Excellent commentary. New home sales is one of the most unreliable series that Census publishes. New home sales should not be moving the markets today! For example, new home sales are never benchmarked to anything! Even more error prone than unit sales is the average price, which is recorded when the contract is signed. Much changes between then and when the home is actually sold for the majority of homes.
It's plausible that new sales are up with lots of incentives and price cuts. However, I wonder whether the builders will be able to compete with REO's as prices fall futher.
A more important question is whether it was responsible of Census to publish such large swings in unit sales and the average price, knowing that the data often revise considerably.
I think that personally I have to be open to the possibility that the housing slump is ending, the subprime problem really is contained, and that the economy still has at least two good years left in this business cycle.
Wow. That really didn't feel good to type that one.
Probably a question meant for some other organization. Imaging if Census had not published the data. Somebody's ox would be getting gored. If Census uses the same methods every month, picking and choosing among which to publish and which not would get tricky in a hurry. At some point, we readers must take responsibility for dealing with the data.
The price swing is not as remarkable as the sales figure swing, I think. The huge rise in sales in the South probably accounts for much of the drop in median price. What is not accounted for is the huge rise in sales in the South.
The 538,000 units of inventory is slightly below the levels of the last six months. Inventory numbers from the Census Bureau do not include cancellations - and cancellations are at record levels. Actual New Home inventories are much higher - some estimate about 20% higher
Vacant homes are at a all time high over 2 million units. My guess is this is were the past HB cancellations have landed. While the reported inventory is only 6.5 months the real number could easily be an additional 500K homes.
A big part of the inventory issue is that it is focused in less desirable locations, Inland Empire, Sac, Florida, LV to name a few, while developments close to urban population centers are selling.
The vacant home numbers will probably continue to rise with the combination of high HB cancellation rates and foreclourses.
While we are looking at revisions, take a gander at March 2005. The initial March sales figure was revised down 8.2%, from 1.431 mln to 1.313 mln. This is not a very reliable time of year.
I treat the new homes sales data as noise. The data have a huge sampling error (+-13%), are frequently revised and do not correct for the cancellations, which create shadow sales and shadow inventory.
Stronger than expected consumer confidence and recent comments from members of the Federal Reserve raised some inflation concerns in the market, causing it to lower expectations of a Fed rate cut this year. This helped push mortgage rates higher this week," Frank Nothaft, Freddie Mac's vice president and chief economist, said in a statement.
"We expect a gradual rise in mortgage rates over the remainder of the year with sales slipping further in the second half of the year. A gradual recovery returns toward the end of 2007 with modest increases in sales and construction during 2008."
Anybody watching the 10 yr this week certainly can see a big swing towards higher yields. My guess is that it reflects a slimer credit market for mortgage products since investor returns on fixed rate mortgage products don't look as attractive as the subprime 2 years ago. It also may be that FCB are pulling away from investing in the American dream and will do so only with much higher returns.
Does anyone....CR?....anyone definitively know if tomorrow's existing home sales INCLUDE or EXCLUDE a transaction when the bank takes possession of a REO when no one purchases at auction?
(Zillow counts them as purchases even though they are still empty and don't represent demand...in fact quite the opposite...I assume they just count county transactions)
" A more important question is whether it was responsible of Census to publish such large swings in unit sales and the average price, knowing that the data often revise considerably."
Are you suggesting the government should disclose information based on how people might feel about it? As an official policy?
"The price swing is not as remarkable as the sales figure swing, I think. The huge rise in sales in the South probably accounts for much of the drop in median price. What is not accounted for is the huge rise in sales in the South."
People like me with very expensive 50-year old New England colonials looking at cheap new mansions, warm weather and low cost of living in the South. If only there were the right tech jobs...
The fact that the financial system, especially that in the U.S., puts so much emphasis on home sales is a complete farce. Afterall, if one looks realistically at the strongest economies in the world (China, South Korea, Japan, Russia, Germany, Saudi Arabia), how much of their economic strengths are derived from the health of their national home sales as opposed to manufacturing and resource production? The entire U.S. economic system is nothing more than smoke and mirrors. Even the blind can see this. Buy physical gold and silver to survive the upcoming crash!
Pardon me: my previous post about whether it was responsible for Census to post such large swings was incomplete and thus misleading. I did not mean to suggest that Census should ignore signals in their source data. That would be dishonest. However, the new home sales source data--especially for the first estimate--have a very low signal-to-noise ratio. As a result, Census uses considerable judgment in putting together the first estimate. What I was suggesting is that given the substantial wiggle room available to them, Census should have been more conservative with its initial estimates of unit sales and prices.
So I'm guessing the Census Bureau makes large seasonal adjustments during March and April which take several months to get confirmed?
These months are the transition period from off-season to hot-selling season so like the weather there are a lot of dynamics happening. If they try to extrapolate the whole 'annualized estimate' during this dynamic period it will jump around... and as more & better data rolls in, heavily revised.
You really have to look at the whole period collectively to see what's going on and not just a snapshot at a time... either up or down.
In the past, we have cautioned that double digit gains of new home sales are VERY unreliable monthly data points. (It is mostly due to the way the Builders self report their sales to Commerce).
Have a look at this analysis we did a few years ago: It turns out that whenever New Home Sales jump double digits, it usually reflects a mean reversion from the prior (or subsequent) month's reportage. Indeed, over the past 15 years of data, we found that a mean regression followed nearly every double digit monthly gains. Typically, the subsequent month's data was significantly lowered -- flat to negative in nearly every case The Big Picture
Almost the entire sales increase was recorded in the south, which has prices that run approximately 40% below the west. So the reported price decrease is quite meaningless as an indicator of changes in new home pricing.
Not a lot of numbers shock me, but this one almost took the life out of my "live shot" when I saw the breathtaking number flash on my screen at 10 a.m. New home sales up a whopping 16%!! Now usually I give that caveat that the margin of error on the Commerce Department report is five times the actual number, but not this time. This one actually beat the margin of error (+/-13.0%) by three percent!
Comments on the CMBS market from the iStar conference call about the Fremont acquisition:
"Jim Shanahan, Wachovia - Analyst
Just one general question. I would like to know if you can comment on the market here, with the recent CMBS/CRE CDO spread widening, if you're starting yet to see any pricing power on the asset side?
Jay Sugarman, iStar Financial Inc. - Chairman, CEO
We're not currently anticipating that. We are seeing some pull back across the market. We are seeing proceeds come in on some of the more transitional assets, the low cash flowing assets. I think for the stuff that is right down the middle, the market is still quite strong for the stuff that I would say expertise is not necessarily required to play in. There is still a lot of capital. But on the margins where you really need to understand the real space and you really need to bring in a level of expertise and local market knowledge, we are starting to see a pullback from the more securitized CDO type financing structures.
Not enough to sit here and tell you that there is a trend developing, but definitely people have taken a step back in the last I would say six weeks to two months. Definitely people are starting to rethink the blind optimism that has governed the market for the last two years."
Anthony, I rather imagine it's because Bloomberg is in the "news" business, not the "analysis" business. If you want analysis, you're at the right place.
...brokerage margin debt, which at $318 billion is 14% above its highest level reached in March 2000 -- the year the dot.com bubble burst.
...we see the rise in margin debt as sign of a revival of animal spirits (i.e., renewed speculation) and desperation on the part of the consumer to maintain their newly found (higher) standard of living. Both represent living on borrowed time (and money)."
Just keep borrowing more and more money and everything will be fine.
k harris, exactly. "we ... must take responsibility for dealing with the data."
I believe the Census Bureau does a consistent job - and probably the best possible job - given time and budget constraints. The users of the data have to understand the weaknesses in the "just reported" data.
I'll stick with the fundamentals of supply (too much) and demand (falling), and that suggests that housing hasn't bottomed yet.
I noticed one of your google ads was for a GayMortgageLoan. I was wondering how a Gay mortgage loan is different from a traditional loan. How do I know if a Gay mortgage is right for me ? Too many choices.
So does this mean I should go out and borrow up to my eyeballs and take A HELOC while I am at it? Big #ucking deal!! they can sell 1 million homes in a month what does this mean to the average guy working 2 jobs trying make ends meet....nothing at all
The people who work on the estimates of new home sales and starts at Census do the best they can given a tight budget and less-than-optimal working conditions.
I'd also add to CR's post that the people in the Census Bureau (and most other govt. agencies) play by the same rules regardless of party in power.
When the BLS reports on unemployment, they are using the same measures they did since the 70's. You could argue that measures like the CPI are archaic, but they certainly are consistent.
Emmanual,
Gay mortgages are for houses that will have impecable interior design and Faaabulos window treatments. lol
Actually you wonder if some of the advertisers here actually read what is posted on the blog. Adds for zero down jumbo mortgages seem particularly out of place here.
"Prices began declining as supply continued expanding, giving a boost to The Heights next door to Pond View Village as apartments at The Heights were converted to condos and marketed.
The tumble of prices was dramatic. The $293,000 average condo price in 2003 was down to $250,000 the next year, then continued to fall to $225,000 in 2005. Prices fell further, to $194,000 in 2006.
That was the year Cape Ann Housing Opportunity finally got to market with its housing stock, at prices between $229,000 and $359,000. None was sold.
The experts said Cape Ann Housing Opportunity was a year late and many dollars short."
.
Tanta
.
There is developing news that many banks and other lenders are retargeting their sights, away from sub-prime lending, to the burgeoning reverse mortgage market. So here we are yet again, as the beast looks around hungrily for the next weak thing on the plains, our Senior Citizens.
.
Could you comment on reverse mortgages, and how they are handled in the mortgage food-chain? You might already have done so, in which case a pointer to the post would be apropos...
.
.
Now that you've broken the ice, I have an observation about financial market performance, as well. Let the boring begin!
A famous line from Dornbusch showed up on DeLong's blog today, and it seems applicable to the mess in the housing market and the mess some are anticipating in other markets. To paraphrase, Dornbusch said things go on longer than you expect, and go bad faster than you expect. Housing gains went on several quarters longer than a bunch of smart people expected, and got bad fast when they got bad. Now, stocks are climbing longer than many expected (though not today, bucko!). The M&A and private equity and hedge fund carnival is doing surprising things every day. The fact that stocks and leverage-monkeys are carrying on longer than expected may mean they will go south more quickly than expected.
Now, on to policy. Central bankers care deeply about signs of overheating in financial markets, and know very well that any hint of an intention to ease will given the carnival a fresh batch of new tickets to keep going. Central bankers want the tickets to grow scarce and the rides to slow down. Same with the BoJ and the carry trade. Way too much borrowing of yen in recent quarters, putting the yen and assets in Japan at great risk of a sudden bout of volatility. This offers a tidy explanation of the BoJ's willingness to hike rates when deflation is still underway. From the Fed's point of view, standing still and waiting for the rubber band to snap back is preferable to either letting out more rubber band or pulling on the rubber band. So they do nothing and do nothing and do nothing, until the trouble starts. Then, they ease. This provides fertilizer for morally hazardous investment behavior, but we have not yet discovered a reasonable alternative that doesn't involve inflicting even more pain on regular Joes. Other central banks got a later start, and now have economies closer to trend growth, so don't have the excuse for standing still.
By the way, chartie-type people tell me roughly 2 1/2 month-old rising trend lines in the Dow, S&P and Nasdaq were broken today. So maybe things will start going bad faster than we expect pretty soon.
Arun/Tanta: for what its worth- Mozillo is planning to get into reverse mortgages in a large way, with plans to be #1 by end of 2008. Not Found at SmartMoney.com
Japan has a Yuan-peg so that China does not take too much market-share from them in the US.
However, if they raise interst rate and pull yen higher they will collpase the carry trade, collapse china market force china to re-value Yuan which mean that at the end they can keep the Yuan-peg while creating better condition sfor themself against china (which will have to deal with many internal issues)
RP,
I think they made some minor changes, just playing in the margins. My point is that the methodology will be 99% static through decades of history.
Also, whenever they do change govt. stats they almost always revise the prior numbers for the current methods.
Japan has a Yuan-peg so that China does not take too much market-share from them in the US.
ALL of Asia has a Yuan(RMB)-$$$ peg... not just Japan. People think the peg is against the dollar so their products are cheap here... not so, they'd be plenty cheap anyway.
Operations in those countries are all cheap enough to export to the US but every one of them knows even we spend thrifts can only buy so much so they make damned sure they are cheaper than their neighbors to preserve their piece of the pie... and currency is part of that function. The dollar is just the ruler of cheapness they all measure themselves up against.
I can understand the Koreans, Thai, Indonesians, Viet Namese, etc., pegging to maintain market share WRT the Chinese... But I can't understand the Japanese doing it 'cause they aren't cheap anymore... they are 'quality'.
The only reason I can see the Japanese pegging to the RMB-USD is to be sure to not lose high end cap ex business (machine tooling and such) IN ASIA to US multi-nationals selling equipment there... With the exception of Boeing & Caterpillar I think they have little to worry about. The EU is their real competition in machine tools & the euro is on a trip to the moon.
(MarketWatch)
Compared with March, prices in April were down a record 11.1%.
Could we say many new home buyers in March are facing negative equity already?
Excellent commentary. New home sales is one of the most unreliable series that Census publishes. New home sales should not be moving the markets today! For example, new home sales are never benchmarked to anything! Even more error prone than unit sales is the average price, which is recorded when the contract is signed. Much changes between then and when the home is actually sold for the majority of homes.
It's plausible that new sales are up with lots of incentives and price cuts. However, I wonder whether the builders will be able to compete with REO's as prices fall futher.
The price decline is huge. Prices are now back to July 2005, 22 months ago!
The market gets it.
A more important question is whether it was responsible of Census to publish such large swings in unit sales and the average price, knowing that the data often revise considerably.
I think that personally I have to be open to the possibility that the housing slump is ending, the subprime problem really is contained, and that the economy still has at least two good years left in this business cycle.
Wow. That really didn't feel good to type that one.
Undercover,
Probably a question meant for some other organization. Imaging if Census had not published the data. Somebody's ox would be getting gored. If Census uses the same methods every month, picking and choosing among which to publish and which not would get tricky in a hurry. At some point, we readers must take responsibility for dealing with the data.
The price swing is not as remarkable as the sales figure swing, I think. The huge rise in sales in the South probably accounts for much of the drop in median price. What is not accounted for is the huge rise in sales in the South.
The 538,000 units of inventory is slightly below the levels of the last six months. Inventory numbers from the Census Bureau do not include cancellations - and cancellations are at record levels. Actual New Home inventories are much higher - some estimate about 20% higher
Vacant homes are at a all time high over 2 million units. My guess is this is were the past HB cancellations have landed. While the reported inventory is only 6.5 months the real number could easily be an additional 500K homes.
A big part of the inventory issue is that it is focused in less desirable locations, Inland Empire, Sac, Florida, LV to name a few, while developments close to urban population centers are selling.
The vacant home numbers will probably continue to rise with the combination of high HB cancellation rates and foreclourses.
Dear Host,
While we are looking at revisions, take a gander at March 2005. The initial March sales figure was revised down 8.2%, from 1.431 mln to 1.313 mln. This is not a very reliable time of year.
I treat the new homes sales data as noise. The data have a huge sampling error (+-13%), are frequently revised and do not correct for the cancellations, which create shadow sales and shadow inventory.
Today's stock market rally was revised away too. >:(
Stronger than expected consumer confidence and recent comments from members of the Federal Reserve raised some inflation concerns in the market, causing it to lower expectations of a Fed rate cut this year. This helped push mortgage rates higher this week," Frank Nothaft, Freddie Mac's vice president and chief economist, said in a statement.
"We expect a gradual rise in mortgage rates over the remainder of the year with sales slipping further in the second half of the year. A gradual recovery returns toward the end of 2007 with modest increases in sales and construction during 2008."
Anybody watching the 10 yr this week certainly can see a big swing towards higher yields. My guess is that it reflects a slimer credit market for mortgage products since investor returns on fixed rate mortgage products don't look as attractive as the subprime 2 years ago. It also may be that FCB are pulling away from investing in the American dream and will do so only with much higher returns.
IMPORTANT!
Does anyone....CR?....anyone definitively know if tomorrow's existing home sales INCLUDE or EXCLUDE a transaction when the bank takes possession of a REO when no one purchases at auction?
(Zillow counts them as purchases even though they are still empty and don't represent demand...in fact quite the opposite...I assume they just count county transactions)
" A more important question is whether it was responsible of Census to publish such large swings in unit sales and the average price, knowing that the data often revise considerably."
Are you suggesting the government should disclose information based on how people might feel about it? As an official policy?
"The price swing is not as remarkable as the sales figure swing, I think. The huge rise in sales in the South probably accounts for much of the drop in median price. What is not accounted for is the huge rise in sales in the South."
People like me with very expensive 50-year old New England colonials looking at cheap new mansions, warm weather and low cost of living in the South. If only there were the right tech jobs...
The fact that the financial system, especially that in the U.S., puts so much emphasis on home sales is a complete farce. Afterall, if one looks realistically at the strongest economies in the world (China, South Korea, Japan, Russia, Germany, Saudi Arabia), how much of their economic strengths are derived from the health of their national home sales as opposed to manufacturing and resource production? The entire U.S. economic system is nothing more than smoke and mirrors. Even the blind can see this. Buy physical gold and silver to survive the upcoming crash!
Fireworks
BTW folks, don't ignore the fact that real interst rates are running higher than GDP growth.
That can really come back and bite you in the a$$ if you're not careful.
something very odd: Rubini and Greenspan agree on China......
Pardon me: my previous post about whether it was responsible for Census to post such large swings was incomplete and thus misleading. I did not mean to suggest that Census should ignore signals in their source data. That would be dishonest. However, the new home sales source data--especially for the first estimate--have a very low signal-to-noise ratio. As a result, Census uses considerable judgment in putting together the first estimate. What I was suggesting is that given the substantial wiggle room available to them, Census should have been more conservative with its initial estimates of unit sales and prices.
So I'm guessing the Census Bureau makes large seasonal adjustments during March and April which take several months to get confirmed?
undercover - I'm glad they throw it out... like k harris suggested, just use your own judgment.
For tanta: Mortgage Brokers: Friends or Foes? - WSJ.com
So I'm guessing the Census Bureau makes large seasonal adjustments during March and April which take several months to get confirmed?
These months are the transition period from off-season to hot-selling season so like the weather there are a lot of dynamics happening. If they try to extrapolate the whole 'annualized estimate' during this dynamic period it will jump around... and as more & better data rolls in, heavily revised.
You really have to look at the whole period collectively to see what's going on and not just a snapshot at a time... either up or down.
If builders are pushing inventory at any cost it means:
FROM, The Big Picture,
In the past, we have cautioned that double digit gains of new home sales are VERY unreliable monthly data points. (It is mostly due to the way the Builders self report their sales to Commerce).
Have a look at this analysis we did a few years ago: It turns out that whenever New Home Sales jump double digits, it usually reflects a mean reversion from the prior (or subsequent) month's reportage. Indeed, over the past 15 years of data, we found that a mean regression followed nearly every double digit monthly gains. Typically, the subsequent month's data was significantly lowered -- flat to negative in nearly every case
The Big Picture
Almost the entire sales increase was recorded in the south, which has prices that run approximately 40% below the west. So the reported price decrease is quite meaningless as an indicator of changes in new home pricing.
heaven help us ...
"New Homes on a Total Tear", by Diana Olick, CNBC, May 24, 2007.
Comments on the CMBS market from the iStar conference call about the Fremont acquisition:
"Jim Shanahan, Wachovia - Analyst
Just one general question. I would like to know if you can comment on the market here, with the recent CMBS/CRE CDO spread widening, if you're starting yet to see any pricing power on the asset side?
Jay Sugarman, iStar Financial Inc. - Chairman, CEO
We're not currently anticipating that. We are seeing some pull back across the market. We are seeing proceeds come in on some of the more transitional assets, the low cash flowing assets. I think for the stuff that is right down the middle, the market is still quite strong for the stuff that I would say expertise is not necessarily required to play in. There is still a lot of capital. But on the margins where you really need to understand the real space and you really need to bring in a level of expertise and local market knowledge, we are starting to see a pullback from the more securitized CDO type financing structures.
Not enough to sit here and tell you that there is a trend developing, but definitely people have taken a step back in the last I would say six weeks to two months. Definitely people are starting to rethink the blind optimism that has governed the market for the last two years."
Why does Bloomberg trunmpet the April figures and bury the revisions?
U.S. Economy: New Home Sales, Durables Orders Rise (Update5) - Bloomberg.com
Anthony, I rather imagine it's because Bloomberg is in the "news" business, not the "analysis" business. If you want analysis, you're at the right place.
...brokerage margin debt, which at $318 billion is 14% above its highest level reached in March 2000 -- the year the dot.com bubble burst.
...we see the rise in margin debt as sign of a revival of animal spirits (i.e., renewed speculation) and desperation on the part of the consumer to maintain their newly found (higher) standard of living. Both represent living on borrowed time (and money)."
Just keep borrowing more and more money and everything will be fine.
- Herb Greenberg - MarketWatch
k harris, exactly. "we ... must take responsibility for dealing with the data."
I believe the Census Bureau does a consistent job - and probably the best possible job - given time and budget constraints. The users of the data have to understand the weaknesses in the "just reported" data.
I'll stick with the fundamentals of supply (too much) and demand (falling), and that suggests that housing hasn't bottomed yet.
Best Wishes.
CR,
I noticed one of your google ads was for a GayMortgageLoan. I was wondering how a Gay mortgage loan is different from a traditional loan. How do I know if a Gay mortgage is right for me ? Too many choices.
Not to get political but, Wall Street and the Republicans need to put any kind of positive spin they can on the real estate mess.
If stock prices falter here we will be talking about when the recession started and how long it will last.
This is not the kind of news Republicans need in an election year.
Wall Street doesn't want too see this either so they will be pumping up the good news as long as possible.
In the long run the middle class will be left paying off and paying for a big part of this mess.
So does this mean I should go out and borrow up to my eyeballs and take A HELOC while I am at it? Big #ucking deal!! they can sell 1 million homes in a month what does this mean to the average guy working 2 jobs trying make ends meet....nothing at all
The average % difference between the original monthly new home sales figure and the latest estimate for all of the months of last year was -6.4%!
2006\tLatest\tFirst Reported\t% Diff
Jan\t 1,185 \t 1,233 \t-3.9%
Feb\t 1,084 \t 1,080 \t0.4%
Mar\t 1,126 \t 1,213 \t-7.2%
Apr\t 1,097 \t 1,198 \t-8.4%
May\t 1,087 \t 1,234 \t-11.9%
Jun\t 1,073 \t 1,131 \t-5.1%
Jul\t 969 \t 1,072 \t-9.6%
Aug\t 1,009 \t 1,050 \t-3.9%
Sep\t 1,004 \t 1,075 \t-6.6%
Oct\t 952 \t 1,004 \t-5.2%
Nov\t 987 \t 1,047 \t-5.7%
Dec\t 1,019 \t 1,120 \t-9.0%
\t\tAverage -6.4%
I agree with CR's previous post.
The people who work on the estimates of new home sales and starts at Census do the best they can given a tight budget and less-than-optimal working conditions.
I'd also add to CR's post that the people in the Census Bureau (and most other govt. agencies) play by the same rules regardless of party in power.
When the BLS reports on unemployment, they are using the same measures they did since the 70's. You could argue that measures like the CPI are archaic, but they certainly are consistent.
Emmanual,
Gay mortgages are for houses that will have impecable interior design and Faaabulos window treatments. lol
Actually you wonder if some of the advertisers here actually read what is posted on the blog. Adds for zero down jumbo mortgages seem particularly out of place here.
This constant revisionism smacks of manipulation. You have to wonder about who's getting rich while we yammer away in the backwoods here...
PM on the west coast and the networks are still using the 16% up news, damn the revisions!
Here is an article about a non-profit condo development mostly empty and attempting to avoid foreclosure.
Experts: Cape Ann Housing Opportunity lost race to sell condos before market cooled - GloucesterTimes.com, Gloucester, MA
"Prices began declining as supply continued expanding, giving a boost to The Heights next door to Pond View Village as apartments at The Heights were converted to condos and marketed.
The tumble of prices was dramatic. The $293,000 average condo price in 2003 was down to $250,000 the next year, then continued to fall to $225,000 in 2005. Prices fell further, to $194,000 in 2006.
That was the year Cape Ann Housing Opportunity finally got to market with its housing stock, at prices between $229,000 and $359,000. None was sold.
The experts said Cape Ann Housing Opportunity was a year late and many dollars short."
.
Tanta
.
There is developing news that many banks and other lenders are retargeting their sights, away from sub-prime lending, to the burgeoning reverse mortgage market. So here we are yet again, as the beast looks around hungrily for the next weak thing on the plains, our Senior Citizens.
.
Could you comment on reverse mortgages, and how they are handled in the mortgage food-chain? You might already have done so, in which case a pointer to the post would be apropos...
.
.
arun, I have successfully avoided writing about reverse mortgages heretofore.
I think I saw the same article you did. A mortgage trader of mine acquaintance sent it to me with the caption "like molesters to a playground."
I'll do a primer on reverse mortgages if that's what people want. I guess after neg am and REMICs you all now know what you're in for . . .
NJ Mortgages,
Now that you've broken the ice, I have an observation about financial market performance, as well. Let the boring begin!
A famous line from Dornbusch showed up on DeLong's blog today, and it seems applicable to the mess in the housing market and the mess some are anticipating in other markets. To paraphrase, Dornbusch said things go on longer than you expect, and go bad faster than you expect. Housing gains went on several quarters longer than a bunch of smart people expected, and got bad fast when they got bad. Now, stocks are climbing longer than many expected (though not today, bucko!). The M&A and private equity and hedge fund carnival is doing surprising things every day. The fact that stocks and leverage-monkeys are carrying on longer than expected may mean they will go south more quickly than expected.
Now, on to policy. Central bankers care deeply about signs of overheating in financial markets, and know very well that any hint of an intention to ease will given the carnival a fresh batch of new tickets to keep going. Central bankers want the tickets to grow scarce and the rides to slow down. Same with the BoJ and the carry trade. Way too much borrowing of yen in recent quarters, putting the yen and assets in Japan at great risk of a sudden bout of volatility. This offers a tidy explanation of the BoJ's willingness to hike rates when deflation is still underway. From the Fed's point of view, standing still and waiting for the rubber band to snap back is preferable to either letting out more rubber band or pulling on the rubber band. So they do nothing and do nothing and do nothing, until the trouble starts. Then, they ease. This provides fertilizer for morally hazardous investment behavior, but we have not yet discovered a reasonable alternative that doesn't involve inflicting even more pain on regular Joes. Other central banks got a later start, and now have economies closer to trend growth, so don't have the excuse for standing still.
By the way, chartie-type people tell me roughly 2 1/2 month-old rising trend lines in the Dow, S&P and Nasdaq were broken today. So maybe things will start going bad faster than we expect pretty soon.
Tanta,
If you write an article on reverse mortgages, Producer will put a contract out on you. Be careful.
Adds for zero down jumbo mortgages seem particularly out of place here.
Dirk van Dijk
Everyone should be clicking those ads. What could be better than to have those sleaze-brokers foot the bill for CR and Tanta's blog?
Karma sure has been scarce as of late, it'd be nice to see her appear from her hiding place every now and again.
k harris,
I enjoyed your post, and your analysis makes sense to me...
Others have posted about changes to the calculation that occurred in the 90s, so I'm not sure what you say is true here.
Arun/Tanta: for what its worth- Mozillo is planning to get into reverse mortgages in a large way, with plans to be #1 by end of 2008.
Not Found at SmartMoney.com
" If builders are pushing inventory at any cost it means:"
As a person wanting bigger, newer housing I opine that they are not even close to that.
K-Harris.
here is my take:
Japan has a Yuan-peg so that China does not take too much market-share from them in the US.
However, if they raise interst rate and pull yen higher they will collpase the carry trade, collapse china market force china to re-value Yuan which mean that at the end they can keep the Yuan-peg while creating better condition sfor themself against china (which will have to deal with many internal issues)
about charts. actually NAZ broke some time ago but went back into the trend so it may occur again.
"This constant revisionism smacks of manipulation."
The number of which we speak is watched primarily by those who should know better. To whit, who is the intended victim of new home sales miscounting?
"You have to wonder about who's getting rich while we yammer away in the backwoods here..."
Not the census crunchers. Upper middle class is their lot.
RP,
I think they made some minor changes, just playing in the margins. My point is that the methodology will be 99% static through decades of history.
Also, whenever they do change govt. stats they almost always revise the prior numbers for the current methods.
Then, they ease.
No, they don't.
Same here k harris... nice & I even agree.
Japan has a Yuan-peg so that China does not take too much market-share from them in the US.
ALL of Asia has a Yuan(RMB)-$$$ peg... not just Japan. People think the peg is against the dollar so their products are cheap here... not so, they'd be plenty cheap anyway.
Operations in those countries are all cheap enough to export to the US but every one of them knows even we spend thrifts can only buy so much so they make damned sure they are cheaper than their neighbors to preserve their piece of the pie... and currency is part of that function. The dollar is just the ruler of cheapness they all measure themselves up against.
I can understand the Koreans, Thai, Indonesians, Viet Namese, etc., pegging to maintain market share WRT the Chinese... But I can't understand the Japanese doing it 'cause they aren't cheap anymore... they are 'quality'.
The only reason I can see the Japanese pegging to the RMB-USD is to be sure to not lose high end cap ex business (machine tooling and such) IN ASIA to US multi-nationals selling equipment there... With the exception of Boeing & Caterpillar I think they have little to worry about. The EU is their real competition in machine tools & the euro is on a trip to the moon.
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Tanta,
a revmor diatribe will make a good wakeup read. if nothing else, it will tweak dad enough to stop attending those damn seminars eevry saturday...
Name,
"To whit, who is the intended victim of new home sales miscounting?"
louts like me who give time to their shinyfaced realtors as they talk up the rising sales rate...bottoms up!
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"Mozillo is planning to get into reverse mortgages in a large way"
Eventually they will own everything on the day it is worth nothing.