Housing Bubble Bursting?

[hastalavista]

I've read all your posts and I'll be damned if I can't figure out which way you think things are going!

I think Greg's avatar is worth a 1,000-words on that subject? :new_smile-l:

 

[Amy Perkins]

I think buying gold would be a good strategy right now, have you guys seen the price of gold these days!!

 

[moh malekpour]

I think buying gold would be a good strategy right now, have you guys seen the price of gold these days!!

Yes, You have to do 5 appraisal reports for AMC to buy one ounce of gold these days. Two years ago, the fee for one appraisal could buy you an ounce of gold.

 

[moh malekpour]

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aBTJS7oiB92I

Markets Under Pressure

``All of those housing markets will be under pressure as it has become more difficult to get a jumbo loan,'' Zandi said.

Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California in Los Angeles, said he expects a ``significant'' fall in housing prices if the squeeze in jumbo loans continues.

``Home prices in many coastal markets in California and on the eastern seaboard make the consumer highly reliant on the availability of jumbo mortgages,'' Gabriel said. ``The tighter the underwriting, the sharper the fall back in demand.''

Manhattan has so far been insulated from the housing slowdown, in large part because the economy is driven by Wall Street, where profits have set records in each of the past four years. Apartment sales more than doubled in the second quarter, data compiled by Miller Samuel show. That compares with the average 11 percent drop in cities tracked by the National Association of Realtors.

 

[Restrain]

NY is a market in and to itself. No rationale between it and any other market.

The problem is that for the next few years, beyond a car loan, it's going to be very hard to get a loan that is non-conforming, or a business loan, unless you have cash in the bank or a very good relationship with a local bank. During the 80's I saw a lot of small businesses go under due to a lack of operating capital. Banks just weren't lending on revolving operating lines of credit. It's starting again.

Builders don't have the contracts to support the credit lines, don't have the cash to keep building without signed contracts, and their in-house lenders are under a lot of pressure now as opposed to the "we'll make a loan, no matter what" attitude that they did have. Further, the builders are being sued in Texas for offering concessions that only applied if the borrower used their mortgage company, which is making them more antsy.

Finally, I'm seeing the hedge fund operators suing companies for taking action to keep their stocks going up. Sign of despiration by the hedge fund operators that they can't take the losses due to mis-guessing the market anymore.

I'm not a financial expert and don't play one on TV. However, stocks and companies that are US centric are probably going to take a hit. Stocks and companies that are global are not in as much trouble.....unless the US economy takes the rest down with it.

 

[Randolph Kinney]

WaMu takes a hit for bad loans

Washington Mutual

NEW YORK (MarketWatch) -- Investors stayed focused Monday on fallout from the ongoing credit crunch and disruption in the housing and bond markets, selling mortgage lender Washington Mutual Inc.

Kerry Killinger, chief executive of Washington Mutual, warned that the company anticipates a continued rise in bad loans and will put aside billions of dollars, which will take a toll on WaMu's earnings.

Killinger, speaking at a financial-services conference, said the Seattle-based thrift will set aside as much as $2.2 billion this year to cover potential loan losses -- $500 million more than WaMu predicted as recently as July.

It seems like a lot of mortgage lenders are under reserving for bad loans.

 

[Randolph Kinney]

Contagion - spreading the contraction in housing

Global Growth Threatened as U.S. Contagion Spreads

What's different now is the U.S. slump is starting to spread from the domestic housing market to consumers who buy imports from companies such as Toyota Motor Corp. And the sudden increase in borrowing costs that followed the collapse of the subprime-mortgage market is now showing up overseas, raising the price tag on credit worldwide.

 

[Randolph Kinney]

Stampede coming to unload CDO's?

CDO Losses Can't Be Quantified, France Regulator Says

"London-based analysts at Dresdner Kleinwort are predicting a ``sharp rise'' in CDO downgrades by year end, as losses mount on subprime mortgages. So far Standard & Poor's and Fitch Ratings have lowered ratings on 44 CDOs since July, according to a Dresdner report published today."

 

[Randolph Kinney]

Foreign holders of U.S. debt beginning to sell

Biggest Treasury Rally Since '03 Belied by Historic Drop in Foreign Demand

Treasury investors basking in the biggest rally in four years have reason to fear for their profits: The largest owners of U.S. government debt are heading for the exit.

The dollar's slump to a 15-year low against six of its most actively traded peers is turning the gains into losses for international bondholders, prompting China, Japan and Taiwan to sell. Overseas investors own more than half of the $4.4 trillion in marketable U.S. government debt outstanding, up from a third in 2001, according to data compiled by the Treasury Department.

U.S. long-term interest rates would be about 90 basis points, or 0.90 percentage point, higher without foreign government and central bank buyers, according to a 2006 study for the Fed by Professors Francis and Veronica Warnock at the University of Virginia in Charlottesville.

Look for higher interest rates in the future and higher inflation as the exchange value of the dollar takes more beatings on the way down.

The IMF typically recommends in situations like this for the debtor country to raise taxes and cut spending so as to service the debt and stabilize the exchange rate. Whoever is the party in power after the 2008 election is going to have fun convincing voters not to throw them out of office in the 2010 election cycle.

 

[Randolph Kinney]

FED: Complex derivatives multiple risk, not lessen it

Subprime contagion fueled by derivatives, Fed's Yellen says

SAN FRANCISCO (MarketWatch) -- Complex derivatives, such as mortgage-backed securities and collateralized debt obligations, have probably helped subprime problems spread across much of the financial sector, possibly affecting economic activity, Federal Reserve official Janet Yellen said on Monday.

Mortgage-backed securities (MBS) are packages of home loans that are sliced up into different bits and sold to institutional investors. Collateralized debt obligations repackage MBS and other asset-backed securities into yet more securities for sale.

These relatively new derivatives and other financial innovations helped fuel the housing boom. They were hailed as beneficial instruments because they encouraged the wider spread of risk among a more diverse set of investors. Other examples include collateralized loan obligations and credit default swaps.

But Yellen said on Monday that the subprime mortgage crisis has raised questions about the impact of these derivatives.

"It ... may turn out that these innovations don't actually spread risk as transparently or effectively as once thought," she said during a speech at the annual meeting of the National Association for Business Economics in San Francisco.

If that's the case, it could have a big knock-on effect on financial markets and the economy, she added.

"This would mean -- to some extent -- a more or less permanent reduction of credit flowing to risky borrowers and long-lasting shifts in patterns of financial intermediation," Yellen explained. "It could also mean an increase in risk premiums throughout the economy that persists even after this turbulent period has passed."

By spreading and diversifying risks, instruments like MBS and CDOs may have increased the chances that disruptions in small parts of the financial world have a broader impact.

The subprime mortgage market is only 10% to 15% of the overall home loan industry, Yellen noted.

"How, then, could problems in this relatively small market infect so much of the financial sector, and possibly real economic activity?" Yellen asked. "The answer appears to lie in the characteristics of some of the complex financial instruments that have been developed as a means to diversify and spread risk."