Housing Doom

“The injunction of Jesus to love others as ourselves is an endorsement of self-interest,” Goldman’s Griffiths said Oct. 20, his voice echoing around the gold-mosaic walls of St. Paul’s Cathedral, whose 365-feet-high dome towers over the City, London’s financial district. “We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all.”  Bloomberg¹

Thank goodness for Tatjana’s 17th Century English Lit course.  The last few months would have made no sense at all if I hadn’t decided to make a close study of Donne’s sermons and Laud’s adventures in Xtreme Interior Decoration.

As it stands, I can just sort of work my way through the section on  "The Growth of Individualism" in Tawney’s 1922 Religion and the Rise of Capitalism and treat the whole affair as a kind of cosmic joke.

When the banking lobbyists marched up the Hill on September 18, 2008 and seized control of the economy it was the perfectly symmetrical event to the fall of Soviet Communism.  We’re now enjoying (on a compressed time frame) the same post-collapse rise of oligarchs that Russia experienced in the late ’90s.  Perhaps if Putin’s not too busy pulling the strings back home, Larry could sign him on as a consultant.  Obama’s got a serious problem if he lets these guys strut around unhindered.

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Final risk. The increasing asset prices we’ve seen since March for everything: global equities; in US, equities; EM [emerging market] asset classes; commodity; credit; everything around the world is driven by one factor.

Doom Transcripts: Index & Guide

The penultimate risk was merely the prospect of World War III breaking out.  Fortunately Nouriel was running overtime so Alex had to cut him short just before he got to the scary bit

UPDATE (11/6): Here’s Nouriel’s Nov 4th expansion on the idea

Housing Doom is pleased to present a fourth selection from our under-construction transcript of the American Enterprise Institute’s October 22, 2009 event "The Deflating Bubble, Part VI: The Lessons of the Bubble and Crisis".¹

The event site has a number of resources, including an audio and video of the proceedings. There is as yet no official transcript.

Dr. Doom was batting cleanup …

Nouriel Roubini: [0:37:03] OK. Tom spoke about housing and mortgages. What Chris spoke about — the banks. So I’ll try to speak about the economy and what’s going to happen to the economy looking ahead.

We’ve had the most severe recession and financial crisis since the Great Depression. Given the monetary and fiscal stimulus and the backstopping of the financial system now we’re close to the bottom, at least on a temporary basis.

And now the debate is, of course, on what’s going to happen — the shape of the recovery. Given what has happened in the markets I would say the markets are pricing now a V-shaped recovery with rapid return to potential growth, and that’s even what the macro forecasters’ consensus is.

There is a second view, which is the one I share, is that this recovery is going to be at best an anaemic, subpar, below trend, with growth well below trend for the next couple of years, much as in the US, but also in advanced economies. So more like a U-shaped recovery. That’s also the view of the IMF and the one of those folks at PIMCO who are talking about A New Normal.

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Oct. 29 (Bloomberg) — The U.S. economy returned to growth in the third quarter after a yearlong contraction as government incentives spurred consumers to spend more on homes and cars. - BL¹

A month and a half ago I confidently predicted that the equity markets would be collapsed by yesterday.  Obviously wrong.  What I failed to enter into my calculations was a world where Google’s top biz story could have the above lead paragraph and just about nobody would see the least little bit wrong with it.

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Doom Transcripts: Index & Guide

Housing Doom is pleased to present a third selection from our under-construction transcript of the American Enterprise Institute’s October 22, 2009 event "The Deflating Bubble, Part VI: The Lessons of the Bubble and Crisis".¹

The event site has a number of resources, including an audio and video of the proceedings. There is as yet no official transcript.

This is the presentation by IRA co-founder Chris Whalen.  I see Nouriel on deck, but this one’s going to be a tough act to follow.

So this is what the commenters at Calculated Risk have been going on about …

Chris Whalen: [0:27:02] I’m going to talk a little bit about the industry because we’re in the middle of earnings season, and I apologize for not preparing something, but I’ve been reading bank earnings statements, so I will share some of my impressions of that. And then I want to talk a little bit about not only lessons, but some of the enduring trends that I see that have not been affected by the extensive bailout that the government has put together for our largest financial institutions.

In general, when you look at the industry you have to recall the words of Mr. Feinberg, and I don’t mean the guy who was in the newspaper today, I mean my friend Bob Feinberg in the back of the room, who predicted several years ago in an interview we published that the GSE would become the business model of choice for the United States.

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How’s this for a weird one? It is not uncommon to see sad stories where grandparents in 55+ communities end up with custody of grandchildren and have difficulty with HOAs and neighbors.  This time though, the community wants the little girl gone, but they don’t want the grandparents to drop the home price too much- they think it might hurt neighborhood home values.

A protracted battle to get a 6-year-old Florida girl to move out of a 55-plus community has dragged on, her grandmother says, because the housing market meltdown has made it impossible to sell her home.

Kimberly Broffman moved in to Judie and Jim Stottler’s Clearwater home when she was 6 months old in 2004, well before foreclosures started mounting in Florida. The move was only meant to be temporary — the rules of the retirement community state that anyone under 18 cannot live there longer than 60 days — but with the little girl’s mother in and out of jail and coping with a drug problem, a court awarded Ms. Stottler custody of her granddaughter. The local Homeowners Association insists the little girl must leave; Ms. Stottler says there is nowhere else for her to go, and they cannot afford to move unless the house sells.

“[The association doesn’t] live under a rock. They know the housing situation, they know the economy,” said Ms. Stottler, 62, while at work as a dietery assistant at an assisted living facility, where she earns $18,000 a year. “I’ve been trying to sell my home, but I can’t drag somebody off the street to buy it.”

Mr. Stottler, 54, is not working due to a disability.

Robert Eckard, the family’s lawyer, said the Stottlers do not plan to give up Kimberly. “There’s no where else to go except for foster care,” said Mr. Eckard, who took on the Stottler’s case pro bono after he saw it in the news. “My goal is to keep them together which they still are.”

It sounds like the Stottlers are willing to be aggressive in pricing their home. Even after dropping the price from $239,000 to $129,000 though, there was only one showing in nine months. You’d think that if the homeowners association was in a real hurry to have the little girl gone, they’d want Grandma to cut the price so she could sell, but no:

Ms. Stottler said she’s offered to bring the price down even further, but she said a lawyer for the Association discouraged her from going too low because it would bring down the value of the entire neighborhood.

I don’t know why the Stottlers would be taking advice like that from the HOA’s attorney.  Homes in the neighborhood are worth what people are willing to pay, and "discouraging" owners from pricing homes realistically won’t prop up home values. Clearwater is in the Tampa area, which has seen a 17% drop in the median price in the past year. Setting the price too high and waiting for someone to come along and pay it is not a good sales strategy.

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In this economy, you do what you have to do to make a living- even if you have to take your job out on the road.

I just got an email from M who sent me this picture.  It’s a photo he took of a mortgage broker working from the back of his pickup.  This is in the Phoenix Southeast Valley in my old neck of the woods:

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Foreclosures keep going from bad to worse: [Thanks L!]

NEW YORK (CNNMoney.com) — Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday.

"They were the worst three months of all time," said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes.

During that time, 937,840 homes received a foreclosure letter — whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

And things aren’t getting any better.  M sent me this worrying bit of information a couple of days ago:

As expected, another  $659,000,000 of mortgage debt defaulted in the last week……..just in Phoenix [metro]……..Maricopa county only!!!!!  This is a continuation of a trend we’ve been tracking all year.

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David Lereah, former chief economist of the National Association of Realtors and perma-bull has moved off of the radar in the news media, but apparently his spirit is being channeled by Dave Carpenter of A.P.  This article is a real blast from the past.  I had to double-check the date to be sure this wasn’t from 2005 or something.  When’s the last time you read a report that had the nerve to say this? [Hat tip M.R.]

For all the doom and gloom about the housing market, it still generally pays to own a home.

 

That might be a tough case to make right now to the 16 million homeowners who owe more on their mortgages than their houses are worth. But history suggests the American Dream is a pretty safe bet.

 

Homes have appreciated by an average of 4 percent a year since World War II. They act as hedges against inflation and bestow significant tax benefits. Real estate is a leveraged investment; a 10 percent down payment produces a 1,000 percent return if the price of a home merely doubles.

 

Of course, historical trends don’t pay the mortgage. People who wade in and out of the housing market too often — or who buy at the wrong time or price and need to sell quickly — can get burned.

 

But if you own for a decade or more, price appreciation usually overcomes even bad slumps.

 

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There are a few quotes out there that we love to hate- Greenspan’s "a little froth" comment back in 2005 or Bernanke’s "green shoots" comment last April.  Here’s another one we can snicker at six months from now:

"The great recession is over," said NABE [National Association of Business Economists] President-Elect Lynn Reaser.

"The vast majority of business economists believe that the recession has ended, but that the economic recovery is likely to be more moderate than those typically experienced following steep declines."

Here’s another good one from the same survey:

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It ended up being a late night for me last night and I wasn’t up to commenting much on the latest Mortgage Metrics Report from the Office of the Comptroller of the Currency.  I thought however that the following two charts spoke volumes about loan modifications, so I thought I’d let them speak for themselves: [Thanks L!]

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