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Weakness in the housing market "will get materially more severe," Richard F. Syron, chairman and chief executive of Freddie Mac, said yesterday. The government-sponsored mortgage-funding company based in McLean holds about $712 billion of mortgage-related investments.
Freddie Mac is relatively insulated from the subprime segment of the mortgage market, but it has funded unconventional loans such as those on which borrowers pay only interest for a time instead of paying down the principal. At the margins, problems have been creeping from the weaker segments of the market into the stronger ones, Syron said.
"Housing prices will go down," he said. The result will not be "catastrophic," he said, "but it will have a measurable impact on how people spend money. It will have a material impact on how people spend on cars, how they spend on consumer appliances, how they spend on lots of things."
washingtonpost.com - nation, world, technology and Washington area news and headlines
wp...2502436_pf.html
Does this mean we are near bottom? Its always near bottom when one of these reports come out.
--
God forbid and we have a recession that slides easily into a depression.
The number will fall below 250K annual rate some time in late 2008 or early 2009.
Jas
Things are shaking in the spread markets. Emergings, corporates, agencies are all widening with a vengeance today. Pit guys say everybody was grabbing Treasuries at the open. Stocks are down, but don't seem to reflect the level of concern in other markets. The housing data certainly didn't help, but more news of hedge funds refusing short-term cash outs of client positions, West LB being investigated for trading losses, Northern Rock boosted loss provisions, Horton and Beazer sounded unhappy, and S&P said "oh, look, it's worst than we thought" about subprime losses. Just a dreadful run of news.
Dry,
The problem is someone keeps moving that darn bottom.
CR,
Could you please incorporate some analysis of what the status of financing was, say 2-3 months ago, when many of June's home purchases was secured. That is, are these sales numbers based in part on easier credit than is available now?
Thank you in any case for your insights.
A larger-than-forecast drop in new home sales and the rise in oil prices above $77 a barrel also weighed on stocks. The cost of credit-default swaps to insure corporate debt climbed to the highest in more than two years. Ten banks were stuck with $20 billion in debt yesterday after failing to find investors to fund buyouts of Chrysler and Alliance Boots Plc.
``With higher energy prices and looming problems in housing and mortgage financing, it looks like a tougher environment,'' said Liam Dalton, who oversees $1.3 billion as chief executive officer of Axiom Capital Management in New York.
Lucky for us as BSB states the housing issues are contained strictly to the subprime...ok prime...ok strictly to the CDO's...ok maybe its not contained but it is to the market, ok maybe the economy ok ...maybe the world economy.....
lama, New Home sales are reported when the contract is signed - not when the financing is obtained. Many of these sales go into "backlog" for the builders, and the buyers won't need financing until the house is completed.
If the buyer can't obtain financing, then they contract will be cancelled - and that is why cancellations are back at record levels - buyers are walking away from contracts signed earlier this year.
Unfortunately, the Census Bureau doesn't include cancellations in their report. So the impact of tighter lending standards can only be observed over several months of data.
I hope that is clear.
Best Wishes.
"Does this mean we are near bottom?"
No.
The West is off 43% vs June 2006, 55% vs June 2005 - California must have fallen off into the Pacific... at least its contained.
Interesting that almost two years into this (and one year into REALLY knowing it was a problem) and in spite of drops in permits and starts and completions, inventory still is about the same amount. The same amount of inventory as before, but in the face of drastically tightened credit conditions - that means the next year will be worse than the last.
Thanks CR. I incorrectly assumed almost all buyers obtained pre-qualified financing and that was reported somewhere....applying my own habits to the general population.
If you take the ratio in change of sales in the new housing market(annualized June 06 to 07) and applied it to Lereah's rose colored initial prediction, the number that comes out is 4.9mm houses sold.
I feel bad, my doomsday prediction may be too optimistic.
lama,
A prequal doesn't really guarantee a borrower anything anyway if the rates, standards and/or programs offered change. A prequal just tells a borrower what they can afford given a set of assumptions.
Hey 4.9 you say????
My prediction or SWAG was 4.87 I feel vindicated and yet sorry at the same time...
Aynon Rano
I have been in the mortgage business for two years now after several years as a bond analyst.
I can tell you from the front lines that mortgage rates have NOT been tied to the ten year yield over the last 2-3 months. Rates have been rising daily for all types of mortgages.
Subprime is virtually dead, and Alt A (i.e. stated income,
LawFitz,
your message is broke
"I can tell you from the front lines that mortgage rates have NOT been tied to the ten year yield over the last 2-3 months."
Perhaps the divergence can be correlated with some, or another, increase in spreads?
looks like the market is of to a slooowwww start today.
I like how housing prices returning to affordable is considered "catastrophic" by the people running the game. Yeah, we wouldn't want that! Imagine if people could BUY their home, pay it off, and live in it through retirement! They might even have money left over to buy other things and keep this silly, consumer-driven economy going. Can't have that - gotta keep the sheeple in debt up to their eyeballs!
If housing returning to affordable levels is "catastrophic" then let's hope it gets worse before it gets "better."
Jas, welcome back. I hope you stick around awhile...this is going to get very entertaining.
The housing data certainly didn't help, but more news of hedge funds refusing short-term cash outs of client positions, West LB being investigated for trading losses, Northern Rock boosted loss provisions, Horton and Beazer sounded unhappy, and S&P said "oh, look, it's worst than we thought" about subprime losses. Just a dreadful run of news.
Some of us doomsters have seen this coming for a long time. There is no quick fix, there is no fix. Game over.
CR, are you planning to hold a contest to see who can best predict actual new home sales for 2007? bb
HUGE miss on sales. Square that with the starts numbers from Seiders = more losses & BKs.
Builders are in a corner 1000 ways here with credit tight, existing inventory going to the moon and REOs about to redefine pricing in a big way...
Dotcommunist,
This is the greatest, most dynamic economic system the world has ever known. Yes it's been terribly corrupted over the last 3 decades by greed and leverage and the likely shake out of all this will be somewhere between a severe recession and a full blown depression, but in the end we'll come out of it.
We have before and we will again.
This game is far from over. We haven't even seen hoverboards yet!
It's called Creative Destruction and we're due for a big dose!!!
That said, this WILL NOT be the end of the world as we know, just the biggest speed bump in decades. You can thank mr. leverage for that.
Durable goods up a huge 1.4%(-.5 ex autos), the yield curve is inverted(if ever so slightly) Workforce participation numbers suggest that unemployment is more like 5%, flat retail, seizures in the credit markets, Why isn't the stock market higher?
CR, how 'bout another contest ... predict the first public builder to go bankrupt ... I'll offer up the Beaze (BZH) as my entry.
Dang, where's the PPT when you need them? I need stocks to go up so I can buy put options "on the dips".
central,
Paulson is presenting on business taxes this morning so the PPT doesn't have its full roster.
Sorry for my earlier broken post.
Yes the divergence is exactly due to widening spreads. The cost of risk is rising rapidly in the mortgage market.
No section is safe.
Subprime: dead,
Alt A
Argh!!!!
I'm not going to bother typing all over again. Sorry.
The PPT can't stop it.
Their games will still be utilized, but they are soon to be proven not in control, just as they are with the money supply.
And the bankers and hedgies who have stolen control of the money supply are all rushing to the exits to cover their de-leveraging.
Deflation straight ahead.
Deb,
Thanks, got it. I think you're on a new topic there.
status Check
watching for 1483 spus
LawFitz: We haven't even seen hoverboards yet!
I hope you aren't holding your breath for that one. The Segwey is the closest you're going to get. The Jetson-mobile is restricted to celluloid.
Workforce participation numbers suggest that unemployment is more like 5%
Try 10%, and that's still probably understating it.
lawfitz-can you recomm a real time intraday charting source for mortgages?
idoc,
Unfortunately there isn't one that I know of. My info comes straight from the horses' (banks') mouths via daily rate sheets.
For the longest time, movements in the 10-Yr were almost mirrored by movements in all mortgage rates from Prime to Alt A to Subprime. But over the last 3 months divergence began to appear starting first with Sub and moving up the ladder.
Now I see rates move higher almost daily regardless of what the 10-Yr is doing. Why? Simple... the cost of risk is rising across the board (i.e. widening credit spreads).
Given the CDO mess and the great leverage unwind, I don't see this trend changing anytime soon, despite CNBC's proclamation this morning that the falling 10-yr would support the mortgage market... HA!
LawFitz,
Everytime you type the words "ALT-A" it seems your message get broken and you get into some kind of nervous breakdown... hehehe... some people are really having medical problems due to their inability to comprehend this whole "ALT-A" universe.
dryfly said: "Does this mean we are near bottom? It's always near bottom when one of these reports come out."
Y'all are welcome to come to NC. We haven't even seen the top yet.
Sebastia
Do I detect a hint of panic?
I personally would like to hear the Containment word again....
If Paulson continues to make statements about the housing market bottoming he will soon have as much cred on the economy as Cheney has about the course of events in Iraq. As for containment, remember that back in the early 1980's AIDS was contained to Gay men living in SF and NY. Looks like the mortgage virus is spreading and could cause almost as much damage.
spy 147.67 - dialed i
About the first public builder to go bankrupt. WCI was down 20% today after admitting that they don't have a buyer. Icahn offered $22 this spring but they turned him down and looked for a better deal. In the meantime, I expect that the shorts and puts sold off, leaving little support for the stocks. The stock is now something like $8.
A focus on condos in FL seems like a bad idea. I made some money when WCI went from 28 to 15 last year, but the threat of a buyout has kept me away from the short side.
To those who have been "Halo'ed" I offer this simple advice... Write your comments up in a word processor (MS Word) and then copy/paste it here when it's ready.
You get spell checking that way too, which all of us will appreciate.