Posts filed under “Credit”

Can Housing Be “Rescued?”

First, a quick data check of Existing Home Sales:

• Unit sales dropped 8% in September; this is the lowest level in eight years;

• Sales of existing homes were down 19.1% year over year;

• Sales of existing homes fell to a seasonally adjusted annual rate of 5.04 million;

• Inventories of single-family rose to a 20-year high;

• Sales fell in all four regions.

• Median sales price for homes and condos was $211,700, down 4.2% in the past year. 

• Median sales prices have fallen in 13 of the past 14 months, pressured by a decline in jumbo mortgage lending (> $417,000).

Here’s a chart worth looking at closely:

Existing Home Sales (gray), Inventory (red) and Months of Supply (blue)

Courtesy of Calculated Risk


The always interesting Rex Nutting Marketwatch column had quite few interesting quotes:

-The deepening subprime crisis is threatening a recession, said Peter
Morici, a business professor at the University of Maryland.

Bros. now expects the Federal Reserve to cut its overnight lending rate
by a full percentage to 3.75% by the middle of 2008, including a rate
cut next week.

-"The housing crunch is accelerating; the Fed can’t stand by and watch,"
wrote Ian Shepherdson, chief U.S. economist for High Frequency


I am continually surprised by some of the more absurd commentaries I’ve read on the housing situation, and what we need to do to "rescue" it.

Here’s some tough love for economists, real estate agents, and especially those people in Washington on both sides of the aisle: fuhgedaboutit.   

The problem in the housing market is really, quite simple: Over the past 5 years, 100s of 1,000s people — perhaps a million buyers or more — were creatively financed into homes that THEY CANNOT AFFORD.

Combine this with a still over-priced homes, and the ongoing inventory build, and that’s a recipe for a prolonged, multi-year slump in Hosuing.

This may not be what people want to hear, but it is unfortunately true: Forget the 2/28 ARMS, the teaser rates, the Interest only loans — if we were to magically reset every one of those problem mortgages at a 6.25% fixed rate 30 year mortgage, it would not "fix" the housing problem. A huge swath of them, perhaps a majority, would eventually default anyway.

I have yet to hear anyone in Washington acknowledge this simple reality. The problem is not one of a credit crunch — although that is what uncovered the issue to the broader public; rather, it is the cost of housing relative to income ratio.

I don’t want to appear cold, but this is a simple economic reality: many, many current homeowners are likely to be ex-home-owners unless they find more income or a random chunk of non-loan cash.

The issue isn’t credit availability –its affordability . . .


Here’s a wild idea: All you alleged believers in the free markets: Why don’t you let the market do its job, via defaults, foreclosures and auctions — and process the problem? Its either that, or "gift" a few billion dollars — $100k at a time –  to those people who over-leveraged themselves.


Mortgage Availability Improving But Hampered September Existing-Home Sales
Shits & Giggles, October 24, 2007

Home sales crater on credit squeeze
Sales of single-family homes at 10-year low; inventories highest in 20 years
Rex Nutting
MarketWatch, 11:15 AM ET Oct 24, 2007

Category: Credit, Data Analysis, Real Estate, Taxes and Policy

Markets Rally on Fed Rumors

Category: Credit, Economy, Federal Reserve, Inflation

Where was the Bubble: Houses, Rates or Credit?

Category: Credit, Derivatives, Federal Reserve, Fixed Income/Interest Rates, Real Estate

Mortgage Resets? Try Chapter 13 Bankruptcy!

Fascinating front page WSJ article today, titled More Debtors Use Bankruptcy To Keep Homes. It seems that Chapter 13 filings are gaining in popularity. Why? Because they halt foreclosure proceedings: “Last month, as the nation’s housing slump continued, consumer bankruptcy filings increased almost 23% from a year earlier – representing nearly 69,000 people — according…Read More

Category: Credit, Economy, Psychology, Real Estate, Taxes and Policy

Margin Debt Grows; Risk Grows Too

Category: Credit, Data Analysis, Investing, Markets, Trading

Open Thread: Resilient Markets, Accomodative Fed?

Category: Credit, Economy, Federal Reserve, Inflation, Markets, Psychology, Trading

Thin Trading: Fed Fund Futures and Antique Watches

Yesterday, Traders embraced the release of the FOMC minutes. Indices were flat up until just before the 2:00pm release, and then took off, with the Dow gaining near 1%.

The thinking behind the Fed action was clearly revealed in that release. The emphasis was on the subsequent impact of credit on the entire system. The WSJ reported:

"Federal Reserve officials worried that credit-market
turmoil could reinforce slower growth at a time of "particularly high
uncertainty," leading to their half-point interest-rate cut last month,
minutes from the meeting show.

Without a cut, there was concern that "tightening
credit conditions and an intensifying housing correction would lead to
significant broader weakness in output and employment," the
rate-setting Federal Open Market Committee said. The minutes, released
yesterday, also showed members worried that market turmoil "might
persist for some time or possibly worsen."

They offered no clues about
the direction or timing of the Fed’s next move."

That last sentence is quite intriguing. Understanding whether or not a rate cut is forthcoming impacts yields, stocks prices, etc.

Given the significance of the Fed’s action, one would suppose that the markets which trade the Fed Futures would be, if not prescient, than at least telling about their future price action. One of the more fascinating aspects about this, however, has been the way the Fed Fund Futures have functioned over this time. They have been wildly wrong, forecasting an imminent rate cut since January 2006. I thought it might be instructive to look at why this maybe so, and what it might mean . . .

Read More

Category: Credit, Derivatives, Economy, Federal Reserve, Inflation, Markets

A Robust Segment of the Housing Market

Category: Consumer Spending, Credit, Economy, Real Estate

Saturday Afternoon Chart-Porn

Category: Credit, Data Analysis

NAR on “Temporary” Housing Problems

Category: Credit, Data Analysis, Markets, Real Estate