"According to Credit Suisse, the
amount of adjustable-rate subprime debt expected to reset in 2007
and 2008 alone could be as much as $482 billion. Alt-A loans account
for another $57 billion scheduled to reset by 2008, and $85 billion in
2009 and 2010. Much of this debt is, however, likely to be either refinanced or paid off at the time of sale before the reset dates hit."
Thanks for a lot of insightful posts on the housing market. Where I live (Sweden) the shit hasn't really hit the fan yet. Last 12 months apartment prices have gone up 25%. Inflation must be lurking around the corner. I read today that food prices in the US were up by 6.7% so far this year. Sounded incredibly much, but then again you guys exclude food prices when measuring inflation. Would be interesting to hear (read) your opinions on this! Keep up the good work!
Kett82 said and quoted "Much of this debt is, however, likely to be either refinanced or paid off at the time of sale before the reset dates hit."
Last sentence doesn't make sense to me. "
Recent buyers that I know of bought with variable/fixed loans planning on selling the house in 2-5 years before the loan goes variable. I think that is what they are referring to in the article, that people will sell before foreclosure sets in.
The problem with this thinking is is that there are no/few buyers now and fewer in the future with tougher loan standards.
I read today that food prices in the US were up by 6.7% so far this year. Sounded incredibly much, but then again you guys exclude food prices when measuring inflation. Would be interesting to hear (read) your opinions on this!
My opinion is that it's inflation if it's part of a broad-based increase in prices, wages, etc. but not if it's related to supply/demand issues. Then it's just something getting more expensive.
I.E. if gas prices are going up due to lack of capacity, then that's not inflation because the money has to come from somewhere else.
I think some of these price increases are legitimate inflation via commodity speculation channels, but I don't think that will last.
I'm simply not seeing the wage increases that I believe are essential to "real" 70-style inflation. People are borrowing to pay more for stuff. This is a very different phenomenon and can't last IMO (e.g. see the problems that the 6-year car loans are causing for the auto industry now).
Yes, everything else in the rest of the study seems to contradict that statement: heavier debt burdens; fewer higher income households needing, willing to buy; more lower income households unable to buy because of tighter lending, higher interest rates (we may soon see 30-year rates at 7%). Seems like the resets will just be piling on existing housing inventory.
I don't know how they track that stuff, where they pulled that 6.7% figure from for just this year but, this trend has been going on for a few years now.
Just over two years ago I started my own business with my savings. Thus I set out a strict budget to ensure my operating and living costs would be covered for a long enough period of time, with no money coming in, to at least give myself a sporting chance at making it a successful enterprise. I even allowed for 3% yearly inflation across the board.
No such luck! Cost increases have far outpaced my budget. Particularly the two items we don't include in inflation, food and energy. Last year I purchased a pressure cooker because 1) it uses less energy to cook food 2) beans are extremely cheap and cook in 10 to 15 minutes time in the pressure cooker.
Thank goodness I am making some money now or else this whole exercise might have failed before I had the time to get it started.
The strategy that you describe. Buying for the short term and using exploding ARMs to do it was the first red flag that alerted me to problems in housing.
It is a favorite meme used by realtors.
They don't really have an answer to the question, "How successful do you think that strategy is when everyone is doing it? Who will they sell to?"
I saw stickiness is action this weekend: stately old Victorian with original detail, but not remodeled or rehabbed in 40-plus years, lousy parking, no yard -- $1.4 million.
The RE agency knows it's too high: they gave the listing to "the new guy," a kid with no other listings.
What really curled my hair: they had a loan officer on premises during the open house, from Wachovia. Hands me his card and says, "I can get you any kind of loan you want." I'll just bet he can...
"If you were an economist, you would think that prices would have fallen precipitously," [Nicolas P. Retsinas, director of the center] said."
Retsinas, always talking his book. What a hack. Last year he went on and on about "there is no bubble, blah, blah blah". He's been almost as bad as Lereah, but probably more dangerous with that "Harvard" word attached to his opinions.
Will end up as last time, with debt unwinding and deflation, i.e. collapse of prices on anything, maybe except gold. Maybe even gold.
Everytime the stockmarket sells off it seems like commodities also sell of across the board, including gold. That makes me think commoditiy prices are also being propped up by liquidity.
If you want conspiracy theories, I haven't seen anyone comment on this little gem yet. Seems Greenspan avoided (if not actively avoided) bringing to heel the subprime industry in the name of avoiding excessive regulation. Ugh.
As I understand it, non-monetary regulation of the banking industry can help curb excesses without killing activity, and, more to the point, is part of their job description.
Subprime crisis: Was Greenspan remiss?
Former Fed governor says Greenspan blocked proposal to crack down on subprime lending practices.
June 9 2007: 2:21 PM EDT
(CNNMoney.com) -- Former Federal Reserve Governor Edward Gramlich claims that former Fed Chairman Alan Greenspan blocked a proposal to crack down on subprime lending practices back in 2000, according to The Wall Street Journal.
Gramlich, who was Fed governor from 1997-2005, says he proposed the idea to Greenspan personally, The Journal reported. He suggested that the Fed send examiners into offices of lenders that were units of Fed-regulated bank holding companies. He claims Greenspan - well-known for his deregulatory practices - rejected the idea.
"He was opposed to it, so I didn't really pursue it," says Gramlich, who is now a scholar at the Urban Institute.
Subprime lending practices - giving high-interest loans to individuals with poor credit history - became increasingly popular during the real estate boom of the last several years. But since 2006, subprime borrowers have been defaulting at alarming rates, putting downward pressure on the overall housing market.
The Democratic Congress is now pointing fingers at regulators - particularly the Fed - for failing to prevent the subprime fallout.
When asked about the proposal, Greenspan claimed he did not recall the specific conversation with Gramlich, but did confirm that he was opposed to the idea, for fear that "Fed-inspected" lenders might give borrowers a false sense of security.
Under current Chairman Ben Bernanke, the Fed has begun reviewing its practices in overseeing holding-company units. On Thursday the Fed will hold a public meeting on regulating subprime lending.
Restinas' bizarreness doesn't end with his ignoring sticky-down. Earlier today my blogging partner commented that he seemed to be predicting both a prolonged slump and recovery by the end of the year. Maybe Retsinas is merely having a bad day.
Holy Cr@p! Even stunning statistic is an understatement. The chances that very many of those 17 million can actually afford their mortgages is minimal. I'd bet that most of them are despreratly spending their savings (if any) and maxing out their cards trying to sell or hoping that something magicly saves them. We don't even know what the number is for 2006, but I bet it hasn't gone down. And according to the credit suisse chart we don't even reach max resets until THIS fall.
Bob Dobbs:"I can get you any kind of loan you want."
You should have told him that you wanted one that would be put into the ABX and then tell Bear Sterns to cough up some dough or else you are going to default. Maybe you could rally a class action shakedown with all the homeowners?
Along the same over-finanicalized economy lines, I'm sure the unions can probably set up some SPVs in the Bahamas shorting stock and the strike the hell out of a company. Working is for suckers. Sucking blood out of the market is what everybody should be doing (while farting through silk of course).
The Joint Center for Housing Studies is Harvard University's center for information and research on housing in the United States. The Joint Center analyzes the dynamic relationships between housing markets and economic, demographic, and social trends, providing leaders in government, business, and the non-profit sector with the knowledge needed to develop effective policies and strategies.
Given how this has all played out, I'm glad I didn't graduate from Harvard. People with Harvard degress should probably be embarrassed. Are any other departments so incompetent and ineffective with respect to their mission statement? Of course, their cheerleading during the bubble was pretty effective for Bandesoleilo and "leaders" in government looking to fill their election coffers!
Something unusual happened today on the Chicago suburban MLS inventory front. For many months now I've seen listing counts trace a low-amplitude sawtooth pattern, rising through the week, then falling over the weekend. Though the trend has been inexorably upward, I can't recall ever before seeing more listings on Monday than Friday. But this week both SFH and condo/townhome counts are noticeably higher (and up about 25% year-over-year).
In Arlington Heights, listings over $1 million now number 36*, with three more at $999k. (As I can never fail to mention, 70% of these are vacant.)
*35 SFH, plus a monstrous 6000 sq ft townhome that is the very essence of self-parody (MLS #06494234, for the curious).
Hmmmm...also in the study:
"According to Credit Suisse, the
amount of adjustable-rate subprime debt expected to reset in 2007
and 2008 alone could be as much as $482 billion. Alt-A loans account
for another $57 billion scheduled to reset by 2008, and $85 billion in
2009 and 2010. Much of this debt is, however, likely to be either refinanced or paid off at the time of sale before the reset dates hit."
Last sentence doesn't make sense to me.
Regards,
Thanks for a lot of insightful posts on the housing market. Where I live (Sweden) the shit hasn't really hit the fan yet. Last 12 months apartment prices have gone up 25%. Inflation must be lurking around the corner. I read today that food prices in the US were up by 6.7% so far this year. Sounded incredibly much, but then again you guys exclude food prices when measuring inflation. Would be interesting to hear (read) your opinions on this! Keep up the good work!
Kett82 said and quoted "Much of this debt is, however, likely to be either refinanced or paid off at the time of sale before the reset dates hit."
Last sentence doesn't make sense to me. "
Recent buyers that I know of bought with variable/fixed loans planning on selling the house in 2-5 years before the loan goes variable. I think that is what they are referring to in the article, that people will sell before foreclosure sets in.
The problem with this thinking is is that there are no/few buyers now and fewer in the future with tougher loan standards.
I read today that food prices in the US were up by 6.7% so far this year. Sounded incredibly much, but then again you guys exclude food prices when measuring inflation. Would be interesting to hear (read) your opinions on this!
My opinion is that it's inflation if it's part of a broad-based increase in prices, wages, etc. but not if it's related to supply/demand issues. Then it's just something getting more expensive.
I.E. if gas prices are going up due to lack of capacity, then that's not inflation because the money has to come from somewhere else.
I think some of these price increases are legitimate inflation via commodity speculation channels, but I don't think that will last.
I'm simply not seeing the wage increases that I believe are essential to "real" 70-style inflation. People are borrowing to pay more for stuff. This is a very different phenomenon and can't last IMO (e.g. see the problems that the 6-year car loans are causing for the auto industry now).
@ac
Can you give a link or an example on the 6 year car loan trouble? I don't really know what you are referring to.
ams16,
Calculated Risk: You Can Get "New Car Smell" For $3.99 at Target
Dear Housing Novice,
Yes, everything else in the rest of the study seems to contradict that statement: heavier debt burdens; fewer higher income households needing, willing to buy; more lower income households unable to buy because of tighter lending, higher interest rates (we may soon see 30-year rates at 7%). Seems like the resets will just be piling on existing housing inventory.
Regards,
Macor Economist, RE food prices:
I don't know how they track that stuff, where they pulled that 6.7% figure from for just this year but, this trend has been going on for a few years now.
Just over two years ago I started my own business with my savings. Thus I set out a strict budget to ensure my operating and living costs would be covered for a long enough period of time, with no money coming in, to at least give myself a sporting chance at making it a successful enterprise. I even allowed for 3% yearly inflation across the board.
No such luck! Cost increases have far outpaced my budget. Particularly the two items we don't include in inflation, food and energy. Last year I purchased a pressure cooker because 1) it uses less energy to cook food 2) beans are extremely cheap and cook in 10 to 15 minutes time in the pressure cooker.
Thank goodness I am making some money now or else this whole exercise might have failed before I had the time to get it started.
Housing Novice:
The strategy that you describe. Buying for the short term and using exploding ARMs to do it was the first red flag that alerted me to problems in housing.
It is a favorite meme used by realtors.
They don't really have an answer to the question, "How successful do you think that strategy is when everyone is doing it? Who will they sell to?"
I saw stickiness is action this weekend: stately old Victorian with original detail, but not remodeled or rehabbed in 40-plus years, lousy parking, no yard -- $1.4 million.
The RE agency knows it's too high: they gave the listing to "the new guy," a kid with no other listings.
What really curled my hair: they had a loan officer on premises during the open house, from Wachovia. Hands me his card and says, "I can get you any kind of loan you want." I'll just bet he can...
Kett82, It will be hard for these people to refinance, from Facing Foreclosure Fears
"The numbers are startling.
Nearly 20 percent of Sacramento homes are worth less than the value of their mortgage."
Falling prices will increase that percentage.
Best to all.
"If you were an economist, you would think that prices would have fallen precipitously," [Nicolas P. Retsinas, director of the center] said."
Retsinas, always talking his book. What a hack. Last year he went on and on about "there is no bubble, blah, blah blah". He's been almost as bad as Lereah, but probably more dangerous with that "Harvard" word attached to his opinions.
Yep, it looks much more similar to 1929 than anything else. All this "inflation" is just 75-year record of dept levels.
Will end up as last time, with debt unwinding and deflation, i.e. collapse of prices on anything, maybe except gold. Maybe even gold.
People will see $1.50 per gallon on the pump again. Except that for most $1.50 will to much to afford.
Will end up as last time, with debt unwinding and deflation, i.e. collapse of prices on anything, maybe except gold. Maybe even gold.
Everytime the stockmarket sells off it seems like commodities also sell of across the board, including gold. That makes me think commoditiy prices are also being propped up by liquidity.
"Why Do House Prices Fall? Perspectives on the Historical Drivers of Large Nominal House Price Declines"
http://www.jchs.harvard.edu/publications/markets/w07-3.pdf
Equally interesting
Tanta this might irk you even more if sh*t hits the fan on the exchange any time soon.
SDS: Basic Chart for PT ULTRSHRT SP500 PS - Yahoo! Finance
(It is the double-short ETF for the S&P 500)
Look at the action in the last month... I think of your honest friends on wall street might know something we're not privy to yet...
(Unless anyone has any more honest conspiracy theories...)
((Is that an oxymoron?))
If you want conspiracy theories, I haven't seen anyone comment on this little gem yet. Seems Greenspan avoided (if not actively avoided) bringing to heel the subprime industry in the name of avoiding excessive regulation. Ugh.
As I understand it, non-monetary regulation of the banking industry can help curb excesses without killing activity, and, more to the point, is part of their job description.
http://money.cnn.com/2007/06/09/news/economy/Greenspan_subprime/index.htm?postversion=2007060914
Subprime crisis: Was Greenspan remiss?
Former Fed governor says Greenspan blocked proposal to crack down on subprime lending practices.
June 9 2007: 2:21 PM EDT
(CNNMoney.com) -- Former Federal Reserve Governor Edward Gramlich claims that former Fed Chairman Alan Greenspan blocked a proposal to crack down on subprime lending practices back in 2000, according to The Wall Street Journal.
Gramlich, who was Fed governor from 1997-2005, says he proposed the idea to Greenspan personally, The Journal reported. He suggested that the Fed send examiners into offices of lenders that were units of Fed-regulated bank holding companies. He claims Greenspan - well-known for his deregulatory practices - rejected the idea.
"He was opposed to it, so I didn't really pursue it," says Gramlich, who is now a scholar at the Urban Institute.
Subprime lending practices - giving high-interest loans to individuals with poor credit history - became increasingly popular during the real estate boom of the last several years. But since 2006, subprime borrowers have been defaulting at alarming rates, putting downward pressure on the overall housing market.
The Democratic Congress is now pointing fingers at regulators - particularly the Fed - for failing to prevent the subprime fallout.
When asked about the proposal, Greenspan claimed he did not recall the specific conversation with Gramlich, but did confirm that he was opposed to the idea, for fear that "Fed-inspected" lenders might give borrowers a false sense of security.
Under current Chairman Ben Bernanke, the Fed has begun reviewing its practices in overseeing holding-company units. On Thursday the Fed will hold a public meeting on regulating subprime lending.
Harvard's, USC's, Cal Poly Pomona's studies on housing are industry-biased. Apparently, major fundings for their centers come from industry.
Restinas' bizarreness doesn't end with his ignoring sticky-down. Earlier today my blogging partner commented that he seemed to be predicting both a prolonged slump and recovery by the end of the year. Maybe Retsinas is merely having a bad day.
"Nearly 20 percent of Sacramento homes are worth less than the value of their mortgage." should have read "nearly 20% of the homes on the market...."
What happened to editors and educated writers?
With Havard now "discovering" that housing inventory is too high...
I'm thinking my 16 year old's plan of snowboarding for a year after high school is hard to compete with.
JCHS folks are mostly policy wonk wanabies from JFK and city planners from Design School. There have very few economists and financiers.
I will be cautious with their statistics , not to mention their "forecasts."
Holy Cr@p! Even stunning statistic is an understatement. The chances that very many of those 17 million can actually afford their mortgages is minimal. I'd bet that most of them are despreratly spending their savings (if any) and maxing out their cards trying to sell or hoping that something magicly saves them. We don't even know what the number is for 2006, but I bet it hasn't gone down. And according to the credit suisse chart we don't even reach max resets until THIS fall.
Retsinas is employed by the real estate industy. He's just a simple mouthpiece.
Bob Dobbs:"I can get you any kind of loan you want."
You should have told him that you wanted one that would be put into the ABX and then tell Bear Sterns to cough up some dough or else you are going to default. Maybe you could rally a class action shakedown with all the homeowners?
Along the same over-finanicalized economy lines, I'm sure the unions can probably set up some SPVs in the Bahamas shorting stock and the strike the hell out of a company. Working is for suckers. Sucking blood out of the market is what everybody should be doing (while farting through silk of course).
The Joint Center for Housing Studies is Harvard University's center for information and research on housing in the United States. The Joint Center analyzes the dynamic relationships between housing markets and economic, demographic, and social trends, providing leaders in government, business, and the non-profit sector with the knowledge needed to develop effective policies and strategies.
Given how this has all played out, I'm glad I didn't graduate from Harvard. People with Harvard degress should probably be embarrassed. Are any other departments so incompetent and ineffective with respect to their mission statement? Of course, their cheerleading during the bubble was pretty effective for Bandesoleilo and "leaders" in government looking to fill their election coffers!
"In just one year the number of households spending more than half their income on housing increased a startling 1.2 million to 17 million in 2005,"
A 7% increase in that arbitrary statistic is not startling.
What percentage were paying 49% in 2004 and what percent were paying 51% in 2005?
Show population gharts or report mean, median and standard deviation.
Nothing is worse than listening to the slow kids on your own debate team lie, exagerate and contradict themselves into irrelevance.
Or make lots of spelling mistaiks...
unless they win. especially when they win.
Something unusual happened today on the Chicago suburban MLS inventory front. For many months now I've seen listing counts trace a low-amplitude sawtooth pattern, rising through the week, then falling over the weekend. Though the trend has been inexorably upward, I can't recall ever before seeing more listings on Monday than Friday. But this week both SFH and condo/townhome counts are noticeably higher (and up about 25% year-over-year).
In Arlington Heights, listings over $1 million now number 36*, with three more at $999k. (As I can never fail to mention, 70% of these are vacant.)
*35 SFH, plus a monstrous 6000 sq ft townhome that is the very essence of self-parody (MLS #06494234, for the curious).
Number of sales recorded for Arlington Heights in 2007 above $1 million as of April 27? One.
Could be a new project?