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Housing Bubble Bursting?

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The bigger problem.

Randolph Kinney said:
Quoting the OFHEO is like quoting NAR. Since the OFHEO is limited to Fannie and Frediie conforming loans and includes refinancing, that data is tainted and not inclusive. The data also seems to neglect new homes sales trend and the fact that all national builders report the same thing; prices going down.

Parts of the midwest, like the farm belt, really do not reflect national trends.
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OFHEO is indeed a limited look at appreciation of existing housing... something we should be really interested in if we are looking for a bubble. Data from builders is even more tainted and non-inclusive.

Plenty in Florida
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What the graphic says, dramatically, is pretty much what I have been noting all along. The places that have problems (blue) are mostly in California, Florida, Michigan, and back east (probably New York and Connecticut, maybe New Jersey... graphic too small for this cluster of states). The surprises for me were Colorado (large blue spot), Nevada (blue along western edge, brown at Las Vegas) and Northwest Arkansas (which I expected to be blue, but instead is light brown). I was also surprised by the fairly large blue area at the corner of Texas and Arkansas. The blue spots in Illinois, Indiana, and Ohio were no surprise.

For the most part, it seems like the areas where we have a problem with large price declines in existing homes are the same areas where we had hot markets a few years ago. You remember... those areas where appraisers were complaining that they needed to use pending sales because last week's sales were too low... oh yeah, and the cost approach wouldn't "work."

Parts of the midwest, like the farm belt, really do not reflect national trends.
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Just like parts of California really do not reflect the national market (if there even is such a creature) and, really, do not even reflect the California market (taken as a whole, again, if there even is such a thing).

http://appraisersforum.com/attachment.php?attachmentid=13187&d=1185471248

Wonder where the Mike's are? Oh yeah! Most areas in Northwest Oregon and Washington are still seeing double digit appreciation and Chicago is still in the 5 to 10 percent range. Guess they are too busy to follow the bubble thread.

I don't track NW AR, so I cannot comment on that part of the graphic, but their take on the SW MO market at 0.1 to 5 percent, while a pretty wide range, is right on target. The assumption is that if they are right about my market, then they are right about the rest. However, it would be interesting to see if appraisers in some of those other markets concur.

The bigger problem is the potential credit crunch that has all the equities markets spooked the last couple of days. That is exactly how the Great Depression started. Of course, there is no certainty that the fears of a credit crunch will materialize... see the link from this post:

http://appraisersforum.com/1419384-post3858.html

I guess I should start worrying about that when the come-ons in the mail quit coming (currently get about three to five a week) and when mortgage interest rates hit 12 percent (currently at about 6.75 percent).

I'm not going to try and predict what will happen (guess that makes me a polyanna); but, here's what could happen.... If, the equities markets tighten severly, and government doesn't do anything to loosen them, then commercial/industrial enterprises could start failiing, leading to rapid increases in unemployment together with tight credit, could lead to massive loss for homeowners... major crash a/k/a Great Depression II.

Call me when mortgage rates hit 15 percent and unemployment tops 20 percent. Until then, I'll just watch quietly.
 
Fannie, Freddie face $4.7 billion in subprime losses: Citigroup

SAN FRANCISCO (MarketWatch) -- Fannie Mae and Freddie Mac could have $4.7 billion in unrealized losses from the deterioration in subprime mortgages, Citigroup's fixed-income strategy team estimated on Friday.

The estimated $4.7 billion in losses represent about 6% of the equity capital of the government-sponsored mortgage-finance giants, the strategists noted, adding that Fannie and Freddie's retained portfolios contain roughly $182 billion of subprime bonds, most of which are rated AAA.

By contrast, their total mortgages exposure is pegged at more than $3 trillion. Most of this is related to prime mortgages, which is supported by the fact that delinquencies in their guarantee portfolios have not increased so far this year, Citigroup said.


In light of funding sources that it characterized as stable, Citigroup said Fannie and Freddie may never have to sell their subprime holdings and realize losses. If these securities are held until they mature, the only losses would come from the permanent effect of delinquencies and foreclosures on the underlying assets, the bank added.
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Debt crunch is taking on a global scale

NEW YORK ( MarketWatch) -- America's era of easy money is going out with a bang - and on a global scale.

 Investors around the world on Thursday got a painful reminder of the fallout.

Behind the latest sell-off in the Dow Jones Industrial Average was an erosion in credit-market confidence that has plunged international corporate bonds along with emerging-market debt into an accelerated retrenchment, analysts said.

"The fact is we live in a general equilibrium world," said Paul Kasriel, chief economist at Northern Trust. "Everything affects everything else and [the U.S. housing slowdown] is spreading to other parts of the economy and the credit markets."

What began in recent months with the collapse in the subprime-mortgage financial sector has led to a ripple effect devastating a number of hedge funds, including two that are part of Bear Stearns.

Increasingly investors are refusing to provide Wall Street firms with cheap money to finance leveraged buyouts, a key source of support for the stock market. Some defensive institutions reacted this week to unsubstantiated market rumors about German and Japanese funds taking a hit from bad U.S. home loans, Kasriel said.

One of the latest bursts of market anxiety came on Thursday with news that a second Australian hedge fund, this one partly owned by Dutch financial-services giant ABN Amro, has also has run into trouble because of its exposure to U.S. subprime mortgages.

With risks now being re-assessed across the globe, credit markets are also growing less willing to provide money to other risk-taking borrowers. Among those first hit there were Wall Street firms trying to raise money to finance leveraged buyouts for private equity firms.

Wall Street firms and banks weren't able to raise money from the credit markets for private-equity firm Cerberus Capital Management's buyout of most of Chrysler nor for the leveraged buyout of General Motors Corp.'s Allison Transmission.

Central banks across the globe, but most crucially in the U.S., Japan and Europe, had cut interest rates to historic lows five years ago, in a bid to jumpstart their economies after the slump of 1990s equities bubble and years of deflation in Japan.

Low rates encouraged borrowers of all stripes and created a surge in global liquidity, which first helped fuel spectacular gains in assets, not least of which was the U.S. housing market bubble.

But rising interest rates across the globe in recent years have finally started to take their toll, economists believe. Previous campaigns to lift interest rates have typically led to financial debacles of one form of another.

But now, Northern Trust's Kasriel thinks global credit woes will be exacerbated by the fact that the U.S. is unlikely to lift its interest rates at a time when rate increases are widely expected in the U.K., the eurozone, Canada and China.

"The rest of the world is raising rates," he said. "A lot of global liquidity has been emanating from China and the E.U. and tighter credit there will slow the markets there further."

With the dollar continuing its slide amid the housing market and credit market problems, U.S. assets are themselves becoming less attractive. The Federal Reserve, meanwhile, is more likely to cut interest rates -- which would hurt the dollar more -- should the housing and credit markets deteriorate further.
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Next week in the stock market

Stocks to fall further as credit woes persist

NEW YORK (MarketWatch) -- U.S. stocks will continue to fall next week, in continuation of a sell-off that saw the Dow Jones Industrial Average experience its worst week in over four years, due to nervousness that the easy-money binge of the last few years has come to an end.

But stocks will remain vulnerable to any new signs of distress from hedge funds hit by their exposure to bad U.S. home loans, as well as from credit markets, where Wall Street firms and corporations are finding it harder and harder to obtain financing.

What began in recent months with the collapse in the subprime-mortgage financial sector has led to a ripple effect devastating a number of hedge funds, including two that are part of Bear Stearns Cos.

Investors next will remain on the lookout for more hedge-fund troubles globally. One of the latest bouts of anxiety came Thursday with news that a second Australian hedge fund, this one partly owned by Dutch financial-services giant ABN Amro also has run into trouble because of its exposure to U.S. subprime mortgages.
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Just for Steve Owen

Where the hot housing market boom is

A handful of small to midsize cities are outpacing the rest of the housing market, and in some cases are showing double-digit home-price appreciation, says an Associated Press article posted by Yahoo Finance. Among places that showed significant increases in home prices between the first quarters of 2006 and 2007 were: Salem, Ore. (13.4%), Boise City/Nampa, Idaho (14.5%), and Grand Junction, Colo. (16.8%). U.S. housing prices rose only 0.5 percent from the fourth quarter of last year to the first quarter of this year, the Associated Press says. Boosting these towns' residential real-estate markets are population and job growth, plus the fact that these locales were passed over by the housing boom, the article says.
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Of course, these small markets (small in comparison to MSAs) add up and we can see the effect - "U.S. housing prices rose only 0.5 percent from the fourth quarter of last year to the first quarter of this year"
 
Inflated Housing prices are not a boom , they are the last to fall along with increased unemployment.This will take YEARS to crash.Now that the stock market is finally deflating from all that leveraged funny money and the next stop is you will be unable to fund a loan , any loan.The next deflation will be Australia , U.K and Italy (Maybe some other unnamed countries)as the credit crunch spreads , poof , instant recession and Maybe the D word..
 
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