Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 31 members and 169 guests online.
"the duration of todays situation may be longer than some are anticipating"
I agree!!! These is still a frenzy in housing and people are still talking about it all over the place. When that tide turns is when we will see housing recover or level off.
No ... It's more foreclosures because the ration of home price to income is so different. This is completely obvious.
It's more foreclosures because the ration of home price to income is so different. This is completely obvious.
No argument there. However, in the past, the FB's would take on two jobs in an attempt to keep that precious 20% down payment. With the down payments non-existant (or-HELOC extracted), high-DTI's, and a poor economy...
We've only begun to see the correction.
I think there is far more chance that TJ is going to be right about the final economic conditions than the news last night noting that "we're in a weird expansion with economic growth." Ugh... explaining to them inflation is a waste of time.
I still think we'll see an 18 to 30 month long deep recession. Hey TJ, we should meet up and have dinner again to debate.
Got Popcorn?
Neil
History shows that the longer you attempt to avoid a correction the longer and deepr the inevitable correction will become. Of course the duration will extend far out into the future. Want to pull the stitches out quickly? Easy, close out the TAF window. "Oh, no! We can't do that. Banks would realize losses." Exactly.
"First, should the economy worsen and suffer a period of significant job losses, the housing problem could become much more severe."
When a guy like this says something like that, it means he believes it's going to happen. Him and most of his friends.
This article makes a good point about the length of the housing slump. The owner of a house that declines 10% from its purchase price with its value bouncing along the bottom for years will take a larger loss than someone who gets foreclosed on immediately. The "long view" owner will have put more equity in the home, and paid more for maintenance and taxes. With homeownership at all time highs I don't see a whole lot of buyers "waiting on the sidelines" as some claim. The downturn will be of longer duration for sure because of the predicament millions are in of negative home equity.
Excellent & right on post from Mish today that counters a couple of former FDIC chairman's recent comments on this banking crisis being small in comparison to the 80s S&L crisis...these former Republican appointed chairman are simply glossing over the true facts trying to help McCain win...
S&L Crisis vs. Current Crisis
Mish's Global etc.
I thought this was good coverage of the situation. I was especially pleased at the mention of the effect of adverse life events on homeowners without equity, and the likely duration.
The reality is somewhat intimidating. Once we shake the speculators out, we still have years of payback ahead.
The wife and I are angry renters in Boston... looking forward to those price drops!
This is a well written article. Thanks for bringing it to our attention CR!
Oh, how I remember frozen Franklin, MA in 1991 thru 1994. The FDIC involutarily transferred me from its Houston field office to the field office in frozen Franklin due to my union organizing efforts. We brave employees eventually formed a union - NTEU but not before my 1991 transfer some 1,800 miles from my then 11 year old daughter. Divorced and not having shared custody - only visitation rights which I could no longer excercise on a regular basis due to the great distance and cost. I lost $30,000 on my primary Houston residence when forced to sell and transfer on a $60,000 salary. Nobody was hiring financial types in Houston in 1991 so for me there was no option to stay put. I survived with a few resentments, an addiction to J&B and several great Yankee friends. Take my advice. Never go to work for FDIC.
However, in the past, the FB's would take on two jobs in an attempt to keep that precious 20% down payment. With the down payments non-existant (or-HELOC extracted), high-DTI's, and a poor economy...
I agree, and believe that the second job option is also no longer realistically available.
Say you have a 50k$ salary from your first job. If your 150k$ house goes down by 10%, you can tighten the belt, get a second job waiting tables, and, by the end of a year or so, make up for the loss...
If your 500k$ house goes down by 10%-- well, you'd be a fool to do anything other than let the bank foreclose...
We're supposed to believe that 2007 had more adverse life events than 2005, as an explanation for the rise in foreclosures? What???? I had no idea adverse life events tended to "clump" in such a large population. Not.
"Susceptibility of mortgages to economic shocks" has a typo....replace "economic shocks" with "house prices not increasing".
Are mortgages NORMALLY susceptible
to shocks, such as prices not increasing?
No.
In the early 1990s, real GDP was real. It wasn't masked by lowball deflators like it is now.
The economy today is already almost as weak as it was in the early 1990s. You just don't see it in the real GDP numbers because they are cooked.
People are starting to wake up to the fact that inflation is higher than the govt. reports. They are even waking up to the fact that real growth is probably negative already and getting worse.
Trust George Soros. There's no comparison between this downturn and the 1990s. This will be much worse.
Today, according to the WSJ, trailing 12 month P/E ratios are as follows:
Dow 85.72
Nasd 30.30
Russell 2000 69.18
S&P 500 23.10
Mark down those numbers. Soon, they will peak. And you may never see them that high again in your lifetime, or even close.
I don't get the Angry Renters dogma.
i'm an esctatic Renter
FFDIC - your moniker makes a bit more sense to me now. Always appreciate your insights.
FFDIC,
Now we know what the first "F" stands for.
There is an additional consideration that I don't think we're incorporating. I think we're very right to look at the price/income ratios and clearly the leverage is much higher. However, I don't think we were as inclined to give full weight to the SECOND income, then. I wasn't in originations (then or ever) but the snippets i've heard suggest that the second income (typically the wife's) was given less weight.
An interesting thesis I've heard is that feminism has inadvertently weakened the family structure by incorporating the second income into the EXPECTED family contribution. Many of us are old enough to remember when "her" income was for 'extra's'. That meant that when he lost a job, the two of them could scramble and keep things together until he could get back on his feet again.
Now they are just out. There is no give in the system.
Now we leverage BOTH their incomes beyond reasonableness and there is no way to get by when one of them loses their job.
I think that this situation adds additional weakness to an already weak structure.
Perhaps tanta, or one of the others with working memory of the 80's could tell me if this is true.
meli
It's funny watching these central bankers.
They have all these great theories and models for predicting and governing the financial system, the markets, and the overall economy.
They don't get that this isn't about economics or finance. Those things are just a vehicle. Just like a car bombing isn't about automobiles or traffic management. When Vinny wires up your car to blow when you turn the key the police force doesn't send out the Auto Mechanic Swat Team to make sure justice is done and Vinny pays for your grisly demise.
Right now we don't need economists. We need dog catchers and wild animal tamers and cat herders. We need somebody who understands that Wall Street is essentially waging a form of financial war on the US population and they're going to fight to the death to keep their bubbles so they can hoover up the last bits of wealth remaining in the consumer economy. We need the best poker player in the world because the 2nd, 3rd, 4th and 5th best are all running hedge funds and outsmarting the Fed at every step.
We need somebody who understands that the financial system is just the outlet for some underlying sickness that's cannibalizing the economy.
Just treating the economic problems means just treating the symptoms while ignoring the underlying disease spreading through financial and cultural channels.
I've seen no sign that the Federal Reserve understands the behavioral and cultural aspects of what they're dealing with.
If the economic cancer continues to spread we may find that focusing on issues like interest rates and liquidity and bailouts start to seem like a foolish luxury if deeper societal issues begin to emerge because of wealth hoarding, resentment, loss of trust, and a growing "screw your neighbor with three card monte so you don't have to work" mentality.
Again maybe those people who lived through the last great crash were on to something when the said that it takes a crash or some kind of disaster to stop mob insanity.
It may be that all these economic and financial tools are useless against the forces and motives that are driving the participants in these markets.
And it may be that the only way to make things better is to somehow reshape or subdue this primal wave moving through our society.
I don't think career academics and number crunchers are cut out for the job.
i think you are absolutely right about that, ac.
"FFDIC,
Now we know what the first "F" stands for."
Seriously? figured that out from day 1, lol.
Feminism per se doesn't inevitably lead to the requirement for two-income households. Women could provide the single income. Mix and match. I'm more interested by how the whole two-income thing ties into the greater amount of risk families and individuals have had to assume recently (in decades). There could be an underlying long-term trend toward a greater frequency toward bankruptcy/foreclosures underneath this bubbly bit.
"I don't think career academics and number crunchers are cut out for the job."
Working on a college campus, I have a fairly dim view of academia as the savior of us all. Some of them can barely wipe themselves (I say this as a former employee of the registrar). More respectfully, running a reform movement is not their skill set, or they wouldn't be where they are.
They are good as resources. FDR had his "brain trust" in the Great Depression, but it included plenty of career politicians alongside intellectuals.
And remember, FDR hired Hearst to head a commission to recommend reforms on Wall Street. Hearst, who'd been one of the worst sinners. FDR said something like, well, he knows where the problems are better than anybody.
It was reform time back then, and reform happened. It will happen, somehow, again, when the people at the bottom give a mandate to the guy at the top.
I am still unclear on what the first "F" stands for...
I can think of two clear options, although one is an expletive.
I think there is a consensus that if employment starts to slide, it's over.
And I emphatically agree that the Republican Administration is just trying to keep the lid on.
um, I'm not quite noticing the brilliant bulbs out here in business-land. And I'm well acquainted with the oddities of academe that being my formerly native turf. What's our third option.
oh.
They are missing a key difference between 1990 and 2007, which is the contrition that cash-out refi's had on foreclosure rates.
Borrowers in low-income areas, specifically targeted by the lenders, became accustom to doing serial cash-out refi's as a way of supplementing their incomes. But when property values stopped rising, the ATM shut-down and these borrowers were left with debts that far exceed what their real incomes could support.
Former U.S. Federal Reserve Chairman Alan Greenspan said on Friday that he does not expect another "bubble" in world markets for a long time, and that central banks at any rate do not control the long-term interest rates that can be related to bubbles.
Greenspan doesn't expect more market bubbles
| Reuters
Mr Bubbles chimes in. What a pecker head.
Former U.S. Federal Reserve Chairman Alan Greenspan said on Friday that he does not expect another "bubble" in world markets for a long time, and that central banks at any rate do not control the long-term interest rates that can be related to bubbles.
Anybody who hasn't read Immoral Hazard (pdf document) please do so.
Hey Rob...what are you referring to here re: where there was an attempt to avoid a correction? Japan or something else?
Rob Dawg writes:
History shows that the longer you attempt to avoid a correction the longer and deepr the inevitable correction will become. Of course the duration will extend far out into the future. Want to pull the stitches out quickly? Easy, close out the TAF window. "Oh, no! We can't do that. Banks would realize losses." Exactly.
those commenting about the two income problem should read Elizabeth Warrens 'the two income trap.' OR do a utube search for her lectures.
Jack,
Right, sir. This is a point that everyone is missing. MEW will end up slaughtering everyone who survives the first couple of waves. The lack of comprehension on the seriousness of this issue is alarming. It is the overpowering reason why housing and economy are not even close to the bottom.
OT: Hypocrisy
U.S. oil trade surveillance won't burst bubble
| Reuters
So they are now investigating OIL price manipulation, yet at the same time the IMF is manipulating the price of gold to artifically prop up the dollar.
IMF Selling gold:
AFP: IMF moves toward gold sales
What a joke...
Today, according to the WSJ, trailing 12 month P/E ratios are as follows:
Dow 85.72
Nasd 30.30
Russell 2000 69.18
S&P 500 23.10
Mark down those numbers. Soon, they will peak. And you may never see them that high again in your lifetime, or even close.
It's been fascinating to watch as the majority of investors put their faith in the accuracy of the future earnings estimates.
Nice comments, ac and B-D-.
We have potent populists in Congress, on both sides of the aisle. They will be awakened, and they will pillory Wall Street. But, it will take a stock market meltdown to get their full attention, I think (I would have guessed that the cratering home prices and skyrocketing gas prices would have gotten their attention).
Irritating, the wait. And, it surely is hurting dummies who are still buying on the dips and who are still buying houses.
But, some people, in Congress and out in the populace, need a 2x4 put over their head for them to awaken from their slumber.
But, once they awaken, there will be heck to pay. I look forward to watching the show.
I don't have data, but I doubt that today's unemployment figures accurately represent the level of economic shock experienced by middle income households.
1) many more people are paid as contractors and subcontractors and hence don't show up as unemployed during slow economic times.
2) much of the profit made in today's markets is actually made off shore. The income supports stock prices and registers as business income or capital gains, but the multipliers don't support US workers.
Could be wrong, but it seems the economy has been outperforming middle income wages and salaries for some time.
If true it means that a nominal recession is not necessary to generate hardships that result in foreclosures.
"Irritating, the wait. And, it surely is hurting dummies who are still buying on the dips and who are still buying houses."
jg | 05.30.08 - 3:49 pm | #
jg,
I know this doesn't apply everywhere but there are some pretty decent deals around here. The number of 150-200k homes that are now on the MLS for 40-70k is pretty staggering. We actually need knife catchers because they will lead the declines down(along with banks).
How do I know we are not at the bottom?...2 homes around the corner for auction,both have minimum starting bids,both owned by banks.
Chris
yes, michael L, that is the work i was remembering. It is just an additional weakness here that I don't think was as pronounced in the 80's. Or, to put it in the same terms as the book, two incomes were already bidding up the cost of living, and the easy credit conditions of the last 5-6 years were fuel to an already well-built fire.
Three cheers for AC!
Chris, that is an amazing drop. I believe you, when you say there is more room for further downward movement, too.
At those sorts of levels, $40-70K, the ownership vs. renting calculations are a lot more compelling!
FFDIC writes:
"I survived with a few resentments, an addiction to J&B and several great Yankee friends."
You mean "FANS", right?
Survivors of foreclosure especially during the early 90s please tell us how you recovered afterwards.
FDR had Joe Kennedy, father of JFK, run the SEC. Takes a thief to know one I think was his reasoning.