, with the exception of NASDAQ is at record or near record highs. What happened to NASDAQ is that all of those dot com stocks, many of which are no longer around, pushed it to near $5k before the bust. I doubt if it will be anywhere near $5k anytime soon.

Will the good news on this front continue? Right now, unemployment is low, wages are rising, output and profits in most sectors look good. What could upset this rosy picture? Only one thing I can think of... government action (probably in the form of higher taxes).

Still, I like to say that I don't have any better crystal ball than anyone else. I would not rule out the possibility of recession because I don't know what will happen next.

http://www.inman.com/hstory.aspx?ID=63897

Too little to late?

As I've said before, maybe the housing cooling/crash/bubble burst or whatever you want to call it is a good thing. Markets need to correct.

Steve,

Yep, for the DOW index, you are right. I stand corrected.

However, for the S&P 500 index, you are wrong. The market as characterized by the S&P 500 index is just now getting back to where it was in 2000 before the 2001 crash or correction or busting of the bubble. See the chart below.

My original statement stands: Now, inflation adjusted, it appears to me that the stock market may not correlate well with the economy at present or future.

 

[Greg Bell]

Roubini at his best..I think he's an optimist..

Today we look at how rising defaults by U.S. subprime mortgage borrowers are casting their shadow across credit markets.


The most immediate impact of rising subprime default rates, of course, occurs in the market for residential mortgage backed securities (RMBS). RMBS represent claims on principal and interest payments from various mortgages in a homogenous pool. Rising defaults shrink the pool of assets backing a RMBS, reducing the valuation of all its tranches either through direct first-loss exposures or through deteriorating collateral/credit enhancement for the higher rated RMBS tranches. Were the rating agencies slow to recognize this link or did a lack of data prevent an informed judgment? See Prospective Downgrades of Subprime (sp)RMBS by S&P Rattles Markets: Surprise, Surprise.


The same basic reasoning applies to Collateralized Debt Obligations (CDOs), many of which include a number of subprime RMBS in their collateral pool. This risk concentration enhances returns in good times but also losses when the underlying cash flow begins to dry up simultaneously in different spots within the collateral pool. Read more in What Makes Subprime CDOs So Dangerous?


There is now evidence that concerns about rising defaults among the commercial real estate mortgages are now affecting the value of commercial mortgage backed securities (CMBSs) and the spreads for protection against default on such securities (the CMBX indices). See Commercial Mortgage Backed Securities (CMBS) and Indexes: Signs of Strain?


The first clear signs of contagion to the broader credit market emerged last week in the Bear Stearns hedge fund aftermath. The perceived risk of holding corporate bonds in Europe and the U.S. (as measured by the iTraxx and CDX indices) rose sharply amid fears of forced fire sales by leveraged players with subprime exposure facing margin calls. See: ABX Derivatives Indices Sell Off Across the Board: Contagion To AAA Indexes and the Corporate Bond Markets Underway.


Corporate bond market jitters, in turn, also put pressure on the U.S. dollar as private demand for corporate debt combined with central bank demand for agency bonds financed the bulk of the US current account deficit in the first half of the year. See U.S. Subprime (sp) Issues: Local and Contained or Spanning the Globe?


Last, but perhaps most worrying, are the potential parallels between the mortgage market and the leveraged loan markets. These include borrowers’ high leverage ratios, declining credit standards (“cov-lite” loans instead of subprime), insufficient monitoring by lenders due to the “originate and distribute” model (loans repackaged into CLOs instead of CDOs), banks’ retained exposure (bridge loans as opposed to CDO equity tranche).


It hardly needs to be mentioned that CLO demand for corporate debt helped fuel the private equity sponsored LBO wave over the past few years, and thus contributed to the recent bull market in equities. A couple of banks are now reportedly holding some LBO-related corporate debt that they cannot sell. See: Banks' Involvement in LBO Financing: A Bridge Too Far? and Are We Witnessing the Top of the Leveraged Buyout (LBO) Cycle?

 

[Steve Owen]

The outlook from the Fed

Also, possibly, optimists...

http://www.nytimes.com/2007/07/19/business/19fed.html?th&emc=th

The Fed slightly reduced its consensus forecast for growth — an average of forecasts by Fed governors and regional Fed banks — from estimates it released in February. The forecast calls for the economy to expand at a 2.25 to 2.5 percent rate in 2007 and by about 2.75 percent in 2008.

On a related note:

http://www.inman.com/hstory.aspx?ID=63923

Bernanke's announcement that the Fed will exercise its rule-making authority under the Home Ownership and Equity Protection Act (HOEPA) marks a departure from an emphasis on tighter guidelines for lenders and improved disclosures for borrowers.

Talk about closing the barn door after the horses have got out....