Housing Bubble Bursting?

[Randolph Kinney]

Canada cuts interest rates - expects FED to follow

Canada cuts key rate

LONDON (MarketWatch) -- The Bank of Canada on Tuesday said it was cutting its target interest rate by a quarter point, citing worsening problems in the U.S. housing market, in a move that likely predicts the rate direction to be made by its southern neighbor next week.



The Canadian central bank cut its targeted rate by a quarter point to 4.25%, citing inflation figures that were below expectations and downside risks to the bank's inflation projection.


"Global financial market difficulties related to the valuation of structured products and anticipated losses on U.S. subprime mortgages have worsened since mid-October, and are expected to persist for a longer period of time," said the Ottawa-based central bank.

 

[Randolph Kinney]

Fannie Mae does not get it, forecast decline not as bad

Fannie Mae sees more credit, housing trouble next year

The lender said there is a "severe correction" in the U.S. housing market. "The decline is expected to be nationwide and is estimated at about one-half of the magnitude of the decline experienced in Southern California in the early 1990s," it said.

 

[Riick]

"The decline is expected to be nationwide and is estimated at about one-half of the magnitude of the decline experienced in Southern California in the early 1990s,"
Which was, as I remember, on the order of 20% overall, with some areas much higher.

 

[Randolph Kinney]

"The decline is expected to be nationwide and is estimated at about one-half of the magnitude of the decline experienced in Southern California in the early 1990s,"
Which was, as I remember, on the order of 20% overall, with some areas much higher.

I suspect that Fannie is whistling past the equity graveyard hoping for half the decline as last time and no more.

 

[Randolph Kinney]

Prime loans, high FICO does not mean anything - greatest ever losses

Analyst says loan-to-value ratios better risk gauge than FICO

"The modern foundation of the lending market is about to be uprooted as FICO scores, the long trusted gauge for lenders in determining risk and price, will prove virtually meaningless in this credit cycle," wrote analyst Meredith Whitney in a research note.

"For those lenders overly weighted to FICO scores in underwriting, we expect the rudest awakening," Whitney wrote.

"We believe LTV analysis will prove far more predictive of not just loss frequency, but more importantly of loss severity," she said, noting that she believes investors have underestimated the severity of the current credit cycle, "as we expect losses to be far worse than in any period in U.S. history."

Fannie and Freddie will have a rude awakening next year as will many lenders and investors of home loans. LTV greater than 80% will show that homeowners will walk away when they are upside down in their mortgage.

 

[Dee Dee]

Fannie and Freddie will have a rude awakening next year as will many lenders and investors of home loans. LTV greater than 80% will show that homeowners will walk away when they are upside down in their mortgage.

And I think that what will really surprise them is that in many cases what was once considered an 80/20 loan will turn out to be a 100% LTV after values decline and/or puffed up values are all accounted for.

 

[Riick]

^^^

Dee Dee -- Those may turn out to be more like 125-140% CLTV

A well-known appraiser I took courses from, many years back, said that the (effectively)
100% FHA loans are what killed many neighborhoods in Philadelphia in 1950's-60's.

Mom & Pop could buy a row-home with only a few hundred dollars down.
But, when the heater blew-up, or the roof needed replacement, they had no cash for repairs.
... And why put $1,200 in a house that only cost you $750 (cash that is ) ??

After a bit, they'd walk-away from the house, and maybe even "buy"
another - FHA mortgages were assignable back then, literally to whoever.
(( BTW - FHA assignable mortgage program was finally dropped completely in 1996 ))

Today, we have "investors" in See-Thru Miami Condos (They're called See-Thru since almost no one is living there)
and in SFD developments that are only 50% occupied. 80/20 loan - their net cash in the acquisition is only a few points.
Mr. Banker WHAT SHOULD I DO ??
.

 

[moh malekpour]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aeXEoxPej1oA&refer=home

IndyMac has lost more than 80 percent of its value on the New York Stock Exchange this year as the worst U.S. housing slump in 16 years forced a record number of homes into foreclosure. The company may return to ``modest profitability'' in the second half of next year, Perry said, after reporting its first loss in more than eight years last quarter.

 

[Randolph Kinney]

UK cuts rate

Bank of England cuts key rate a quarter point to 5.5%, sees growth slowing

"Forward-looking surveys of households and businesses suggest spending is moderating," the bank added. "But conditions in financial markets have deteriorated and a tightening in the supply of credit to households and businesses is in train."

Also weighing on the rate-setting committee's decision was a sharp fall in consumer confidence and a 1.1% drop in house prices in November, according to the latest figures from HBOS.

 

[Dee Dee]

Riick,

I bought my first house in 1979 with 3% down on an FHA fix-rate assumable loan at 10%, which at the time was a good rate because within a year or so they were up closer to 18%. I was about 21 years old and it took almost 10 years before that house finally started getting a little bit of equity, but at least I could (and did) rent it out for what the payments were. I was upside down on value for awhile and would have lost money by selling, but at least the local rents were in sync with property prices and that was an option. That's simply not the case anymore in many markets.

If I were to want to buy that same identical house today, I'd have to put about 40% down to be able to rent it out and break even on the payments, even though current interest rates are nearly half what they were back then.

As tough as it seemed at that time, when comparing then and now I think the housing market was significantly better then, because at least the home could be rented if need be, and there was plenty of room for interest rates to improve.