2005 Quote of the Day: Excessive Pessimism in Housing

As someone who is frequently wrong on a great many subjects (just ask Missus Big Picture), one of the things I like to watch is seeing what other people get right and wrong. And since we seem to be focusing on Economists today, let’s find a fun example.

Its one thing to be wrong about the future — thats merely a low probability best guess; What I always find interesting is when economists get the present "wrong."

The danger of erroneous evaluations of the present is that it often is extrapolated to incorrect conclusions about the future. My own tendency is to get the immediate present right, but the future wrong.

But the present is important. Misunderstand the present, and your future forecasts will have no utility. Like a rocket launch off half an inch, out in space it misses its target by millions of miles.   

See if you can guess the source of this comment:

"These nattering nabobs expect a housing collapse to take down the U.S. economy. But excessive pessimism is unwarranted: Fears of a housing bubble are overblown…

The good news is that demographic, tax and economic factors explain most, if not all, of the greater-than-expected activity in housing."

-May 31, 2005


Hint: Its off of a page where PCP is regularly added to the office water cooler . . .

Once you are done guessing, you can highlight below.


Mr. Greenspan’s Cappuccino
May 31, 2005

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Real Estate, Speculation & “Occupancy Fraud”

Today’s WSJ had a run of Real Estate related articles that quite frankly, were rather surprising in their gentle naiveté.

The first is the somewhat surprised acknowledgment that speculators were involved in the run up and subsequent deflation of Housing prices.

Of course, every asset class attracts speculators when prices rapidly rise. Its why every big boom ends in a final blow off top — that’s the impact of late-to-the-party speculators — followed by the inevitable spectacular collapse.

The latest after-the-fact revision (see our discussion on "predatory borrowing") has a new name: occupancy

This new nonsense word is a way to duck responsibility for failing to do appropriate due diligence prior to lending out money. Here are the details:

"As lenders pore over their defaulted mortgages, they
are learning that the number of people who bought homes as investments
is much greater than previously believed. Such borrowers turn up frequently in analyses of loans
that defaulted within months after origination. In many cases, these
speculators lied on loan applications, saying they intended to live in
the homes in order to obtain more favorable loan terms or failed to
provide the requested information.

Roughly 20% of mortgage fraud involved "occupancy
fraud," or borrowers falsely claiming they intended to live in a
property, according to an analysis by BasePoint Analytics, a provider
of fraud-detection solutions in Carlsbad, Calif. Another study, by
Fitch Ratings, looked at 45 subprime loans that defaulted within the
first 12 months even though the borrowers had good credit scores. In
two-thirds of the cases, borrowers said they intended to live in the
property but never moved in."

Speaking of fraud — I am curious about these lenders, now claiming they were defrauded by speculators. How many of them asked the following questions, and then did the due diligence to verify the data:

- Do you presently own your primary residence?
- Is your home currently listed for sale?
Or, are you in contract ?
- What is the asking price? Who is your real estate agency?
- RE Agent name? What’s their phone number?

Of course, none of these questions were asked, and no due diligence was performed, as these lenders were whoring clerking out loans as fast as they could process them. After the fact, this lack of due dilly has become "Occupancy Fraud."

If there was any genuine interest in not lending to speculators, its easy enough to verify . . .

Read More

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