Housing Bubble Bursting?

[Randolph Kinney]

Good news, get ready for that 0.5% rate cut

U.S. consumer spending flat in October; inflation gauge signals wage, salary erosion

WASHINGTON (MarketWatch) - Growth in U.S. consumer spending ground to a halt in October, while inflation eroded American households' modest gains in income, the Commerce Department reported Friday. Nominal incomes rose just 0.2% in October. But after accounting for the 0.3% rise in prices, real after-tax incomes fell 0.1%. Consumer spending increased 0.2% in nominal terms and was flat after adjusting for inflation. Both incomes and spending were slightly weaker than expected on Wall Street. Inflationary pressures were steady in October. The personal consumption expenditure price index rose 0.3% for a second straight month. Core prices, which exclude food and energy prices, rose 0.2% for the second straight month. Core inflation was steady at 1.9% over the past year, just within the Fed's unofficial comfort zone.

 

[Randolph Kinney]

California joins rest of nation in big home slide

Homes sales in the state fell 40% in October from year-ago levels and prices tumbled 10%, the California Association of Realtors reported this week. The annual pace of home sales was 265,000 versus more than 443,000 a year ago. The median price of a house in the high-cost state dropped to $497,000 from $552,000 in October of 2006.

The big drop in sales resulted in a big jump in housing inventory: At the October sales pace there is now a 16.3 months' supply of homes on the market in California, up from 6.4 months' supply a year ago.

Because of the high housing prices, the state is home to a lot of the exotic mortgages -- often two or three of them per house -- that buyers needed to use to get in the market. That end of the mortgage spectrum is going to be the last to come back -- if it ever does.

 

[Randolph Kinney]

Buy presents or pay mortgage

Mortgage woes are creating a subprime Christmas for consumers

Susan and John Harriman normally spend about $500 on holiday gifts -- $100 on presents for each other, $50 on their 29-year-old niece, then $25 on all of their other family members. But this season, the couple has a wrenching choice to make: celebrate Christmas or keep their home out of foreclosure. See story from WSJ.com.

 

[Randolph Kinney]

Study warns of declines in value of U.S. homes

Study warns of declines in value of U.S. homes

The property value of U.S. homes will fall by $1.2 trillion, and "at least" 1.4 million homeowners will lose their properties to foreclosure in 2008, according to a study released Tuesday by the U.S. Conference of Mayors and the Council for the New American City. The study, prepared by forecasting firm Global Insight Inc., predicts a widespread and deep economic impact from ongoing housing market problems, which many expect to stretch through next year. see story

Local tax revenue is expected to be hit hard by falling home values. In California, property tax revenues are expected to have fallen by $2.96 billion last year, the study said. In Florida, property taxes revenues could fall by $589 million.

 

[MARK JOLLIFF]

Notice I'm not bragging about my short position in the stock market? OUCH! What happened?

 

[Riick]

Notice I'm not bragging about my short position in the stock market? OUCH! What happened?

Mr. Market has a problem in seeing reality lately, maybe he needs new glasses.
(( But gravity never fails us, when the bottom falls out, Head-in-the-clouds or Not, everything heads down to earth. ))
Not to worry, you're on the correct side of the trade -> As long as you're not on margin that is...
"markets can remain irrational far longer than you or I can remain solvent." --John Maynard Keynes

 

[Randolph Kinney]

Notice I'm not bragging about my short position in the stock market? OUCH! What happened?

Two things have happened.

1) The FED has blessed freezing interest rates on ARMs that are to reset. You will notice all bank stocks went up today. Look at Countrywide and IndyMac. If allowed, and people can continue to make payments, then a number of foreclosures will be averted.

2) The FED has signaled that is it going to be very flexible and err on the side of supporting credit and growth. That means maybe a 0.5% cut in the FED funds rate come December 11. That means money money money for everyone with more rate cuts to come.

I am beginning to shift some cash to more foreign funds as a play on December 11 FED rate action. If the FED cuts big time, it will validate the Greenspan put option is now in effect. If no cut, the market will sink like a rock.

 

[Austin]

There is a huge down side to this new fix the rate scheme that the media doesn’t understand. Another case of good intentions having unintended consequences:

• These people have no equity in their homes and won’t have any for years to come.
• They are essentially allowing the mortgage companies to assign their losses to these home owners who must pay it back with interest. Heads we win tails you lose.
• This market segment will be paralyzed for years to come due the lack of equity in the property.
• Under no circumstances would any rational person purchase mortgage back securities short of preferred stock with a guaranteed pay back. Same goes for credit cards and medical related stocks. It’s the politics of economics in this country.

 

[Greg Bell]

There is a huge down side to this new fix the rate scheme that the media dozen’t understand. Another case of good intentions having unintended consequences:

• These people have no equity in their homes and won’t have any for years to come.
• They are essentially allowing the mortgage companies to assign their losses to these home owners who must pay it back with interest. Heads we win tails you lose.
• This market segment will be paralyzed for years to come due the lack of equity in the property.
• Under no circumstances would any rational person purchase mortgage back securities short of preferred stock with a guaranteed pay back. Same goes for credit cards and medical related stocks. It’s the politics of economics in this country.

I absolutely agree.The Mickey Mouse plan to freeze teaser rates will result in a much worse recession boarding on depression.No sane person Will purchase mortgage securities that the terms and return will change due to the whim of some bureaucrat.The housing downturn will be stretched out for many years exceeding the home value downturn from 1925-1933.Millions of homeowners will have mortgages much higher that the value of the asset . How long do you think they will pay those mortgages.Better to just walk away than pour all that money into a declining asset.What a disaster...Quick , buy some Beans and Ammo..

 

[Randolph Kinney]

I absolutely agree.The Mickey Mouse plan to freeze teaser rates will result in a much worse recession boarding on depression.No sane person Will purchase mortgage securities that the terms and return will change due to the whim of some bureaucrat.The housing downturn will be stretched out for many years exceeding the home value downturn from 1925-1933.Millions of homeowners will have mortgages much higher that the value of the asset . How long do you think they will pay those mortgages.Better to just walk away than pour all that money into a declining asset.What a disaster...Quick , buy some Beans and Ammo..

It is why they call these actions the "Greenspan put." If you need to sell, as in moving, and you are upside down in your mortgage, you just move and let the bank have it. :laugh: