Dennis Kneale on the Housing and Credit Crisis, June 27 2008 

Dennis

National Association of REALTORS®Back to the President’s Report
Voices of Real Estate

– Posted by Dick

NAR has been trying for more than a year to put the current problems in the housing market in the proper perspective, telling the media and consumers that the housing “crisis” is really an isolated problem and that we already are working to fix it.

I have to give credit to Dennis Kneale for his commentary on CNBC last week. He provides the best assessment I have heard thus far about this so-called crisis and where the problem really lies. Listen to what he has to say and please forward this to your fellow REALTORS® and all of your clients today! – Dick Gaylord, 2008 NAR President

Category: Real Estate, Really, really bad calls, Video

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Crisis? What Crisis?”

  1. LB says:

    He is a genius… too bad all of us are going to die one day any way so where is the problem.

  2. jmborchers says:

    I bought some DITM puts on Friday.

    We have a huge problem. It’s Black Friday weekend and not many are shopping or buying anything at all. The market didn’t seem to notice this on Friday. Kind of unbelievable financial ralley.

    I have some more longs I’m going to have to get rid of after or before the call options I wrote against them expire.

    Christmas sales should be down some 10-20% from last year.

  3. Alessandro Machi says:

    What failed to get mention is that equity lines of credit which many americans were encouraged to dip into have fallen at a much higher rate than the overall value of a home. If a homeowner has 60% equity in a home valued at 500,000, that is 300,000 dollars in equity that theoretically the homeowner has available to them.

    If the price of that home falls to 400,000 dollars, then the consumer just lost 60,000 dollars of equity, here is where it gets dicey. If the homeowner has already tapped into their equity, let say 20% of that original 300,000 dollars that was available, or 60,000 thousand dollars, then the loss of 60,000 dollars of equity basically doubles their equity to debt ratio!

    This then brings the homeowner much closer to a threshold that the bank may no longer want to make equity available to the homeowner, even though the homeowner still has equity in the home. The homeowner, to slow down the dip into the equity line, may turn to their credit cards instead.

  4. KJ Foehr says:

    Sheesh, now I’ve ruined my peaceful holiday weekend. I haven’t watched CNBC since August, and I certainly haven’t missed Kneale’s squeaky voice and braindead Pollyannaishness. So I wasn’t going to watch this clip but I was fooled by the commentary that said “I have to give credit to Dennis Kneale for his commentary on CNBC last week. He provides the best assessment I have heard thus far about this so-called crisis and where the problem really lies.” Unfortunately I didn’t read far enough to see who made that statement, so I thought, well maybe he has changed his view on things. Wrong!

    Fool me once shame on you, fool me twice, shame on me. That’s it; I swear I am never going to listen to that guy again!

    Just think how much money CNBC watchers have probably lost because they trusted his opinion! The whole lot of ‘em should be tarred and feathered on CBS! Kneale, Cramer, Kudlow, Luskin, and Wesbury and all the lesser free-market wingnuts! They don’t even have the decency to admit they were wrong and apologize to their viewers. No, they just continue to make fools of themselves STILL trying to convince others that the entire world has got it wrong! And only they and their sacred god the Free Market are right!

    Barf.

  5. Alessandro Machi says:

    (continued from above)…

    …the homeowner has started using their credit card more and more and the treasonous interest rates the credit card companies charge. The 20% loss in equity has now resulted in a 100% gain in debt, plus credit card interest rate debt that multiplies at a horrendous rate even as the debt is masked with very low minimum monthly payments.

    The solution is this, the government creates reverse cash flow to the banks by agreeing to have credit-card debtors pay off their debts interest free. The monthly credit card payment now goes entirely towards paying down the consumer’s principle. As the consumer finally sees their debt load actually decrease, they may choose to either start paying with a debit card, depositing spare money, or just having more money available to avoid using their equity lines of credit AND continue to pay off their mortgage without struggling.

    Once credit card debt is reduced, credit card companies can no longer offer such deceptively low minimum monthly payments. I would recommend an increase in the monthly minimum paymment to four times what it currently is. A consumer who can afford to pay four times the monthly minimum on their credit cards can probably afford to pay them off over a relatively short period of time. Those who cannot afford to pay down four times the current monthly minumum due will see at a much earlier stage that they are overextending themselves.
    The interest rate becomes less relevant if a consumer is paying back four times the minimum due.

    http://www.Credit-card-cap.com
    http://www.DailyPUMA.com
    http://www.WallStreetChange.com

  6. Steve Barry says:

    What a numbskull.

    Home debt greater than equity for first time since ’45
    Updated 3/24/2008 5:03
    Enlarge By Don Ryan, AP

    As home prices fall, more sellers are putting out “price reduced” signs like this one in a subdivision in Happy Valley, Ore.

    WASHINGTON (AP) — Three reports out Thursday demonstrated the depth of the housing industry’s weakness and pointed to more trouble ahead.
    In a troubling report, the Federal Reserve said Americans’ equity in their homes has fallen below 50% for the first time since 1945.

    Home equity is the percentage of a home’s market value minus mortgage-related debt.

    The Fed’s flow of funds report shows home equity slipped to a revised 49.6% in the second quarter 2007 and fell further, to 47.9%, in the fourth quarter. It marks the first time homeowners’ debt on their houses exceeds their equity since the Fed started tracking the data in 1945.

    Home prices off record 17.4% in past year: Case-Shiller

    By Ruth Mantell, MarketWatch
    Last update: 10:31 a.m. EST Nov. 25, 2008
    WASHINGTON (MarketWatch) — Home prices in 20 major U.S. cities dropped 1.8% in September from the prior month, and they fell a record 17.4% on a year-over-year basis, according to the Case-Shiller home price index published Tuesday by Standard & Poor’s.
    September’s prices were down in all 20 cities, compared to both August 2008 and September 2007, the data showed.
    The largest decline in September was found in the San Francisco metropolitan area, where prices fell 3.9%. In the past year, Phoenix has had the largest decline — 31.9%.
    For the original 10-city index, prices declined a record 18.6% in the previous 12 months. For the third quarter, there was a record year-over-year decline of 16.6% in the national home price index.
    “The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals,” said David Blitzer, chairman of the index committee at Standard & Poor’s.
    All three Case-Shiller aggregate indexes, as well as 13 of the 20 metro areas, saw new record rates of decline, Blitzer noted.

  7. Jojo99 says:

    Kneale is a doofus. There is something about him (his arrogance or maybe those ugly black glasses?) that rubs me the wrong way.

    RE: CNBC

    Too many people think CNBC (and other MSM financial outlets) exist to provide financial news to their viewers/readers when truth to tell, their real reason for existence is to provide an outlet for their advertisers. Witness for example, CNBC’s constant parade of industry shills making daily bottom calls in an attempt to draw buyers into the markets. Look at the logo’s behind their heads and you can see that many are from regional or national brokerage firms.

    Most everyone on CNBC and the like usually has some sort of vested interest in attempting to direct the market either up or down. Brokerage firms and mutual funds will talk to the positives to draw in buyers (increasing assets under management and commissions), short sellers will talk to the negatives because they usually have a position already in place, Cramer wants to sell books, Ben Stein wants to live high on the hog forever, newsletter writers want to attract subscribers, etc. All are dependent on the the market and make money around it somehow, someway.

    CNBC as a corporation doesn’t really care if people who watch and follow the tips of the talking heads lose money, other than how it might affect the number of eyeballs watching. They know that a rising market attracts advertisers and viewers. CNBC needs a rising market because it attracts advertisers and that is how they make most of their revenue, how they pay the “stars” like Maria Bartiromo their high salaries.

    Whenever someone is giving away financial advice for free, always consider what they stand to gain and what you stand to lose should you choose to follow the advice.

  8. Joseph says:

    Kneale is a shill. How about those houses that got refi’d between 01 -07. Dick Gaylord is the head of an organization that is rapidly becoming obsolete and he knows it. So all they have is spun info and whining. They will manipulate the statistics anyway they can to justify their pathetic existences.

    These guys are the jesters in the court of the king. Its just that their bs has stopped being funny. The day will come when real estate is transacted in an open simple way between buyers and sellers, is already begun and is gaining momentum. Realtors will go the way of the buggy whip manufacturers except we will have less sympathy for their demise.

  9. fredrik.jonsberg@gmail.com says:

    Kneale has obviously never heard of Mortgage Equity Withdrawals. Turns his case updown.

  10. ChickenDinner says:

    Kneele is the lost stooge!

    Larry, Currly, Moe, Kneele

  11. stockologist says:

    Kneele has always come across as a cheerleader for the economy even against facts and statistics. He claims that 1/3 of the homes are paid off and another 1/3 had bought before 2000 and are ‘up’ on their home investment. What he forgets to factor in is, that people have used their homes as a PIGGY BANK and borrowed against it to invest in things like more homes and the stock market.

    Dennis Kneele has given out more bad information on CNBC than even Jim Cramer and has cost people alot of money. He really should shut up.

  12. VoiceFromTheWilderness says:

    what utter and complete clap trap.

    classic bait and switch. Watch my left hand, while my right hand is in your pocket taking your money

  13. tom brakke says:

    Unbelievable.

  14. Myr says:

    Watching CNBC is bad for your wealth. Stick to BBerg TV and radio.

  15. Al Czervik says:

    In the Schiller video, he makes the point that Americans are bombarded by Conventional Wisdom, which isn’t always in their best interest. “It’s always a good time to buy a house”. “Buy and Hold”. “Stocks for the long run”. “Dow 36000”. The shift from defined benefit plans to defined contribution plans over the past three decades has been instrumental in making people more comfortable with owning stocks…which benefits people in the business of peddling equities.

    I had the good fortune to have little market exposure during 2008, so my retirement accounts are intact. And I sold my home (early) in 2003, so I am somewhat insulated from that situation. However, I’m shocked by the number of intelligent friends and acquaintances who have been sucker-punched by the events of the last several months. It turns out that the geniuses dispensing all of the disastrous CW “never saw the credit crisis/panic coming”. Greenspan, Reuben, The NAR, and 95% of everyone who appears on CNBC and Fox. Over the past several years, those of us who chose to rent our homes, were cautious on the stock market, and owned gold were considered to be wingnut crazies…it’s looking like the wingnuts had it right!

    Those of us who were selling homes/stocks and buying gold over the past several years needed someone to take the other side of the trade. However, given the severity of the downturn, it’s hard to engage in schadenfreud since none of us is 100% safe and some of us (or people close to us) will suffer mightily.

    We should now believe that “it’s too late to sell now” and that “the market always comes back”. “As long as you’re not planning to move for 7 years or longer”, you shouldn’t be bothered that your profligate neighbor is getting a bailout.

    I’m tired of these discredited “experts” dispensing one-size-fits-all advice as if it is the wisdom of the ages. My personal pet peeve is my employer’s 401-k plan, which provides options ranging from vanilla to French vanilla. Perhaps, if they give me the freedoms that I have with my IRA accounts, I might do something irresponsible. Apparently, its only OK to be irresponsible if you’re doing what they tell us to do.

    /Rant Off

  16. Al Czervik says:

    My 401-k plan offers a monte carlo simulation program put-together by Financial Engines. The idea is to construct a portfolio that provides you with a given percentage probability that you will reach your savings goal. I never signed-up for that progam but I wonder what probability they assigned to something resembling the events of the past few months. The portfolio with a 90% probability that you will reach your goal provides little solace when you have a black swan event.

    You can take some satisfaction in doing what you were supposed to do…and besides, everyone else lost a lot of money too.

    I guess those retirement plan participants whose holdings are now down >40% should just stick with the program because the same geniuses who devised the monte carlo simulation technique are now telling us that the “market always comes back”.

  17. constantnormal says:

    the “market always comes back”

    Yes, but when?

    Those will money in 401-K’s will be poorly served if they “are retired” before their 401-K’s recover. A lot of boomers will be retiring (by their choice or their employer’s) over the next decade. If they were relying on stocks to “bounce back”, they’re sweating bullets. And the other edge of this blade is that employers are not going to be looking to hire a lot of new employees.

    There’s probably a good case to be made for 401-K participants to be looking for choices like utility funds, that have respectable yields. A pity that few 401-K’s allow ETFs, and even if they do, choices like QID or SDS are unlikely to be in the mix.

    How are the pre-programmed “lifetime ” funds doing in all this? One would expect those to be more in bonds for those folks approaching retirement, and would have fallen less than the all-stock or index funds that the younger people (theoretically) ought to be in.