Yal, an ARM-to-Fixed refi very frequently results in a higher interest rate, if it happens before the first adjustment. Look at the numbers they're quoting on prime comforming ARMs outstanding. It looks to me like that giant chunk of 3/1s and 5/1s originated in 2003-2004 are now refinancing into fixed rates. They'd have to take a higher rate to do that, and it's hardly a bad move on the borrowers' part given what would happen to them if they let the things reset.
It also is highly likely that these folks are paying off a HELOC with this refi, as well as getting out of an ARM. That would count as cash-out in the context of this report. So we don't necessarily have current MEW here as much as possibly refinancing past consumption. That, however, may be less the case than people paying off HELOCs that were originally used for purchase money. If the median loan was over three years old and there was 24% appreciation, then people could be getting out of an 80/20 deal by refinancing it into a new single first lien. Again, that would be worth taking an additional .375 on the first lien rate for a lot of these people, given where the current rate was on the HELOC or HEL.
yes that would make sense. replace what was 100% LTV (80+20) with a new 80% LTV.
This is not possible any more since homes started to go down so even this move (which makes sense) is part of the Ponzy scheme that only works if homes keep going up.
This is not possible any more since homes started to go down
Of course it's still possible if you are a prime credit conforming loan balance holder of a loan that is three or more years old and you bought your property before 2005.
Do bear in mind that this report is coming from Freddie Mac. It therefore only covers loans that are sold to Freddie. It says nothing whatsoever about jumbos or most Alt-A or subprime.
Frankly, it is suggesting to me that prime is still in pretty good shape on the whole. I'm not particularly surprised by that, but I never claimed that prime conforming was going to be the major problem.
We are seeing the absolute number of Freddie cash-outs, and the absolute dollar volume of cash, dropping. At the same time that the median loan age is holding constant. If that's a real trend, it suggests to me that we will eventually run out of prime conforming candidates for cash-out refis, as there are simply fewer and fewer borrowers from the right vintage. So it's not hot news if you would like to see MEW availability stay up. But it's not bad news if you'd like to see some homeowners stabilizing their expenses.
It's impressive that in some quarters 1 out of 5 refinancers actually kicked in additional money to pay down their balance when they shifted into a lower rate fixed mortgage - and comparatively recently too.
TStockman, I expect that a fair number of those are folks who are trying to drop mortgage insurance. You go to refi, and the appraisal comes in at like 82% or something. So if you have any money at all, it makes sense to pay your balance down so that you can get a new 80% loan without MI.
Some of it may also be refinances of construction loans on custom-built deals. Between the original loan and completion of the property, the borrower sold the current home and now has more equity to apply at the take-out loan.
And there are three old coupon-clipping permabears who just like to pay down loans because it's prudent. One of them was probably CR.
ozajh, I believe they just exclude those from the old-to-new rate ratio calculation, not from the entire dataset. A new ARM is always going to have a lower initial rate than the old loan, but not necessarily for long. So keeping them out of the rate ratio probably gives you a better sense of how many people are actually taking a higher or lower rate.
And since Freddie doesn't buy that many ARMs to start with, and not very many of those are cash-outs, it's probably not a terribly significant part of the book in terms of balance, but with deep enough discounts on the new ARM it could be enough to skew the averages on rates.
Maybe not relevant to the conversation, but I found it interesting that the 4th quarter seems to be the most popular time for folks to re-fi into smaller loan amounts. Any theories?
Yes Tanta I will accept this as a much better way of what I tried to say:
"it suggests to me that we will eventually run out of prime conforming candidates for cash-out refis, as there are simply fewer and fewer borrowers from the right vintage. So it's not hot news if you would like to see MEW availability stay up. But it's not bad news if you'd like to see some homeowners stabilizing their expenses."
Todd, back in the days when I had a couple dozen loan officers bugging the snot out of me for rate lock extensions over the Christmas holiday for all those piled up refis that weren't closing fast enough, the usual explanation was that we all waited until year-end to do that particular kind of refi because we wanted to get as much out of the higher tax deduction for the year as we could.
ac: What a lovely metaphor for the economy. The owner of the cat is falling-down drunk and waving a handgun around. The cat, having good sense but limited options, heads for highest ground it has access to. The owner concludes that it needs to be "rescued."
If it had been a helicopter instead of a firehose, I'm sure it would have worked out OK.
Take a look at Realty Trac. The house inventory has been going up much faster in April than in March in most areas.
Listings on ZipRealty and on the HousingTracker sites (i.e. MLS listings) have all been rising very rapidly over the past several weeks. It looks to me like it could be a genuine panic bailout from all the negative media headlines on housing recently.
ac, a lot of people don't pay much attention to those headlines. But we are a few months away from a big jump in predicted resets, and my guess is that those who are feeling uncomfortable with their situation are moving to try to sell.
Tanta herself has said that the housing bubble occurred because people believed that housing values would always go up. And I do not think she is anywhere near alone in that thought.
Well, that's psychological, isn't it?
If it's psychological on the way up, it certainly can be psychological on the way down.
And look at the psychology. The American Consumer, that lynchpin of world well-being and the usurer's wealth, is already bombarded with as much good news as anyone can take. So, if s/he takes a vacation, it will be a vacation in the presence of a Pavlov push unequaled in human history.
Deflation is on its way.
And recall, deflation hurts the borrower not the usurer. What's to stop it?
Tanta: "... And there are three old coupon-clipping permabears who just like to pay down loans because it's prudent. One of them was probably CR."
LOL
"kett82, wasn't that funny? Hey, Gene, go back to BoA ...
I posted on this earlier today (links but not much insight). Bert Ely thinks it's just Syron's reluctance to actually hand over the crown.
By the way, there's a new CBC Radio Infotainment show called "Q", and I couldn't resist the impulse to share with them your find about Ranieri's comments on Q election. Don't be too surprised if a burned out Canadian folk rock artist named Jian Ghomeshi doesn't call asking for an explanation.
Arbo, I share much of your deflationary angst. Too much debt, too little savings, and soon-to-be rapidly deteriorating demographics will have us showing Japan how it's really done.
ac said: "Listings on ZipRealty and on the HousingTracker sites (i.e. MLS listings) have all been rising very rapidly over the past several weeks. It looks to me like it could be a genuine panic bailout from all the negative media headlines on housing recently..."
Inventory rises in anticipation of rising demand. This is the peak time of year for selling real estate so it's normal for inventory to rise, with or without "panic."
In the neighborhoods adjacent to mine the "panic" is producing a rising inventory of houses available for sale...and higher prices than last year. (Not in my neighborhood, though, because there are stillzero houses for sale.)
Tanta said: "...And there are three old coupon-clipping permabears who just like to pay down loans because it's prudent. One of them was probably CR."
And me. Probably accounts for my bullishness, since I seem to be one of only three people in America who's responsible with money, and therefore has some to spend.
I am very surprised at the amount of loans that have been refinanced to avoid the 2007 resets. I was always of the assumption that the catalyst for a big price downturn in the housing market would come from these resets in Q3 and Q4. Without this trigger, I am more inclined to think this will be a very slow and painful march down the price ladder. Has there been a more recent industry-wide study on how many resets are still due in 2007?
Some of that $70B that just flowed out in refi... and lots more just like it.
The folks who constantly call for 'deflation' need to do some 'cultural exchanges'. In general they are tight fisted savers to start with and can't even begin to GROK excess consumption... let alone 125%CLTVs.
They need to experience how the 'other half lives'... there is a lot of 'other half' out there.
Those folks need to visit mall of America on a Saturday. My daughter would love to be your tour guide. Bring your (un-maxed out) credit cards. It will be a trip you will not soon forget.
Sean said: "I am very surprised at the amount of loans that have been refinanced to avoid the 2007 resets..."
I don't get why the bears think so many American homeowners are stupid and/or destitute. I've had ARMs twice in my life and refinanced both with fixed-rate mortgages when rates made it worthwhile to do so.
I got the deal of a lifetime on the last one, and tens of millions of other homeowners just like me have done the same over the past few years.
I got the deal of a lifetime on the last one, and tens of millions of other homeowners just like me have done the same over the past few years.
I did an ARM once too - in early 1980s. Hard not to go wrong then (from 18% down to about 12% over that period... plus we only lived there 3 years before I moved due to work, moved before the reset).
The problem is not everyone is that responsible, nor that well off to just do an ARM willy-nilly.
Many used ARMs because it was the only way they could get into the house in the first place (teaser rate qualification) & they wanted into houses badly because houses 'paid you' to own them. Now that that is ending we'll see just how serious this is... how many did it (vs. types like you & me) and how severe it is (how much did they rely on and need rapid appreciation to avoid disaster).
I will agree with bulls on one major point - it is very unclear that there is a large and significant problem. The logic explains how the problem could be there but the facts don't prove it is or is not there. The data is conflicted.
"I don't get why the bears think so many American homeowners are stupid and/or destitute. I've had ARMs twice in my life and refinanced both with fixed-rate mortgages when rates made it worthwhile to do so."
I always laugh when I see homeowner and loan in the same sentence. The bank owns the home and you are a slave to the bank until it is paid off or you get kicked out on your arse for not making the payment. If you don't believe that just stop making the payment. Also you will never own the land that the home sits on. If you don't believe that just try not paying the taxes. If you have a loan on the home you live in you are simply a slave to the government and the bank. Now get to work or pray for asset inflation so you can make the payments.
dryfly said: "...The logic explains how the problem could be there but the facts don't prove it is or is not there. The data is conflicted.
That's why we all watch & wait..."
The only conflict is between the "logic" and the data. There's no reason why anyone should have to watch and wait, we know right now.
The only misperceived "conflict" is that if everything isn't "good" all at the same time things are "bad". Housing is weak right now (sort of) but other sectors are fine. At some other point in the business cycle housing will be stronger while another sector is weak, that's the way it works.
The same principle applies to inflation, btw. When you break down the CPI-U into its individual components, some prices are going up while others are going down, it's almost always like that...and it's normal.
Kevin said: "...Now get to work or pray for asset inflation so you can make the payments."
My loan is financed at approximately the same rate as the long-run appreciation rate of housing. (Actually I'm probably doing better than that because I live in a generally more-desirable area.)
In addition, I'm re-paying the loan with inflated dollars and getting a big tax-break.
To top it all off, my monthly mortgage payment is lower than what it would cost me to rent something similar...which I can't do anyway because the housing market is too tight.
As long as I keep this loan I am the one screwing the bank. In practical terms they've loaned me money at a lower rate than the return I get on the asset. Plus, I get to live in a comfortable home in a nice neighborhood at below-market cost.
Regarding ARM refinancings. I think the concern here is that "adverse selection" is at work. Meaning those borrowers who cannot refi or sell their homes are left to the market forces of rising interest rates and falling property values. An unusually high percent will default.
My loan is financed at approximately the same rate as the long-run appreciation rate of housing. (Actually I'm probably doing better than that because I live in a generally more-desirable area.)
There 3 big class of people in US. Those who's mortgage is much less than comparable rent. And those in opposite state. And finally the rest.
Both of us are in 1st group. I think at least 30% of "owners" are in the 2nd. They are in horrible situation, and, frankly, paying the mortgage is just not a sound financial decision for them.
Remember, among those who default on mortgage payments there are many who can pay. They just make a wise financial decision to stop paying. And that breaks the system.
theroxylander said: "...Remember, among those who default on mortgage payments there are many who can pay. They just make a wise financial decision to stop paying...."
How many? And considering the long-term repercussions of this action, why is this a wise decision?
Am I the only one here who actually lives in the world? I was kidding before when I suggested that some of the posters here were thinking like economists, with ivory-tower models of how the world worked that were far removed from what real people did. Now I'm not so sure.
When times have gotten tight for me in the past, the threat of having a nasty credit rating for years was one of the things that kept me current on my mortgage. Especially since I needed somewhere to live anyway and housing almost always "comes back", even if it takes a decade.
The "wisest" financial decision is to keep the house as long as you can afford to make the payments, even if you're temporarily "upside down" on the mortgage. You have a place to live, maintain your credit rating, and build (or at least re-acquire) equity all at the same time.
There's no reason why anyone should have to watch and wait, we know right now.
If you REALLY believe that then you should take all your assets & savings, leverage them 10:1 and go long with a diversified option portfolio & rake the money in. If you really KNOW that is the future then you can't lose.
Fact is the 'logic' says the 'data' is supported by leverage already... question is how much & consequences... so in fact all of us who are long now are already 'leveraged' in effect...
If that leverage falls out (say the liquidity dries up) then we'll all be hurting... though not necessarily washed up if our personal LTVs are manageable. I think mine are. Can't speak for others.
That's why the watch and wait.
The day the $3B stops flowing in from Asia is the day the REALITY changes. That might be a very long time off - it might be tomorrow. But everything ends, everything changes - they all have consequences, some good & some bad.
dryfly said: "...If you REALLY believe that then you should take all your assets & savings, leverage them 10:1 and go long with a diversified option portfolio & rake the money in. If you really KNOW that is the future then you can't lose.
Fact is the 'logic' says the 'data' is supported by leverage already... question is how much & consequences... so in fact all of us who are long now are already 'leveraged' in effect...
If that leverage falls out (say the liquidity dries up) then we'll all be hurting... though not necessarily washed up if our personal LTVs are manageable. I think mine are. Can't speak for others..."
Leaving aside the fact that an investor can get it absolutely right and still be wiped-out by a normal swing if he's too highly-leveraged...
...what data, and I mean data totally isolated from subjective interpretation, has you concerned?
Seriously, no games, no posturing on my part, let's break down this problem into something manageable, understandable.
You say that if $3 billion a day stops coming in from Asia, it's "game over" or whatever.
Let's start there. $3 billion dollars a day, 365 days a year, $1.1 trillion. Okay. What's the problem?
Why would our trading partners suddenly cut off their nose(s) to spite their face(s) by ceasing to trade with the single largest economy in the world?
Why are we going to stop buying from them since they're an important source of cheap goods that we need every single day?
Even if (for some bizarre reason) this did occur, why would it all occur at once, immediately, without any opportunity for the economies of our trading partners or us to adapt?
Or do you think we'll reach a point where we suddenly can't afford to buy? Okay, says who? Show me the objective data that says our economy and our citizens aren't gradually building wealth every year. Not things that CR has said, nothing from the NYT, or from "CAhousingisgoingtohell.com".Real data.
Let's start there, and see where things go.
I honestly think that a lot of posters here are concerned about things they feel they don't really understand, that "bad", totally uncontrollable things can just randomly happen without warning. My view is that they can occur, but not without warning and not without creating new opportunities.
"Fear is the mind-killer", so let's get rid of it and talk about specifics and not nebulous "Oh, My God, what if such-and-such happens!", which is as foolish as it is unprofitable.
...what data, and I mean data totally isolated from subjective interpretation, has you concerned?
Debt growth relative to personal income. Both on an individual basis (personal account) and on a national per capita level.
Not asset-minus-debt balance sheet change but debt to actual income (gross income less asset growth). I could care less about debt to assets because assets always converge to NPV income stream in the long run. The key is always to focus on income & debt load.
And entitlements are part of it, a big part, but only part.
That is what has me concerned.
I would be the biggest bull on earth if our productivity & income was increasing faster than our liabilities. Better yet see our debts & liabilities decline (not just shift from public to private or me to you but decline relative to income) so that we once again are a net lender and not a net debtor nation.
In fact I consider the last months consumption report to be 'positive' even though everyone else thought it was a bummer... income increasing, consumption slowing, net savings negative but trending toward positive... what's not to like about that? Hell we need a decade more of that trend. Then almost all the 'problems' associated with economics disappear.
If we generate enough income even those way out entitlement liability issues disappear. We all still grow old & die but at least we leave society much better off.
We aren't there - aren't even close to being there.
And it all starts with constraining debt growth - the one thing we can most easily control NOW.
Again,, agree with Dryfly about about Asia's $3B a day !
Guess who's financing the next round...and again.
You're becoming slaves, whether you want to hear it or not. And, you're enslaving the next generation(s).
Just when are you yuppies (and offspring of ) going to get the reality ...and consequences of your dependence on China and Asian Central Banks?!
"Most borrowers with prime adjustable-rate mortgages (ARMs) that were scheduled for an interest-rate adjustment sometime in 2007 have already refinanced these loans. Freddie Mac estimates that in September 2006, there were about $170 billion in prime ARMs outstanding with scheduled rate resets in 2007. As of March 2007, just over $30 billion of these loans remained active."
I might be way off base, but I didn't see anything in the report that indicated that the ARM loans were refinanced as fixed rate. Wouldn't it be possible to simply refinance a ARM to another ARM? Especially if people got the ARM in the first place because they couldn't afford the house on a fixed rate mortgage.
"As long as you have that loan you be a slave none the less:-)"
Oh, please, this is just such utter nonsense. If you have a mortgage you can afford (including possible adjustments), you are a slave to no-one. You are just somebody who has effectively used credit to lock in your housing payment.
Credit's a tool. Use it unwisely, and you'll get in trouble, but it's still a great and useful development that allows us to acquire capital good and smooth consumption.
Please, I'm a renter myself and I believe there are housing bubbles in quite a few places, but quit with this moronic nonsense that anybody who holds a mortgage is somehow a slave.
Oh, and yes yes yes, of course the Chinese will own us, just like the Japanese were going to own us until they didn't.
Every Quarter 5% more into debt. This is good. Ponzy would be glad.
Tanta there is one more thing in the table at the end: For a year now, people re-fi and end up with a HIGHER interst rate.
This did not occur since Q4 of 2000.
mmmmm.....
all this while homes prices are 2-3% lower (on avg)
hudson employment index-
Hudson Employment Index Archive - Hudson United States
Seems like the assumption of better income days ahead did not materialize for these people. Need more cash now, don't worry about a higher morgage.
home inventory surges.
Housing Inventory Surges In March Across the U.S. - WSJ.com
layoff plans-
Layoff plans jump 44% to 70,672, Challenger says - MarketWatch
Yal, an ARM-to-Fixed refi very frequently results in a higher interest rate, if it happens before the first adjustment. Look at the numbers they're quoting on prime comforming ARMs outstanding. It looks to me like that giant chunk of 3/1s and 5/1s originated in 2003-2004 are now refinancing into fixed rates. They'd have to take a higher rate to do that, and it's hardly a bad move on the borrowers' part given what would happen to them if they let the things reset.
It also is highly likely that these folks are paying off a HELOC with this refi, as well as getting out of an ARM. That would count as cash-out in the context of this report. So we don't necessarily have current MEW here as much as possibly refinancing past consumption. That, however, may be less the case than people paying off HELOCs that were originally used for purchase money. If the median loan was over three years old and there was 24% appreciation, then people could be getting out of an 80/20 deal by refinancing it into a new single first lien. Again, that would be worth taking an additional .375 on the first lien rate for a lot of these people, given where the current rate was on the HELOC or HEL.
yeah so there!
On a related note, I am having difficulty detecting irony this morning, from the news:
Freddie Mac's president, Eugene McQuade, turned down an offer to become CEO, citing "onerous" regulatory oversight.
Thanks Tanta,
yes that would make sense. replace what was 100% LTV (80+20) with a new 80% LTV.
This is not possible any more since homes started to go down so even this move (which makes sense) is part of the Ponzy scheme that only works if homes keep going up.
This is not possible any more since homes started to go down
Of course it's still possible if you are a prime credit conforming loan balance holder of a loan that is three or more years old and you bought your property before 2005.
Do bear in mind that this report is coming from Freddie Mac. It therefore only covers loans that are sold to Freddie. It says nothing whatsoever about jumbos or most Alt-A or subprime.
Frankly, it is suggesting to me that prime is still in pretty good shape on the whole. I'm not particularly surprised by that, but I never claimed that prime conforming was going to be the major problem.
We are seeing the absolute number of Freddie cash-outs, and the absolute dollar volume of cash, dropping. At the same time that the median loan age is holding constant. If that's a real trend, it suggests to me that we will eventually run out of prime conforming candidates for cash-out refis, as there are simply fewer and fewer borrowers from the right vintage. So it's not hot news if you would like to see MEW availability stay up. But it's not bad news if you'd like to see some homeowners stabilizing their expenses.
It's impressive that in some quarters 1 out of 5 refinancers actually kicked in additional money to pay down their balance when they shifted into a lower rate fixed mortgage - and comparatively recently too.
kett82, wasn't that funny? Hey, Gene, go back to BoA where they don't get all oversightly on your ass, I guess.
TStockman, I expect that a fair number of those are folks who are trying to drop mortgage insurance. You go to refi, and the appraisal comes in at like 82% or something. So if you have any money at all, it makes sense to pay your balance down so that you can get a new 80% loan without MI.
Some of it may also be refinances of construction loans on custom-built deals. Between the original loan and completion of the property, the borrower sold the current home and now has more equity to apply at the take-out loan.
And there are three old coupon-clipping permabears who just like to pay down loans because it's prudent. One of them was probably CR.
Down in the notes of the Freddie-Mac report is the line.
Refinanced loans with adjustable-rate products are excluded.
Ummmmm, why?
ozajh, I believe they just exclude those from the old-to-new rate ratio calculation, not from the entire dataset. A new ARM is always going to have a lower initial rate than the old loan, but not necessarily for long. So keeping them out of the rate ratio probably gives you a better sense of how many people are actually taking a higher or lower rate.
And since Freddie doesn't buy that many ARMs to start with, and not very many of those are cash-outs, it's probably not a terribly significant part of the book in terms of balance, but with deep enough discounts on the new ARM it could be enough to skew the averages on rates.
Maybe not relevant to the conversation, but I found it interesting that the 4th quarter seems to be the most popular time for folks to re-fi into smaller loan amounts. Any theories?
Yes Tanta I will accept this as a much better way of what I tried to say:
"it suggests to me that we will eventually run out of prime conforming candidates for cash-out refis, as there are simply fewer and fewer borrowers from the right vintage. So it's not hot news if you would like to see MEW availability stay up. But it's not bad news if you'd like to see some homeowners stabilizing their expenses."
Todd, back in the days when I had a couple dozen loan officers bugging the snot out of me for rate lock extensions over the Christmas holiday for all those piled up refis that weren't closing fast enough, the usual explanation was that we all waited until year-end to do that particular kind of refi because we wanted to get as much out of the higher tax deduction for the year as we could.
Sounds reasonable enough, Tanta!
More bad news:
Man shot at firefighters who refused to rescue cat
24 percent appreciation over 3.3 years in this market, 7.27% average annually..........
Oh that smell...what is that smell?
Probably rotten appraisals.
Risk Capital,
Thanks for the great links.
Take a look at Realty Trac. The house inventory has been going up much faster in April than in March in most areas.
ac: What a lovely metaphor for the economy. The owner of the cat is falling-down drunk and waving a handgun around. The cat, having good sense but limited options, heads for highest ground it has access to. The owner concludes that it needs to be "rescued."
If it had been a helicopter instead of a firehose, I'm sure it would have worked out OK.
Take a look at Realty Trac. The house inventory has been going up much faster in April than in March in most areas.
Listings on ZipRealty and on the HousingTracker sites (i.e. MLS listings) have all been rising very rapidly over the past several weeks. It looks to me like it could be a genuine panic bailout from all the negative media headlines on housing recently.
ac, a lot of people don't pay much attention to those headlines. But we are a few months away from a big jump in predicted resets, and my guess is that those who are feeling uncomfortable with their situation are moving to try to sell.
Deflation is psychological.
Tanta herself has said that the housing bubble occurred because people believed that housing values would always go up. And I do not think she is anywhere near alone in that thought.
Well, that's psychological, isn't it?
If it's psychological on the way up, it certainly can be psychological on the way down.
And look at the psychology. The American Consumer, that lynchpin of world well-being and the usurer's wealth, is already bombarded with as much good news as anyone can take. So, if s/he takes a vacation, it will be a vacation in the presence of a Pavlov push unequaled in human history.
Deflation is on its way.
And recall, deflation hurts the borrower not the usurer. What's to stop it?
Tanta: "... And there are three old coupon-clipping permabears who just like to pay down loans because it's prudent. One of them was probably CR."
LOL
"kett82, wasn't that funny? Hey, Gene, go back to BoA ...
I posted on this earlier today (links but not much insight). Bert Ely thinks it's just Syron's reluctance to actually hand over the crown.
By the way, there's a new CBC Radio Infotainment show called "Q", and I couldn't resist the impulse to share with them your find about Ranieri's comments on Q election. Don't be too surprised if a burned out Canadian folk rock artist named Jian Ghomeshi doesn't call asking for an explanation.
"And recall, deflation hurts the borrower not the usurer."
Only to the point where the borrower can pay back the money. If he can't then the usurer loses his principal.
Arbo, I share much of your deflationary angst. Too much debt, too little savings, and soon-to-be rapidly deteriorating demographics will have us showing Japan how it's really done.
ac said: "Listings on ZipRealty and on the HousingTracker sites (i.e. MLS listings) have all been rising very rapidly over the past several weeks. It looks to me like it could be a genuine panic bailout from all the negative media headlines on housing recently..."
Inventory rises in anticipation of rising demand. This is the peak time of year for selling real estate so it's normal for inventory to rise, with or without "panic."
In the neighborhoods adjacent to mine the "panic" is producing a rising inventory of houses available for sale...and higher prices than last year. (Not in my neighborhood, though, because there are still zero houses for sale.)
Sebastia
Tanta said: "...And there are three old coupon-clipping permabears who just like to pay down loans because it's prudent. One of them was probably CR."
And me. Probably accounts for my bullishness, since I seem to be one of only three people in America who's responsible with money, and therefore has some to spend.
Sebastia
I am very surprised at the amount of loans that have been refinanced to avoid the 2007 resets. I was always of the assumption that the catalyst for a big price downturn in the housing market would come from these resets in Q3 and Q4. Without this trigger, I am more inclined to think this will be a very slow and painful march down the price ladder. Has there been a more recent industry-wide study on how many resets are still due in 2007?
Seabastian,
No one would put their house for sale "in anticipation of dmand" (unless they are home builders)
investors either hold or want to sell in gains .
others just live in their homes with no intention to leave.
Those who do put their homes now on the market really want or need to sell - it has nothing to do with "antcipated demand"
Sean,
it is different in alt-a and sub prime.
What's to stop it?
Some of that $70B that just flowed out in refi... and lots more just like it.
The folks who constantly call for 'deflation' need to do some 'cultural exchanges'. In general they are tight fisted savers to start with and can't even begin to GROK excess consumption... let alone 125%CLTVs.
They need to experience how the 'other half lives'... there is a lot of 'other half' out there.
Those folks need to visit mall of America on a Saturday. My daughter would love to be your tour guide. Bring your (un-maxed out) credit cards. It will be a trip you will not soon forget.
Sean said: "I am very surprised at the amount of loans that have been refinanced to avoid the 2007 resets..."
I don't get why the bears think so many American homeowners are stupid and/or destitute.
I've had ARMs twice in my life and refinanced both with fixed-rate mortgages when rates made it worthwhile to do so.
I got the deal of a lifetime on the last one, and tens of millions of other homeowners just like me have done the same over the past few years.
Sebastia
I got the deal of a lifetime on the last one, and tens of millions of other homeowners just like me have done the same over the past few years.
I did an ARM once too - in early 1980s. Hard not to go wrong then (from 18% down to about 12% over that period... plus we only lived there 3 years before I moved due to work, moved before the reset).
The problem is not everyone is that responsible, nor that well off to just do an ARM willy-nilly.
Many used ARMs because it was the only way they could get into the house in the first place (teaser rate qualification) & they wanted into houses badly because houses 'paid you' to own them. Now that that is ending we'll see just how serious this is... how many did it (vs. types like you & me) and how severe it is (how much did they rely on and need rapid appreciation to avoid disaster).
I will agree with bulls on one major point - it is very unclear that there is a large and significant problem. The logic explains how the problem could be there but the facts don't prove it is or is not there. The data is conflicted.
That's why we all watch & wait.
Don't be too surprised if a burned out Canadian folk rock artist named Jian Ghomeshi doesn't call asking for an explanation.
Now that would take the entertainment value of our comment section to a whole new level.
Sebastian
"I don't get why the bears think so many American homeowners are stupid and/or destitute.
I've had ARMs twice in my life and refinanced both with fixed-rate mortgages when rates made it worthwhile to do so."
I always laugh when I see homeowner and loan in the same sentence. The bank owns the home and you are a slave to the bank until it is paid off or you get kicked out on your arse for not making the payment. If you don't believe that just stop making the payment. Also you will never own the land that the home sits on. If you don't believe that just try not paying the taxes. If you have a loan on the home you live in you are simply a slave to the government and the bank. Now get to work or pray for asset inflation so you can make the payments.
dryfly said: "...The logic explains how the problem could be there but the facts don't prove it is or is not there. The data is conflicted.
That's why we all watch & wait..."
The only conflict is between the "logic" and the data. There's no reason why anyone should have to watch and wait, we know right now.
The only misperceived "conflict" is that if everything isn't "good" all at the same time things are "bad". Housing is weak right now (sort of) but other sectors are fine. At some other point in the business cycle housing will be stronger while another sector is weak, that's the way it works.
The same principle applies to inflation, btw. When you break down the CPI-U into its individual components, some prices are going up while others are going down, it's almost always like that...and it's normal.
Sebastia
Kevin said: "...Now get to work or pray for asset inflation so you can make the payments."
My loan is financed at approximately the same rate as the long-run appreciation rate of housing. (Actually I'm probably doing better than that because I live in a generally more-desirable area.)
In addition, I'm re-paying the loan with inflated dollars and getting a big tax-break.
To top it all off, my monthly mortgage payment is lower than what it would cost me to rent something similar...which I can't do anyway because the housing market is too tight.
As long as I keep this loan I am the one screwing the bank.
In practical terms they've loaned me money at a lower rate than the return I get on the asset. Plus, I get to live in a comfortable home in a nice neighborhood at below-market cost.
Sebastia
Regarding ARM refinancings. I think the concern here is that "adverse selection" is at work. Meaning those borrowers who cannot refi or sell their homes are left to the market forces of rising interest rates and falling property values. An unusually high percent will default.
This has definitely made the lines at my favorite restaurants disappear. There is an upside, after all.
There 3 big class of people in US. Those who's mortgage is much less than comparable rent. And those in opposite state. And finally the rest.
Both of us are in 1st group. I think at least 30% of "owners" are in the 2nd. They are in horrible situation, and, frankly, paying the mortgage is just not a sound financial decision for them.
Remember, among those who default on mortgage payments there are many who can pay. They just make a wise financial decision to stop paying. And that breaks the system.
theroxylander said: "...Remember, among those who default on mortgage payments there are many who can pay. They just make a wise financial decision to stop paying...."
How many? And considering the long-term repercussions of this action, why is this a wise decision?
Am I the only one here who actually lives in the world?
I was kidding before when I suggested that some of the posters here were thinking like economists, with ivory-tower models of how the world worked that were far removed from what real people did. Now I'm not so sure.
When times have gotten tight for me in the past, the threat of having a nasty credit rating for years was one of the things that kept me current on my mortgage. Especially since I needed somewhere to live anyway and housing almost always "comes back", even if it takes a decade.
The "wisest" financial decision is to keep the house as long as you can afford to make the payments, even if you're temporarily "upside down" on the mortgage. You have a place to live, maintain your credit rating, and build (or at least re-acquire) equity all at the same time.
Sebastia
There's no reason why anyone should have to watch and wait, we know right now.
If you REALLY believe that then you should take all your assets & savings, leverage them 10:1 and go long with a diversified option portfolio & rake the money in. If you really KNOW that is the future then you can't lose.
Fact is the 'logic' says the 'data' is supported by leverage already... question is how much & consequences... so in fact all of us who are long now are already 'leveraged' in effect...
If that leverage falls out (say the liquidity dries up) then we'll all be hurting... though not necessarily washed up if our personal LTVs are manageable. I think mine are. Can't speak for others.
That's why the watch and wait.
The day the $3B stops flowing in from Asia is the day the REALITY changes. That might be a very long time off - it might be tomorrow. But everything ends, everything changes - they all have consequences, some good & some bad.
dryfly said: "...If you REALLY believe that then you should take all your assets & savings, leverage them 10:1 and go long with a diversified option portfolio & rake the money in. If you really KNOW that is the future then you can't lose.
Fact is the 'logic' says the 'data' is supported by leverage already... question is how much & consequences... so in fact all of us who are long now are already 'leveraged' in effect...
If that leverage falls out (say the liquidity dries up) then we'll all be hurting... though not necessarily washed up if our personal LTVs are manageable. I think mine are. Can't speak for others..."
Leaving aside the fact that an investor can get it absolutely right and still be wiped-out by a normal swing if he's too highly-leveraged...
...what data, and I mean data totally isolated from subjective interpretation, has you concerned?
Seriously, no games, no posturing on my part, let's break down this problem into something manageable, understandable.
You say that if $3 billion a day stops coming in from Asia, it's "game over" or whatever.
Let's start there. $3 billion dollars a day, 365 days a year, $1.1 trillion. Okay. What's the problem?
Why would our trading partners suddenly cut off their nose(s) to spite their face(s) by ceasing to trade with the single largest economy in the world?
Why are we going to stop buying from them since they're an important source of cheap goods that we need every single day?
Even if (for some bizarre reason) this did occur, why would it all occur at once, immediately, without any opportunity for the economies of our trading partners or us to adapt?
Or do you think we'll reach a point where we suddenly can't afford to buy? Okay, says who? Show me the objective data that says our economy and our citizens aren't gradually building wealth every year. Not things that CR has said, nothing from the NYT, or from "CAhousingisgoingtohell.com".
Real data.
Let's start there, and see where things go.
I honestly think that a lot of posters here are concerned about things they feel they don't really understand, that "bad", totally uncontrollable things can just randomly happen without warning. My view is that they can occur, but not without warning and not without creating new opportunities.
"Fear is the mind-killer", so let's get rid of it and talk about specifics and not nebulous "Oh, My God, what if such-and-such happens!", which is as foolish as it is unprofitable.
Sebastia
Sebastian,
You might as well use the full litany:
"The fear is a mind killer"
=Oh my god what will happen if the housing values crash!!!!!
"I will face my fear"
=Supply way up, demand way down so it will most likely happen. Accept it and prepare the plan to deal with consequences.
"I will let my fear pass through me"
=Live through this period.
"When the fear is gone there will be nothing. Only I will remain."
= No more housing bubble.
...what data, and I mean data totally isolated from subjective interpretation, has you concerned?
Debt growth relative to personal income. Both on an individual basis (personal account) and on a national per capita level.
Not asset-minus-debt balance sheet change but debt to actual income (gross income less asset growth). I could care less about debt to assets because assets always converge to NPV income stream in the long run. The key is always to focus on income & debt load.
And entitlements are part of it, a big part, but only part.
That is what has me concerned.
I would be the biggest bull on earth if our productivity & income was increasing faster than our liabilities. Better yet see our debts & liabilities decline (not just shift from public to private or me to you but decline relative to income) so that we once again are a net lender and not a net debtor nation.
In fact I consider the last months consumption report to be 'positive' even though everyone else thought it was a bummer... income increasing, consumption slowing, net savings negative but trending toward positive... what's not to like about that? Hell we need a decade more of that trend. Then almost all the 'problems' associated with economics disappear.
If we generate enough income even those way out entitlement liability issues disappear. We all still grow old & die but at least we leave society much better off.
We aren't there - aren't even close to being there.
And it all starts with constraining debt growth - the one thing we can most easily control NOW.
Sebastian
"As long as I keep this loan I am the one screwing the bank.:)"
As long as you have that loan you be a slave none the less:-)
Again,, agree with Dryfly about about Asia's $3B a day !
Guess who's financing the next round...and again.
You're becoming slaves, whether you want to hear it or not. And, you're enslaving the next generation(s).
Just when are you yuppies (and offspring of ) going to get the reality ...and consequences of your dependence on China and Asian Central Banks?!
"Most borrowers with prime adjustable-rate mortgages (ARMs) that were scheduled for an interest-rate adjustment sometime in 2007 have already refinanced these loans. Freddie Mac estimates that in September 2006, there were about $170 billion in prime ARMs outstanding with scheduled rate resets in 2007. As of March 2007, just over $30 billion of these loans remained active."
I might be way off base, but I didn't see anything in the report that indicated that the ARM loans were refinanced as fixed rate. Wouldn't it be possible to simply refinance a ARM to another ARM? Especially if people got the ARM in the first place because they couldn't afford the house on a fixed rate mortgage.
"As long as you have that loan you be a slave none the less:-)"
Oh, please, this is just such utter nonsense. If you have a mortgage you can afford (including possible adjustments), you are a slave to no-one. You are just somebody who has effectively used credit to lock in your housing payment.
Credit's a tool. Use it unwisely, and you'll get in trouble, but it's still a great and useful development that allows us to acquire capital good and smooth consumption.
Please, I'm a renter myself and I believe there are housing bubbles in quite a few places, but quit with this moronic nonsense that anybody who holds a mortgage is somehow a slave.
Oh, and yes yes yes, of course the Chinese will own us, just like the Japanese were going to own us until they didn't.
By the way, I am more bearish than Sebastian on housing, but he has totally outclassed everybody on this board so far.