Thursday, December 13, 2007

Recommended

1. NY Times: A soaring economy and crumbling trade barriers are making India a “must visit” destination for foreign politicians and executives. They all hope to sign deals, find local partners, sell their wares or just soak up the contradictions that characterize the world’s largest democracy, a singular melding of chaos and opportunity.

2. Larry Elder: Let's not minimize the trouble faced by thinly collateralized borrowers and their lenders, given the soft housing market. But the financial difficulties affecting both sides of transactions voluntarily entered into do not warrant a taxpayer bailout.

U.S. homeowners' equity today equals almost $11 trillion. Price declines for this year and next year may amount to $6 billion, or a 0.05% decline -- a worry, but hardly Judgment Day.

8 Comments:

At 12/13/2007 11:21 AM, Anonymous Anonymous said...

The guy that has the $50,000 house in North Carolina isn't going to be affected as much as the guy with the $1,000,0000 house in Silicon Valley where some very good neighborhoods have seen a five percent (5.0%) drop in market values in the last 6 months. Add 8% (on the low side) for sales costs and the Silicon Valley guy is out 13% or $130,000 if he has to move.

One city in California's Central Valley has seen house prices go from the low $400,000s to the low $300,000s - high $200,000s this year. That's a 25% decrease in price AND the unemployment rate is still below 5%.

Mr. Elder's calculations seem to be a little off. With predictions of a 1.9% decrease in home values across the U.S. a 5/10,000th decrease (0.05%) in equity seems to be rather optimistic or an error.

0.05% of the equity of a $1,000,000 home with no mortgage is $500.00

0.05%/100.0% * $1,000,000 = $500.00

 
At 12/13/2007 12:22 PM, Anonymous Anonymous said...

Mr. CD, I beg to differ. Housing prices are cratering in the USA, just look at what prices for mortgage bonds are saying. In fact, 40% of all subprime ARM loans made this year HAVE NOT MADE A PAYMENT.

There is a huge problem in housing. The supply of houses for sale is off the charts, the supply of credit to buy those houses is evaporating, and the demand for houses is wayyyyyyyy down. Demand really will not pick up for many years on account of the fact that the price spiral down keeps a lid on it. Why buy now when I think I can buy a year from now for less?

Just wait until the economy 'officially' slips into recession. You will see mayhem in the foreclosure market (which, by the way, continues to spike, see note below) as folks walk away from their debts. Why pay your mortgage when your house is worth less than it?

So collateral values are coming down and nobody wants to buy, and even if they did want to buy the credit to make that buy happen is way down.

*LONDON (MarketWatch) -- U.S. home repossessions in November totalled 72,101, up 31.8% from the previous month, according to data from Foreclosures.com. For the first 11 months of the year, around 527,000 homes ended up back in the hands of lenders, up 41% from the same time last year. The report noted that there had been areas where the number of foreclosures and pre-foreclosure filings had actually fallen from a year ago.

 
At 12/13/2007 12:59 PM, Anonymous Luis said...

Mr. CD, I read your blog daily and normally really like what you write and find it very insightful. But today, this post about housing not being in serious trouble...is simply not true.

Look at the S&P/Case shiller index, look at housing inventories, look at home prices relative to incomes....the credit issue is only one of the numerous issues that are effecting real estate/housing.

In the end, this is going to be rival the downturn in housing during the great depression in some areas. Just as an example, where I am from (Miami) single family residences (housing plus condos) just got above a 55 month supply!! Isn't that saying something given nationwide historical average is somehwere b/w 5-7 months of inventory??

Here is the link:

http://www.ewm.com/trendx/report.asp

 
At 12/13/2007 1:37 PM, Anonymous Anonymous said...

luis, thanks for the link to an excellent report generator.

Some results I generated indicate a $100,000 (25%) price drop this year with an average time on market of 151 days (for the properties that sold.) But like you said there is a huge supply--I counted 58 month supply of single family houses and condos.

As a real estate investor of the last 30 or so years I consider 12 to 17 weeks Average Time on Market as a normal market. 58 weeks time on market with prices dropping more than 0.5% each week on average gets my juices flowing. Mmmm boy someones gonna steal a lot of properties in Miami.

 
At 12/13/2007 1:42 PM, Anonymous Anonymous said...

Sorry that should read 58.7 months not weeks.

 
At 12/13/2007 6:34 PM, Anonymous Anonymous said...

One should note that in among the struggling home owners there is also a whole bunch of outright fraud. Those loans that have not seen a single payment were to people who never intended to make a payment or even own a home. They just stole the money.

 
At 12/14/2007 12:08 AM, Anonymous Anonymous said...

The good old first payment default.

There is a whole lot of fraud in the mortgage business. Lenders absolutely do not want to discover fraud because then they have to compensate the company that bought or insured the loan for its loss.

The bottom line is that we will never really know how much mortgage fraud occurs because there is no requirement to report it, no incentive to discover it and only a slight incentive to prevent it from happening.

 
At 12/14/2007 4:17 PM, Blogger juandos said...

"In fact, 40% of all subprime ARM loans made this year HAVE NOT MADE A PAYMENT"....

Got something credible to back up that statement?

So now that pricing of houses is actually seeking its true level what's the problem?

Why should taxpayers bail out those who bit off more than they could chew?

 

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