First things first. The morning brought new home sales, which had the headline reaction of spiking the market upward. But then, something new happened - people read beyond the headline and actually read the data! That was a first, and embedded in the data was the truth - a nearly 10% decline in sales price!
Now guys, that's huge. In fact, its beyond huge - its cataclysmic. Ten percent? I thought we weren't going to see severe price declines in homes? That's what all "the wise men" said, isn't it?
Guess what - its actually worse than as reported, because incentives like "free landscaping" and such don't show up in the numbers!
Anyway, the market responded as you'd think it might - it sold off.
The highly leveraged loan market has surpassed the junk-bond market, owing in part to bankers' innovation in the form of "covenant lite" loans, which lack the strictures that senior obligations traditionally carried. In other words, pretty much anything goes.
Covenant-lite loans accounted for only 5% of the market in 2006, $24 billion out of $480 billion of total loans, according to Penniman. So far this year, "cov-lites" total $70 billion out of $237 billion, he says.
Traditional loans typically had maintenance tests, which required the borrower to meet various financial standards, such as multiples of coverage of debt service or collateral. Now, borrowers will refinance their old loans with cov-lites to free themselves from those constrictions, Penniman explains, allowing the companies to use those assets to obtain more loans to further lever their balance sheets.
Indeed, such is the demand for loans with any extra margin of yield that the attitude of some investors is to buy first and ask questions later. If you insist on due diligence, you don't get any allocation.
Yal, I'd just ignore the pricing in the Census Bureau report - it is so heavily revised, the reported numbers are essentially worthless. Who knows why the market sold off? In the short term, the market really is just random.
ac, that is an amazing quote: "If you insist on due diligence, you don't get any allocation."
"If you insist on due diligence, you don't get any allocation."
Wow is right, but it's gone on so long that it looks normal. I try to buy corporate bonds new issue, and by the time I get in in the morning, they've already been spoken for. The typical talk is that the deal is going (has gone) well and that 2/3 of the deal is spoken for in Asia.
OK w/o the numbers/stats. We know that new home prices must be down - we hear about those law-suits of those who claim the builder "lowered prices" so it fits this 10% made sense to me.
Indeed, such is the demand for loans with any extra margin of yield that the attitude of some investors is to buy first and ask questions later. If you insist on due diligence, you don't get any allocation. - Barrons via Yal.
I try to buy corporate bonds new issue, and by the time I get in in the morning, they've already been spoken for. The typical talk is that the deal is going (has gone) well and that 2/3 of the deal is spoken for in Asia. - gab.
Yal take a close look at the census report - just a bump in sales in the South under $150K, doesn't mean prices are lower, means lower priced homes sold. Could be a recovery of buyers typically in the subprime arena (not including Orange Co, CA buyers where subprime over $1 mil is typ).
Your most likely right dryfly. However, there does seem to be some small whiffs and portends of hesitation these days; the yield on Fed 10yrs was up and mortgage rates increased I understand. The OECD was supposedly even recommending CB's increase rates, warning of inflation.
But as you said just recently, in this macro economic game you need to have more than a few data points (that can't be easily revised) to make a nice smooth trend curve. I'll believe it when the EZ-loans and cash are gone..
You pointed out once in the past that non-residential real estate loans can be a much worse mess than home mortgages, using a prior version of the table you link to. Of course, they aren't so far, but delinquencies are now headed up, so the process has begun. Fed officials have stopped moaning about the quality of commercial loans, but when they were talking about it (dared to?), they said practices in the non-residential market were at least as bad as in the residential market.
from The Market Ticker
First things first. The morning brought new home sales, which had the headline reaction of spiking the market upward. But then, something new happened - people read beyond the headline and actually read the data! That was a first, and embedded in the data was the truth - a nearly 10% decline in sales price!
Now guys, that's huge. In fact, its beyond huge - its cataclysmic. Ten percent? I thought we weren't going to see severe price declines in homes? That's what all "the wise men" said, isn't it?
Guess what - its actually worse than as reported, because incentives like "free landscaping" and such don't show up in the numbers!
Anyway, the market responded as you'd think it might - it sold off.
Sub-prime loans for the coporate sector:
The highly leveraged loan market has surpassed the junk-bond market, owing in part to bankers' innovation in the form of "covenant lite" loans, which lack the strictures that senior obligations traditionally carried. In other words, pretty much anything goes.
Covenant-lite loans accounted for only 5% of the market in 2006, $24 billion out of $480 billion of total loans, according to Penniman. So far this year, "cov-lites" total $70 billion out of $237 billion, he says.
Traditional loans typically had maintenance tests, which required the borrower to meet various financial standards, such as multiples of coverage of debt service or collateral. Now, borrowers will refinance their old loans with cov-lites to free themselves from those constrictions, Penniman explains, allowing the companies to use those assets to obtain more loans to further lever their balance sheets.
Indeed, such is the demand for loans with any extra margin of yield that the attitude of some investors is to buy first and ask questions later. If you insist on due diligence, you don't get any allocation.
Global Bull Rides Boom in Loose Lending - Barrons.com
Yal, I'd just ignore the pricing in the Census Bureau report - it is so heavily revised, the reported numbers are essentially worthless. Who knows why the market sold off? In the short term, the market really is just random.
ac, that is an amazing quote: "If you insist on due diligence, you don't get any allocation."
Wow.
Best Wishes.
"If you insist on due diligence, you don't get any allocation."
Wow is right, but it's gone on so long that it looks normal. I try to buy corporate bonds new issue, and by the time I get in in the morning, they've already been spoken for. The typical talk is that the deal is going (has gone) well and that 2/3 of the deal is spoken for in Asia.
CR - do you have a graph with a longer timespan?
Thanks
CR: Tnx.
OK w/o the numbers/stats. We know that new home prices must be down - we hear about those law-suits of those who claim the builder "lowered prices" so it fits this 10% made sense to me.
so maybe it is randomaly true.....
Fred, sorry - that's all the data the Fed provides (see link in post for data).
Best to all.
The Federal Reserve reports that delinquency rates at U.S. commercial banks increased in Q1 for all types of real estate loans.
Yep, problem's contained. Move along, move along...
Indeed, such is the demand for loans with any extra margin of yield that the attitude of some investors is to buy first and ask questions later. If you insist on due diligence, you don't get any allocation. - Barrons via Yal.
I try to buy corporate bonds new issue, and by the time I get in in the morning, they've already been spoken for. The typical talk is that the deal is going (has gone) well and that 2/3 of the deal is spoken for in Asia. - gab.
One word: liquidity. It ain't over, people.
Yal take a close look at the census report - just a bump in sales in the South under $150K, doesn't mean prices are lower, means lower priced homes sold. Could be a recovery of buyers typically in the subprime arena (not including Orange Co, CA buyers where subprime over $1 mil is typ).
Your most likely right dryfly. However, there does seem to be some small whiffs and portends of hesitation these days; the yield on Fed 10yrs was up and mortgage rates increased I understand. The OECD was supposedly even recommending CB's increase rates, warning of inflation.
FT.com / Markets / US - OECD warns on risk of higher inflation
But as you said just recently, in this macro economic game you need to have more than a few data points (that can't be easily revised) to make a nice smooth trend curve. I'll believe it when the EZ-loans and cash are gone..
I'll believe it when the EZ-loans and cash are gone...
Me too.
Dear Host,
You pointed out once in the past that non-residential real estate loans can be a much worse mess than home mortgages, using a prior version of the table you link to. Of course, they aren't so far, but delinquencies are now headed up, so the process has begun. Fed officials have stopped moaning about the quality of commercial loans, but when they were talking about it (dared to?), they said practices in the non-residential market were at least as bad as in the residential market.
Let's make popcorn and watch what happens.