Housing Doom

They were frugal and waited for home prices to fall.  They bought a foreclosure- and now they are feeling guilty about it: [Hat tip Mr. Twist]

LAS VEGAS — Right about now, Anya Sanko should be enjoying the thrill of being a first-time home buyer. She bided her time, saved her money and jumped into the market in time to snap up a 1,785-square-foot home with a pool for $143,000.

Yet Sanko, 37, is having a hard time celebrating. Her parents lost their house in Michigan to foreclosure after her father lost his job, her sister’s home equity has evaporated and friends struggling with mortgages don’t want to hear it.

And then there’s that slab in the backyard of the foreclosed house she bought. The previous owners and their children had scrawled their names in it when the concrete was poured, back in 2005 when they bought it for $287,500 amid the Vegas housing boom.

"I think about them all the time," says Sanko, who works for the city of Las Vegas. "I see the names in that concrete slab, sometimes I get their mail, I see all the work they put into this house.

"It’s sad that they never got the reward from all of that work."

This sentiment — call it economic survivor guilt — is a little-noticed emotional byproduct of the financial devastation wrought by the housing and banking meltdowns of the past year. Sanko was always frugal, has a stable job and bought within her means, and yet there’s a lingering sense, as she puts it, that "you’re capitalizing off of somebody else’s misfortune."

So what do Doomers think?  Anyone else feeling guilty, or just smarter and/or luckier than the last guy?

Read the rest of this entry »

1:40:18 If they had independent, really objective advice they would simply walk away, because there’s simply no point in them paying rent. That’s exactly what they’re doing. - Chris Whalen

Doom Transcripts: Index & Guide

Housing Doom is pleased to present a complete unauthorized annotated transcript for the American Enterprise Institute’s September 30, 2008 event "The Deflating Mortgage and Housing Bubble, Part IV: Where Is the Bottom?"¹ The event site has a variety of resources including both an audio and a video of the proceedings. There is an official transcript, but at present the link to it on the event site seems to be broken.

Table of Contents

[link navigation works best when full article displayed]

1. 0:00:00 - Alex Pollock intro (original version)
2. 0:12:42 - Desmond Lachman presentation (original version)
3. 0:23:38 - Nouriel Roubini presentation (original version)
4. 0:40:24 - Tom Zimmerman presentation (original version)
5. 0:57:08 - Chris Whalen presentation (original version)
6. 1:11:29 - John Makin presentation (original version)
7. 1:29:20 - Panel Responses
   1. 1:29:20 - Pollock
   2. 1:30:33 - Roubini
   3. 1:32:14 - Whalen
   4. 1:33:52 - Lachman
8. 1:34:58 - Q&A
   1. 1:35:22 - Robert Shredder[ph] question
      1. 1:36:08 - Pollock response
   2. 1:37:06 - Bert Ely question
      1. 1:38:51 - Makin response
      2. 1:39:45 - Whalen response
   3. 1:40:39 - John Serrapere question
      1. 1:41:36 - Whalen response
      2. 1:42:26 - Roubini response
      3. 1:43:51 - Zimmerman response
      4. 1:45:31 - Makin response
   4. 1:47:39 - Chow Chen[ph] question
      1. 1:48:30 - Makin response
      2. 1:48:44 - Whalen response
   5. 1:49:33 - David Lesser question
      1. 1:50:28 - Makin response
      2. 1:50:47 - Whalen response
   6. 1:53:15 - Whitney Culbertson question
      1. 1:54:34 - Lachman response
      2. 1:55:44 - Roubini response
   7. 1:57:05 - Ted Barnhill question
      1. 1:58:40 - Makin response
      2. 2:00:30 - Whalen response
   8. 2:00:48 - Pollock brief summation
9. 2:01:01 (end)
   • Notes and References

Alex Pollock: [0:00:00] [slide² 1] … and welcome to the deflating mortgage and housing bubble Roman Numeral IV in our series. I’m Alex Pollock, a Resident Fellow at the American Enterprise Institute, and we have the same outstanding panel that we have previously had for our deflating bubble series, which by the way we fully intend to continue next Spring with deflating bubble Roman Numeral V [laughter] because this will all still be going on by the Spring.

Now this panel has previously brought you notable insights into, and accurate pessimistic forecasts of the problems of what happens when you have the collapse of a really big financial bubble, which we had of course centered on mortgages but by no means limited to mortgages.

Read the rest of this entry »

So what does it take to keep property values from falling?  I wonder if the government will get desperate enough to try this:  [Hat tip John!]

Aug. 29 (Bloomberg) — The U.S. naturist property market has survived the global recession because the majority of house- buyers in unclothed communities are older and don’t need mortgages, the Financial Times reported.

Naturism has grown to a $450 million industry from $400 million five years ago, primarily because of real estate values, the newspaper said, citing a spokeswoman for the American Association for Nude Recreation.

House prices in naturist communities haven’t dropped as much as those in the general market, the FT said, citing Marc Seligman, who manages a naturist real estate Web site.
 

Since John sent me the link with the comment Don’t Look Ethyl!  I couldn’t resist adding this:

Read the rest of this entry »

From Karl Denninger at Market Ticker via Freedom’s Phoenix comes this reasonable question:

How about a little honesty from commentators in the mainstream media?

"Liquidity conflagrations" happen when people discover they have been lied to.

Anyone remember Bear Stearns?  "We’re well capitalized" on CNBC?  "Everything is fine"?  Cramer’s pumping of them on his show as "safe"?

Market participants in fact knew everything was not fine.  There were statements flying around (that turned out to be true) that some counter-parties had begun refusing to novate deals with Bear. 

It was the discovery of the lie that caused the run on Bear Stearns and its ultimate collapse.

Likewise with Lehman.  Remember Dick Fuld’s "I’m gonna burn the shorts" comment, again, on CNBC and elsewhere in the National Media?

The truth got out: they were having liquidity problems.  Once again, as soon as people discerned that they were being lied to, Lehman’s fate was sealed.

The problem The Fed has is that as the supposed "risk regulator" for the American Banking System it has absolutely refused to do its job of prudential regulation and still is. Instead of demanding that its member banks hold capital against all unsecured lending it has "blessed" models rather than markets.  But at the same time it has declared "haircuts" against collateral that make clear that so-called "face value", or "par", is a farce.

The Fed is supporting institutionalized lying - that is, the intentional mis-marking of assets.  If The Fed was an honest regulator and monitor of market risk it would insist that no bank carry an asset at a value materially higher than its "haircut" off par at the window.  After all, the penalty rate for discount window use already discourages banks from coming there; the "haircuts" must (and I argue do) reflect what The Fed actually believes about the quality of these alleged "baskets" of asset classifications.

If The Fed believes that these asset classes have this sort of haircut from face value in the market how does it justify allowing any bank under its jurisdiction holding such "assets" at a higher value on their balance sheet?

The claim that people shouldn’t worry about a bank that needs an emergency loan at a penalty rate and with a haircut that in some cases is 30% or more below declared "balance sheet value" is criminal idiocy, and any argument that such emergency facilities should be kept secret so that the public does not know when such an extreme emergency exists is, I would argue, an act in furtherance of racketeering. 

After all The Fed isn’t lending with its own money - those are our dollars that are being lent out and their actions confer obligation on the taxpayer.  The Fed’s legitimacy and backstop are predicated on the back of the American Taxpayer - a privilege, not a right.  That privilege comes with the responsibility to justify in each and every case, in a transparent, fully-disclosed fashion, their actions.

Now the banks have had to set aside more capital:

Banks, of course, need to set aside cash to cover these bad loans. And that’s just what they did last quarter, earmarking nearly $67 billion—or 33 percent more than a year earlier—for loan losses. This large provision hammered the industry’s bottom line, creating a net loss of $3.7 billion for the period, compared with a $4.8 billion profit a year earlier. "Deteriorating loan quality is having the greatest impact on industry earnings as insured institutions continue to set aside reserves to cover loan losses," FDIC Chairman Sheila Bair said in a statement. "Of all the major earnings components, the amount that insured institutions added to their reserves for loan losses was, by far, the largest drag on industry earnings compared to a year ago."

Even still, banks continue to "mark-to-fantasy" rather than write down loans. One friend of mine has said, "Of course the government is lying to us.  There would be panic in the streets if they didn’t."  But look at what we are seeing.  Here’s one example from Phoenix: [Thanks L!]

Read the rest of this entry »

It’s Friday, and thanks to cpgone for sharing Clusterstock’s Brief update on the mortgage collapse.  They have a bunch of interesting graphs that pretty much look like a collection of hockey sticks.  Here’s one we were told we’d never see:

Read the rest of this entry »

Volume in Fannie and Freddie also started to pick up around that time. Investors traded 7 million shares of Fannie on Aug. 4. The next day it was 117.1 million. Fannie trading has gone higher recently, hitting 831.4 million on Monday. The same day Freddie jumped to 386.5 million. For a bit of context, in late July and early August, Freddie volume was in the single-digit millions. [ / / ] We asked our crack squad of Dow Jones math ninjas to crunch the numbers on these five stocks to find out exactly how much of the entire market action is made up by their trades. Since Aug. 5 — when we saw names like Fannie, Freddie and AIG reawaken — trading in those three stocks, plus Bank of America and Citi, has averaged about 31.5% of the NYSE consolidated volume. At their peak on Monday, these five stocks accounted for nearly 43% of the NYSE consolidated volume. That’s pretty remarkable. [1]

The gang at the WSJ has a number of theories about the above, but "… we’ve got a sneaking suspicion that there’s a fair amount of high-frequency trading going on too." Ever since the Aleynikov Affair broke on July 7th, we at the Castle have been following with fascination the unfolding story of algorithmic High-Frequency Trading and its potential for market manipulation. Can you say Plunge Protection Team? And it’s not just the GSEs’ equity that’s gotten downright bizarre lately.

Turns out SIFMA, the Madoff family’s favorite regulator, has been dibbling into Fannie’s & Freddie’s debt this year. Big hat tip to AP’s Matt Apuzzo for breaking this story into the mainstream last Monday.[2] On January 7th these guys granted "TBA Eligibility for Certain Passthroughs Created through the Reconstitution of REMIC Regular Interests." Yep, that’s exactly what it sounds like. They’re putting recycled product up into cans. Re-Remic, rhymes with "pandemic".

Battle-scarred Doomers may remember "CMO into TBA gives COW" (Nov 5, 2008), my unsuccessful effort to fend off this idiocy late last year and "SIFMA Has a Cow: ‘CMOs weakened relative to TBA bonds’ to be Recycled into TBA" (Jan 14, 2009), the short Doom rant on the subject we posted a week after the things were approved.

But now we can connect the dots to yet another pair of far-flung data points. If you look at this week’s Puplava numbers (up a lusty $13.333 billion this week by the way) you’ll discover that the 7-day period beginning January 8, the day after SIFMA unleased Re-Remics, was the very first of the Federal Reserve’s own reported MBS purchases. So whoever else is buying this stuff, we can say with some confidence (assuming that Ben is still calling the things coming out of TBA "Mortgage-Backed Securities") that those Ruritanians over at the Fed have a taste for not-strictly-fresh canned fish

Meanwhile, back at the ranch, this week’s Reuters report [3] recorded a pretty good strengthening in treasuries and a reversion to modest weakness in agencies. The report was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.[4] Here is Doom’s updated CSV version of the agencies and treasuries foreign central bank holdings data set.[5]

Treasuries grew a healthy $12.267 billion, more than doubling last week’s figure.

Agencies fell by a small $3.301 billion, but this more than canceled out last week’s even more modest buy.  But in other GSE MBS news, our good friends at Housing Wire just dug up a gem.  One of the Fed presidents is talking about putting the brakes to the Puplava number.[6] Could he be seeing that dotted line approaching zero and thinking that there’s no point buying more Agency Debt once the real foreign banks purge themselves?

“Should those purchases [of agencies] continue at their current pace, there will come a point at which the banking system will no longer need to borrow to obtain the desired level of reserve balances,” [Richmond Fed president] Lacker said. “At that point further asset purchases would then push the supply of reserve balances beyond demand, and would necessitate a downward adjustment in other yields to induce banks to voluntarily hold large balances.”

The addition of $8.966 billion total obligations improved a bit on last week’s result.

Read the rest of this entry »

[0:29:39] This 2006 vintage is so far out of the realm of reality to most people in the mortgage market as to be unbelievable. If I’d shown them this chart in 2005, they would say I’m smoking something I shouldn’t be smoking. … Tom Zimmerman

Doom Transcripts: Index & Guide

Housing Doom is pleased to present a complete unauthorized transcript for the American Enterprise Institute’s October 11, 2007 event "The Deflating Mortgage and Housing Bubble, Part II: The Financial and Political Risks"¹ The event site has a variety of resources including both an audio and a video of the proceedings. There is as yet no official transcript.

Table of Contents

[link navigation works best when full article displayed]

1. 0:00:00 - Alex Pollock intro
2. 0:07:23 - Desmond Lachman presentation
   
3. 0:24:26 - Tom Zimmerman presentation
4. 0:40:38 - Nouriel Roubini presentation
5. 0:54:58 - Chris Whalen (in absentia) summary delivered by Alex Pollock
6. 0:57:25 - John Makin presentation
7. 1:15:52 - Panel Responses
   1. 1:16:11 - Lachman
   2. 1:17:35 - Roubini
8. 1:19:42 - Q&A
   1. 1:20:09 - John Serrapere question
      1. 1:22:06 - Zimmerman response
      2. 1:24:41 - Pollock response
   2. 1:25:05 - Bonnie Wachtel question
      1. 1:26:08 - Makin response
      2. 1:28:19 - Lachman response
   3. 1:29:06 - Bert Ely question
      1. 1:30:22 - Roubini response
   4. 1:32:00 - Ann Sorensen[ph] question
      1. 1:34:08 - Zimmerman response
   5. 1:35:46 - Ken Gould question
      1. 1:36:14 - Makin response
      2. 1:37:05 - Zimmerman response
   6. 1:37:55 - Bob Long question
      1. 1:38:32 - Makin response
   7. 1:39:32 - Bill Longbrake question
      1. 1:40:24 - Roubini response
      2. 1:42:13 - Lachman response
   8. 1:42:44 - Dave Torres[ph] question
      1. 1:43:05 - Makin response
   9. 1:44:39 - Bob Davis question
      1. 1:45:22 - Zimmerman response
      2. 1:47:10 - Pollock response
   10. 1:48:48 - Vincent Reinhart question
       1. 1:50:04 - Makin response
          
       2. 1:52:00 - Zimmerman response
       3. 1:53:10 - Roubini response
   11. 1:53:42 - Bert Ely 2nd question
       1. 1:55:10 - Lachman response
   12. 1:55:42 - Unknown questioner
       1. 1:56:08 - Makin response
   13. 1:56:19 - Bob Feinberg question
       1. 1:57:19 - Zimmerman response
   14. 1:59:11 - Jerry Idaszak question
       1. 1:59:50 - Makin response
   15. 2:01:32 - Pollock brief summation
9. 2:02:19 (end)
   • Notes and References

Alex Pollock: [0:00:00] It being 5 minutes after 2:00 [pm], we’ll begin. Welcome to all to this discussion of The Deflating Mortgage and Housing Bubble, Part II: The Financial and Political Risks.

Part I was our conference last March, the pessimistic outlook of which has been confirmed by subsequent events. Now it’s 6 months later and time for an update, and to consider: "What now?"

Read the rest of this entry »

Is Bernanke the devil?  Here’s what Peter Schiff has to say: [Hat tip Freedom's Phoenix!]

Read the rest of this entry »

In typical "bad news is good news" fashion, Bloomberg news was rejoicing at the increase in new home sales [MOM anyway] in July:

Aug. 26 (Bloomberg) — Purchases of new homes in the U.S. jumped more than forecast and demand for long-lasting goods such as autos and computers climbed, reinforcing signs the economy is rebounding from the worst recession since the 1930s.

Home sales increased 9.6 percent in July, the most in four years, to a 433,000 annual pace, figures from the Commerce Department showed today in Washington. Another report from the department indicated bookings for durable goods climbed 4.9 percent, also exceeding forecasts and the most since July 2007.
 

As usual however, the margin of error on the report is so high it’s hard to put much trust in it.  Here’s what the Commerce Department said:

Sales of new one-family houses in July 2009 were at a seasonally adjusted annual rate of 433,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.6 percent (±13.4%)* above the revised June rate of 395,000, but is 13.4 percent (±12.9%) below the July 2008 estimate of 500,000.

The median sales price of new houses sold in July 2009 was $210,100; the average sales price was $269,200. The
seasonally adjusted estimate of new houses for sale at the end of July was 271,000. This represents a supply of 7.5
months at the current sales rate.

Bloomberg was also rejoicing over the inventory reduction:

Read the rest of this entry »

A 15.4% drop year-over-year home prices doesn’t seem like much to celebrate, but it’s making the markets happy this morning.  According to Bloomberg:

Aug. 25 (Bloomberg) — Home prices in 20 U.S. cities fell in June at a slower pace than forecast, signaling the real- estate crisis that triggered the worst recession since the 1930s is dissipating.

…

“The sharp freefall in prices is over,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. “People are entering the market and that is starting to normalize prices. It’s a clear positive.”

Here’s a graph of the 10 City Index, not seasonally adjusted:

And the year-over-year percentage:

What I found particularly interesting was the month-to-month data since 2001:

Note that some improvement in the MOM numbers is typical in the summer, and that 2009 shows a marked "improvement" over past years.  However, this improvement is not being driven by normal market forces.  The $8,000 tax credit [due to expire this fall] and artificially low rates are temporarily bringing more buyers into the market.  In addition, banks are creating the illusion of improvement with artificially scarcity:

Read the rest of this entry »