I thought the NAR saw a huge increase in March?

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More Than half the Homes With Mortgages Would be Under Water if the Price Decline trend since July 2007 continues fro another year. The current trend for price declines nationwide, as per the latest Radar Logic data, is 20% a year. It is 40% a year in six metros including three in CA.

Rough estimates are:

There are 51M homes with mortgages and about 1/3rd have low balances. So, most of the mortgage debt is highly concentrated.

The estimated value of the homes with high mortgage-to-value at the peak (35M or so) was $12-13Tr.

The latest mortgage debt amount was close to $10.5Tr.

If the prices were to be down 30% from the peak, nation-wide, then based on the above I expect that majority of the 51M homes with mortgages would be under water. Think about $8-9Tr debt concentrated in 35M homes.

Jas

JPM seems to be infering that default rates are similar, regardless of customer credit quality, if they have low LTVs, or negative equity.

Is this really the case? Why would well-to-do people who can afford their mortgages go into default just because of negative equity? Tanta has done a pretty thorough job of illustrating that "walk-away" (i.e. defaulting when you can still afford the mortgage) is pretty much just a myth.

ac,

There is virtually no market right now for new public secondary equity offerings, except in a few very large and strong companies that don't need capital. Microsoft, of course, could float a public secondary but it doesn't need money.

According to one of my sources, most public companies that really need equity capital would have to do a private placement (a PIPE) at a discount of at least 10-15% to the current market price, and they would also have to throw in some warrants.

That tells you how weak the U.S. stock market really is.

I think a lot of the current players in the public market are hedge funds, prop desks and institutional day-traders using borrowed money. Meanwhile, the serious long-term institutional players (pensions, endowments, mutual funds) are gradually pairing back market exposure.

Total stock mutual fund assets were negative every month from November through Feb. and lost about $1 trillion total over this four-month period ($6.94 trillion to $5.97 trillion). Only about half of this loss is due to market decline.

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This tells you that every day, a larger portion of the stock market equity is moving into hot-money hands.

Is this really the case? Why would well-to-do people who can afford their mortgages go into default just because of negative equity

because they are overextended, and CAN'T afford their mortgages.

I think you're confusing "well-to-do" with "being able to afford mortgages"

A lot of people in the bubble states have good incomes, but still had to stretch to astronomical home price levels.
So you had people making $150k buying $1million homes.

That's not affordable.

thus, as their payments adjust, they simply can't afford them.

if they could have afforded the payments, it's unlikely they would have ended up negative equity in the first place. (due to having 20% down and paying an amortizing mortgage)

so it's how you SAMPLE the selection.

My guess: when you take people who are negative equity, they tend to be OVEREXPOSED and OVERLEVERAGED despite income.

so you have people making $20k/year in $150k homes.
And people making $150k in $1M homes.

neither can afford the home.

ac,

According to one of my sources, most public companies that really need equity capital would have to do a private placement (a PIPE) at a discount of at least 10-15% to the current market price, and they would also have to throw in some warrants.

See, I don't even know how this works.

Is the "public secondary equity offering" a way to create shares authorized but not yet issued?

Also, I assume that some of these companies have some of their shares "in their vaults" as they say. I just assumed it would just be a simple matter to hand these over to a broker to raise cash. Is that not how it works?

Is the "public secondary equity offering" a way to create shares authorized but not yet issued?

It can be done with a shelf registration, which gives the company the ability to go to underwriters and sell them a quantity of shares (within ranges) based on market demand. These shares are registered, so they can immediately be traded in the public market.

In a private placement (PIPE), the shares are bought but may not be publicly trade until a registration statement becomes effective, usually 6-12 months later. The PIPEs that buy these shares will dump them on the market as soon as they become effective, or as soon after as they can without depressing the share price.

The point is that the PIPE market is hugely more expensive for equity issuers than the secondary public market, and most PIPE players have no vested interest in keeping share prices high. They often short the company shares during the "registration waiting period" and then use the public shares (after the period ends) to cover their shorts. The SEC says they can't do this, but the PIPEs have sued the SEC and won.

The PIPES make their money in buying equity cheaper than public investor stooges and simultaneously shorting to lock in their gains.

(I'll bet you thought this was illegal.)

In fact, i would guess that many people that consider themselves "well to do" will find out they are not so much very soon. The over-leveraged appear in all classes, and now you're going to find out who is.

ipodius:
in gist, we agree. As I posted, "well to do" are losing their homes just as much as the "poor" due to being overextended.

so I'm not sure what your disagreement with me is here

Not true. If the rollback is clost to 30% from peak (and I assure you that number is fast approaching here in inflation-adjusted dollars), then your 20% is vaporized and you've only amortized a tiny fraction of your note.

a bunch of ifs. we'll have to agree to disagree here.

FIRST: we don't count "underwater" in "inflation adjusted dollars"
-If a person buys a house at $100k, and puts $20k down, they have $20k of equity. They are not "upside down"
-if a person buys a house at $100k, puts $20k down, and then the house drops $10k and there is $20k additional loss due to inflation, they may have a $30k drop in value (inflation adjusted), but they are STILL not "upside down" on their home. In fact, they still have $10k equity.

SECOND:
there are very few places that have seen a 20% reduction in nominal home prices YET.

Also if you HELOC'd to do any improvements (as a lot of well-to-do people have) you are underwater.

THIRD:
again, we agree here. see my above post.
If they are HELOCing the house to death, in general they can't afford the home.

JPM is just following the crowd. Since everybody else is saying, they do, too. Who knows what they actually believe, though? My sense is it is much worse than they say.

Anything a bank or an IB says these days lacks credibility.

ipodius wrote (quoting oil equations previous post)

"if the fed would stop bailing out bad investments, OIL prices would retreat hastily from 114.22"

Ipodius answered,
"Nope, that has nothing to do with it. And I challenge you to show me one thin government dime, as of yet, spent on a bailout. And I mean SPENT, don't give me crap about JPM because no government money has been used at this time, and none may ever be...." |

mock turtle weighs in

the issue of whether or not the Federal Reserve has "SPENT" money is less relevant than the liquidity and the conversion from M3 money to M2 and even MZM that has been facilitated in their taking mark to model, dubious assets on to the Feds balance sheet and in turn giving the Investment banks, "flight to safety" securities which then can be used for expanded market activities.

don't be fooled.. the Fed IS injecting money into the system, by the cleverest of ways that allows them to say "Hey these are sterilized open market actions..."but to that I say BS (for bear sterns...ha) cause if the fed didn't TAF or TSLF or give 30 billion a day in loans to Primary Dealers thee money for the action today on the equities market an the oil speculation responsible for much of the run up would collapse.

i think oil equations got it right.

Consider also that many of the people who put xx% down were able to do that only because they sold at large profit a home they bought long before at a much lower price -- and that they would never have been able to save that much money out of their income.

So they will hold out for the price they bought at as long as they can, if they're placed in a situation where they have to sell. And if they can't hold out, and lose their inflation-gifted equity, they'll not be able to buy a home of comparable quality for a long, long time -- their lifestyle almost certainly consumes all their income (or more, if they were using their nome as an ATM).

They often short the company shares during the "registration waiting period" and then use the public shares (after the period ends) to cover their shorts. The SEC says they can't do this, but the PIPEs have sued the SEC and won.

And you wonder why the retail investors get screwed.

the fed is injecting money thru the back door by cascading liquidity, via TAF , TSLF and PDCF activities, from what was mark to Model securities, down to mark to market securities.

But hey set that aside...just look at liquid money (MZM) 2.2 trillion in 12 months!

http://research.stlouisfed.org/fred2/data/MZM.txt

ooops correction 1.2 trillion since march last year

If the Fed starts raising the FFR, isn't that acknowledging "inflation expectations,", which would thus accelerate the rise in oil and glod prices?

Just asking.

at the extreme end the ultra high rates choke off economic activity and what does that do to the price of commodities...you guessed right...down

Well, during the high FFR 70's, gold did very well, as I recall.

I understand the point about oil prices falling if higher FFR rates strangle economic growth, as ipodius says. But overall, we are probably looking at too few data points here, in predicting oil and glod prices.

It seems to me that hyperinflation is coming, and oil and glod prices will skyrocket in the long run. Glod is more than just a commodity, and oil (to a large extent) is also, IMO.

As to puzzlement about "well off people" not being able to pay their mtg payments:

All discussion participants are confusing wealth with "class". Class and wealth overlap but they are not identical.

You could give Archie Bunker Bill Gates' money, and even the ability to manage it, and he would still be low class.

High class people NEVER make certain grammatical mistake, and share a certain way of speaking and acting.

A high class person who has lost his wealth is still high class.

There is a book called "Class" which describes various classes and their habit, which may now be out of print.

McMansions with no furniture, or cheap furniture are symptomatic of people who aspire to a higher class and have no idea how to attain it, or even what it consists of. They might not even like the people or the lifestyle of the next class up.

These hypothetical people with good incomes and lacking ability to pay their mortgages, are just plain mid middle class. If they had either saved their money, or bought a house they could afford, even in not so good times, they would actually be closer to "upper middle" class, which is really what everybody in the country aspires to. They would have less of the trappings, but more of the reality of uppermiddleclassness.

In fact aspiring to be perceived as being in the next class up is part of the essence of middle classness.

You can try to look rich, and make yourself poor doing so, or you can save your money or invest, and actually become well off. If you have money saved in abundance, and you have all the trappings too, they you really are rich.