Sales Volume is down.
Defaults are up and rising.
Vacant homes are at historic levels.
Mortgage underwriting is tightening.
Option Arms are reseting at higher payments.
More Property Taxes are delinquent.
Inventory has doubled.
Subprime Lenders are self-extinguishing.
The percentage of people able to qualify for a home is at record lows.
Yet Wall Steet is of the opinion that 2007 will be relatively flat and improving in the second half. And that homebuilder stocks and financial stocks have bottomed.
2.7 if I recall is of all homes period. (2.7 is twice the previous record no?) Isn't it actually 40% of all homes up for sale? (Which doesn't include many new homes that were counted as sold but were one of the 40% of sales that fell through)
"What's troubling is that speculators may not act like typical home sellers. When they sell their vacant home in a down market, they don't necessarily purchase another home. By contrast, people selling the homes they live in will most often buy another house -- thus fueling a healthy market of buying and selling."
Not to mention the historically large percentage of overextended buyers who will get foreclosed out of houses they can't afford--every last one of them must return to renting.
excessive vacancy is because of the heavy investor demand over the past few years," said Richard DeKaser, chief economist at National City Corp.
Home ownership for many has become another financial assest to buy and sell, a commodity, a stock, a bond.
Looks like a significant number are crowding the exits.
Have you guys read this before? It's from September 2006, starting from "I used to work for one of the oldest and largest financial services companies..."
I was present at one of these 3am infrastructure sessions (getting paid double time), in a machine room with servers stacked floor to ceiling, cooling fans screaming, and black coffee going down by the pot full. We were taking orders from the "global ops center" in New York. The blinking lights on the "big-iron" Cisco routers indicated that roughly US$5 billion in funny money was going to move between the red-headed stepchild operation I worked for and the polished halls of The Mother Ship each month.
I was once in a server room when a bunch of lights were blinking on a router. The IT guy told me that meant it was "on." Then I handed him a new label for the backup cassette and returned to my cubicle. It wasn't 3:00 a.m., of course, it was 4:45 p.m., so the cooling fans were not screaming, they were merely whining, and I was in a hurry to go home, so I didn't think to ask the IT guy what those routers got up to in the wee hours when the FedWire was closed. I know, I know, you're going to tell me that funny money doesn't have to use FedWire, because it can just get beamed up to the Mother Ship with a few blips of the ol' Cisco. I guess you have a point there.
Probert, crypto needs to go visit Guy Noir and beg for a guest spot. Garrison could update his skits with this.
Sorry, but it's just a tad thick with the schtick --an unlikely cross between Midnight Enquirer and Business Week.
OTOH more needs to be said about this:
Subprime Lenders are self-extinguishing.
What is actually happening? Who is eating these losses? Do we see the beginnings of that long awaited correction in the price of 'junk' and higher long rates?
Last thing: If the general perception is that house prices are about to fall, wouldn't any home owner be more encouraged to sell now and buy later. Even those who were going to wait another 10 years before they 'see the world in that Winnebago'.
So much depends on peddling the view that house prices have stabilized, that the worst is behind us, that you better not even think about putting your house on the market...and making it all that much harder to make this "stablized" view stick.
Calmo, here are some of those losses ... at CAA (a mortgage REIT):
"As we enter 2007, approximately 34% of CAIT's mortgage loans are non-performing assets (as measured by mortgage payments delinquencies in excess of 60 days). Due to the partial financing of the mortgage loan portfolio with debt, non-performing mortgage loan balances are currently estimated at approximately 51% of total shareholder equity and approximately 95% of common shareholder equity."
Unlike some NAR economists who reassure everyone that house prices will not fall without a recession, I think prices could fall because of 1. A sharp rise in interest rates: (for example if the dollar falls sharply and the Fed increases rates), 2. An increase in credit spreads: for example if sub-prime market blows up) 3. An over supply of homes 4. A recession.
Even though Australia and the U.K. have had housing booms starting before the U.S. that have now cooled down neither country have had house prices falling. Neither country has had a recession recently. The U.S. economy may also be able to avoid falling into a recession.
On the other hand there have been parts of the U.S. (parts of Florida and the central valley in California) that have seen almost double digit falls in median home price over the last year even without a recession. This is possibly because of an over-supply of housing, increase in interest rates and some tightening of lending standards.
How does the supply of homes in the U.S. compare with the supply in the U.K. and Australia? And have there been any restrictions on lending in the sub-prime market similar to that in the U.S. recently?
Capital Alliance Income Trust Ltd., a residential mortgage REIT, said Friday that it is facing rapidly increasing pressure from deteriorating market conditions in the subprime credit sector.
The San Francisco-based company said that it now expects to report $1.35 million in losses for 2006; in late December, the company had said it expected to lose $900,000. Primarily an investor in residential subprime mortages, CAIT lost $307,308 during 2005.
Our problem in New Zealand is too much cheap money from overseas, All our major banks are owned by Australia and our interest rates are about 1% more than Aust. We borrow our money from foreign markets. 2 year fixed rate mortgage 8.25%
Our RE market has doubled in the last 4 years beacause these rates are historicaly cheap (and kiwi's love RE)
Our market will keep going as long as there is a willing lender. I think the recession part of the equation does not count for NZ as we borrow in the international currency $US.
The world economy is driven by the US consumption machine, we only stop when you do.
'For instance, the Labour Cost Index shows that ordinary time wages have gone up by 6.3 per cent in the past two years compared with a 25.3 per cent increase in median house prices in that period'
What I am rambling about is that NZ and Australias economies are reliant on global lending and things are not as rosey as they seem, you cough we catch pneumonia!
"2.7 if I recall is of all homes period. (2.7 is twice the previous record no?) Isn't it actually 40% of all homes up for sale? (Which doesn't include many new homes that were counted as sold but were one of the 40% of sales that fell through)"
That % would be roughly 58% (2.1m / 3.6m). If the 2.1m vacant homes includes builders' completed stock, I suppose the % is closer to 55.7% (2.1m / (3.6m + .17m).
Since my grand plan is to buy my retirement residence outright for cash in an area where it's cheap to live, should I plan on looking at vacant bank-owned property in about 5 years? Or will the market crash even faster than that?
Here's one data point on how things are going in Australia (from today's conference call by PMI - mortgage insurer)
"the housing market in Australia, much like in the United States, is transitioning to a more normalized level of credit performance. Last year we saw evidence of this as credit performance rose from loss ratios in the single digits in the first half of 2006 to end the year with a full-year loss ratio of approximately 25%. As we discussed on our last conference call, in the third quarter, we began to see the simultaneous worsening of several variables, including claim rates, claim slices, and cure rates. This trend continued into the fourth quarter.
As a result of the changes in the second half of the year, we obtained different data providing indications of future credit performance. Recalibrating our analysis with this data resulted in the fourth quarter increases in our reserves for losses of $12.4 million. The majority of this addition was driven by the performance of our 2004 and 2005 book years, particularly loans originated in the greater Sidney area. The upward movement of our loss ratio in 2006 is consistent with our longstanding expectation that we will see our portfolio return to a more normalized loss ratio. The actual 20-year average loss ratio is approximately 35%. However, based upon the information from the second half of 2006, we still believe that the loss ratio in 2007 will be in the high 20s to low 30s."
A few other fun facts for their Australian unit (Q4 06 vs Q4 05):
Risk in force $136MM vs 109MM
Policies in force 1055K vs 982K
Loans in Default 2.28K vs 1.26K
Claim Paid $6.58MM vs 1.45MM
Avg Claim Size $56K vs $39K
Loss Ratio 52% vs 5.3%
The last time we saw pressure on residential house prices in the US was 1989. The for-sale-only vacancy rate in 1989 was well under 2%. Either vacancies have never, ever put pressure on prices, or vacancies are way above the level that they put pressure on prices.
should I plan on looking at vacant bank-owned property in about 5 years? Or will the market crash even faster than that?
Where John S? The answer to how soon you should be looking (and how hard) probably depends on where you want to live.
This is going to be a 'national bust' but that doesn't mean San Diego California will ever be as cheap as say Flat Rock Michigan.
I think even at rock bottom you'll have to bring a considerable pile of bills to buy a home for cash in say La Jolla. You can get houses cheap in Flat Rock now.
How does the supply of homes in the U.S. compare with the supply in the U.K. and Australia?
The UK has very very strict development controls. If it were as easy to build houses in the UK as in, say, Florida, the entire country would be covered with houses now. This inelastic supply is the reason high prices are holding in the UK. Price declines must await some external cause such as credit crunch or recession. But remember, development controls are just as tough in Japan and that didn't stop a 50% price decline.
In contrast Oz is more like the US (lots of space you know) and Sydney has already experienced serious price declines.
Mr. Seiders is forecasting largely flat housing sales this year followed by a strong rebound in housing starts in 2008.
Well, that settles it then! Oh, and Mr. Seiders can you please let me know who is going to win the Super Bowl next year? I'd like to put 500,000 clams down on that bet as well.
You'd think that the "journalist" would ask Mr. Seiders why he thinks this is the case.
I would like to see some numbers. What % of homes for sale are vacant?
OK. I just saw part of the article and it mentioned 2.7%. That number is too small at this point to put pressure on prices.
The increase in forclosures will put more pressure on prices then, vacant homes.
With all due respect "op", that 2.7% is unprecedented. I believe that the action is the margins and that that number is a killer.
This article is simply scary. Just scary.
I wonder how long the stock market will last?
Sales Volume is down.
Defaults are up and rising.
Vacant homes are at historic levels.
Mortgage underwriting is tightening.
Option Arms are reseting at higher payments.
More Property Taxes are delinquent.
Inventory has doubled.
Subprime Lenders are self-extinguishing.
The percentage of people able to qualify for a home is at record lows.
Yet Wall Steet is of the opinion that 2007 will be relatively flat and improving in the second half. And that homebuilder stocks and financial stocks have bottomed.
Where is any data point that support this?
2.7 if I recall is of all homes period. (2.7 is twice the previous record no?) Isn't it actually 40% of all homes up for sale? (Which doesn't include many new homes that were counted as sold but were one of the 40% of sales that fell through)
"What's troubling is that speculators may not act like typical home sellers. When they sell their vacant home in a down market, they don't necessarily purchase another home. By contrast, people selling the homes they live in will most often buy another house -- thus fueling a healthy market of buying and selling."
Not to mention the historically large percentage of overextended buyers who will get foreclosed out of houses they can't afford--every last one of them must return to renting.
excessive vacancy is because of the heavy investor demand over the past few years," said Richard DeKaser, chief economist at National City Corp.
Home ownership for many has become another financial assest to buy and sell, a commodity, a stock, a bond.
Looks like a significant number are crowding the exits.
Have you guys read this before? It's from September 2006, starting from "I used to work for one of the oldest and largest financial services companies..."
cryptogon.com
If true, 5B is huge... wonder who that firm is...
Probert, honey . . .
I was present at one of these 3am infrastructure sessions (getting paid double time), in a machine room with servers stacked floor to ceiling, cooling fans screaming, and black coffee going down by the pot full. We were taking orders from the "global ops center" in New York. The blinking lights on the "big-iron" Cisco routers indicated that roughly US$5 billion in funny money was going to move between the red-headed stepchild operation I worked for and the polished halls of The Mother Ship each month.
I was once in a server room when a bunch of lights were blinking on a router. The IT guy told me that meant it was "on." Then I handed him a new label for the backup cassette and returned to my cubicle. It wasn't 3:00 a.m., of course, it was 4:45 p.m., so the cooling fans were not screaming, they were merely whining, and I was in a hurry to go home, so I didn't think to ask the IT guy what those routers got up to in the wee hours when the FedWire was closed. I know, I know, you're going to tell me that funny money doesn't have to use FedWire, because it can just get beamed up to the Mother Ship with a few blips of the ol' Cisco. I guess you have a point there.
Probert, crypto needs to go visit Guy Noir and beg for a guest spot. Garrison could update his skits with this.
Sorry, but it's just a tad thick with the schtick --an unlikely cross between Midnight Enquirer and Business Week.
OTOH more needs to be said about this:
Subprime Lenders are self-extinguishing.
What is actually happening? Who is eating these losses? Do we see the beginnings of that long awaited correction in the price of 'junk' and higher long rates?
Last thing: If the general perception is that house prices are about to fall, wouldn't any home owner be more encouraged to sell now and buy later. Even those who were going to wait another 10 years before they 'see the world in that Winnebago'.
So much depends on peddling the view that house prices have stabilized, that the worst is behind us, that you better not even think about putting your house on the market...and making it all that much harder to make this "stablized" view stick.
Calmo, here are some of those losses ... at CAA (a mortgage REIT):
"As we enter 2007, approximately 34% of CAIT's mortgage loans are non-performing assets (as measured by mortgage payments delinquencies in excess of 60 days). Due to the partial financing of the mortgage loan portfolio with debt, non-performing mortgage loan balances are currently estimated at approximately 51% of total shareholder equity and approximately 95% of common shareholder equity."
Best Wishes.
Calmo, judging by the non-conforming/subprime rate increases we are seeing at many lenders, the spread correction is well underway.
Of course, this will tend to restrict new homebuyers and the worst category of refis, leading to higher losses.
Unlike some NAR economists who reassure everyone that house prices will not fall without a recession, I think prices could fall because of 1. A sharp rise in interest rates: (for example if the dollar falls sharply and the Fed increases rates), 2. An increase in credit spreads: for example if sub-prime market blows up) 3. An over supply of homes 4. A recession.
Even though Australia and the U.K. have had housing booms starting before the U.S. that have now cooled down neither country have had house prices falling. Neither country has had a recession recently. The U.S. economy may also be able to avoid falling into a recession.
On the other hand there have been parts of the U.S. (parts of Florida and the central valley in California) that have seen almost double digit falls in median home price over the last year even without a recession. This is possibly because of an over-supply of housing, increase in interest rates and some tightening of lending standards.
How does the supply of homes in the U.S. compare with the supply in the U.K. and Australia? And have there been any restrictions on lending in the sub-prime market similar to that in the U.S. recently?
More trouble:
Capital Alliance Income Trust Ltd., a residential mortgage REIT, said Friday that it is facing rapidly increasing pressure from deteriorating market conditions in the subprime credit sector.
The San Francisco-based company said that it now expects to report $1.35 million in losses for 2006; in late December, the company had said it expected to lose $900,000. Primarily an investor in residential subprime mortages, CAIT lost $307,308 during 2005.
Gavin, I cannot speak for the UK or Australia.
Our problem in New Zealand is too much cheap money from overseas, All our major banks are owned by Australia and our interest rates are about 1% more than Aust. We borrow our money from foreign markets. 2 year fixed rate mortgage 8.25%
Our RE market has doubled in the last 4 years beacause these rates are historicaly cheap (and kiwi's love RE)
Our market will keep going as long as there is a willing lender. I think the recession part of the equation does not count for NZ as we borrow in the international currency $US.
The world economy is driven by the US consumption machine, we only stop when you do.
'For instance, the Labour Cost Index shows that ordinary time wages have gone up by 6.3 per cent in the past two years compared with a 25.3 per cent increase in median house prices in that period'
Wage growth figures add up to headache for Reserve Bank - Economy - NZ Herald News
and from Australia:
Warning on interest burden of rising debt - National - smh.com.au
What I am rambling about is that NZ and Australias economies are reliant on global lending and things are not as rosey as they seem, you cough we catch pneumonia!
"2.7 if I recall is of all homes period. (2.7 is twice the previous record no?) Isn't it actually 40% of all homes up for sale? (Which doesn't include many new homes that were counted as sold but were one of the 40% of sales that fell through)"
That % would be roughly 58% (2.1m / 3.6m). If the 2.1m vacant homes includes builders' completed stock, I suppose the % is closer to 55.7% (2.1m / (3.6m + .17m).
Pretty high %, in either event.
The world economy is driven by the US consumption machine, we only stop when you do.
And we rely on global lending to keep consumption going. So the next question is what's keeping that going?
"And we rely on global lending to keep consumption going. So the next question is what's keeping that going?"
I feel it has to do with having the fed printing at speed and then recycling those dollars from the world back to the US. rinse, spin repeat?
I get the concept but am way over my head in the thoery!
Keep up the good work all! Have to say it is nice to find rational voices in the world, find media here to print press releases and not much analysis.
Since my grand plan is to buy my retirement residence outright for cash in an area where it's cheap to live, should I plan on looking at vacant bank-owned property in about 5 years? Or will the market crash even faster than that?
Here's one data point on how things are going in Australia (from today's conference call by PMI - mortgage insurer)
"the housing market in Australia, much like in the United States, is transitioning to a more normalized level of credit performance. Last year we saw evidence of this as credit performance rose from loss ratios in the single digits in the first half of 2006 to end the year with a full-year loss ratio of approximately 25%. As we discussed on our last conference call, in the third quarter, we began to see the simultaneous worsening of several variables, including claim rates, claim slices, and cure rates. This trend continued into the fourth quarter.
As a result of the changes in the second half of the year, we obtained different data providing indications of future credit performance. Recalibrating our analysis with this data resulted in the fourth quarter increases in our reserves for losses of $12.4 million. The majority of this addition was driven by the performance of our 2004 and 2005 book years, particularly loans originated in the greater Sidney area. The upward movement of our loss ratio in 2006 is consistent with our longstanding expectation that we will see our portfolio return to a more normalized loss ratio. The actual 20-year average loss ratio is approximately 35%. However, based upon the information from the second half of 2006, we still believe that the loss ratio in 2007 will be in the high 20s to low 30s."
A few other fun facts for their Australian unit (Q4 06 vs Q4 05):
Risk in force $136MM vs 109MM
Policies in force 1055K vs 982K
Loans in Default 2.28K vs 1.26K
Claim Paid $6.58MM vs 1.45MM
Avg Claim Size $56K vs $39K
Loss Ratio 52% vs 5.3%
That number is too small at this point to put pressure on prices.
Cf http://www.bignose.org/blog/index.php?/archives/190-Q4-vacancies.html
The last time we saw pressure on residential house prices in the US was 1989. The for-sale-only vacancy rate in 1989 was well under 2%. Either vacancies have never, ever put pressure on prices, or vacancies are way above the level that they put pressure on prices.
Pick your argument.
should I plan on looking at vacant bank-owned property in about 5 years? Or will the market crash even faster than that?
Where John S? The answer to how soon you should be looking (and how hard) probably depends on where you want to live.
This is going to be a 'national bust' but that doesn't mean San Diego California will ever be as cheap as say Flat Rock Michigan.
I think even at rock bottom you'll have to bring a considerable pile of bills to buy a home for cash in say La Jolla. You can get houses cheap in Flat Rock now.
How does the supply of homes in the U.S. compare with the supply in the U.K. and Australia?
The UK has very very strict development controls. If it were as easy to build houses in the UK as in, say, Florida, the entire country would be covered with houses now. This inelastic supply is the reason high prices are holding in the UK. Price declines must await some external cause such as credit crunch or recession. But remember, development controls are just as tough in Japan and that didn't stop a 50% price decline.
In contrast Oz is more like the US (lots of space you know) and Sydney has already experienced serious price declines.
Mr. Seiders is forecasting largely flat housing sales this year followed by a strong rebound in housing starts in 2008.
Well, that settles it then! Oh, and Mr. Seiders can you please let me know who is going to win the Super Bowl next year? I'd like to put 500,000 clams down on that bet as well.
You'd think that the "journalist" would ask Mr. Seiders why he thinks this is the case.