Category: Real Estate

Home Sales Rise (Not Really, We Are All Still Doomed)

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So, according to so-called business reporters, we have a slight sales rise in home sales off of the biggest price drop ever, 10.7% year over year.

This might be a reasonable story, a tale of light at the end of the tunnel, except for the fact that by any reasonable metric, as Barry Ritholtz so ably notes, housing sales fell. They are down 28.3% from a year ago, and the uptick is actually a seasonal difference from January to February, which is conveniently ignored by the National Association of Realtors, who never tell the truth when a lie would serve.

People do not buy homes in January.

Sweet Cthulhu Chocolate Chip Chews, This is Stupid!!!!

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So, Hillary Clinton is suggesting that Bush create, “an emergency working group on foreclosures”, staffed by such notables as Robert Rubin, Paul Volker, and ….wait for it….wait for it….wait for it….wait for it….Alan Greenspan.

Alan Greenspan the man who suggested in 2004 that the housing sector was, “in good shape”, we would all be better off if, “lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage”?????

I am completely at a loss for invective.

Economics Update

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Jobless claims
378,000, up 22K from the previous week, and the leading economic indicators fell for the 5th straight month by 0.3%.

Oil dropped nearly $4.00/bbl, and the dollar is up versus the Euro.

These are both driven by what is seen as reduced demand for oil, and a rate cut from the Fed which was around 25 basis points (0.25%) less than expected.

Still, it does not appear that the banks are optimistic Citi is looking to cut 2,000 jobs in their securities division (investment banking and trading). This is in addition to the 4k announced in January.

Just to remind you, it’s not just sub-prime, as Alt-A delinquencies and foreclosures are spiking too, and are trashing the related mortgage backed securities.

Finally, the Federal Reserve continues its extended bout of anilingus with the brokerage houses, making $75 billion in treasury securities available to investment banks.

The Bush Administration Punts on the Mortgage Debacle

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According to Forbes, it’s “tighter standards”, but by the standards of any thinking human being, it’s a big wet tongue kiss on the mouth of the bad players in this drama.

The only substantive proposal is better licensing of mortgage brokers, the rest is voluntary, and it’s clear that Paulson, and the rest of Bush’s cronies, are not interested in reform when they say, “The objective here is to get the balance right — regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it.”

Let me explain this in very simple terms, the so-called “innovation” that Paulson is looking to preserve, is deception, complexity, fraud, self dealing, and general corruption.

These “innovations” did not make housing less expensive, or easier to get. They caused housing inflation, and threatened the stability of our housing market, banking system, and society.

This so-called innovation is not something we need to protect. We need to put a stake through it’s black heart.

The HELOC Trap for Banks

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It seems that banks are having a problem with 2nd mortgages and Home Equity Lines of Credit (HELOC).

Because these loans are 2nd in line after the initial mortgage, an increasing number of consumers are simply not paying. With their home under water, they know that a foreclosure on these loans will recover no money at all, so instead, they are paying the 1st mortgage and credit cards.

It is, for example, hitting JP Morgan, which did not do subprime lending to any large degree.

Economics Update

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Well, gasoline prices hit all-time high today, and oil prices hit another record too.

Interesting thing though, at the start of the day, prices were down on increased inventories.

Oil Prices are rising because the dollar is falling now.

In the ever entertaining world of monoliner insurance, MBIA and Fitch Ratings are in a pissing contest. MBIA dropped them as a ratings service, because Fitch thinks that they should be downgraded.

MBIA and AMBAC’s debt is junk in reality, no matter what S&P, Moody’s, or Fitch says.

Speaking of Moody’s, they are forecasting a big drop in earnings, down from $2.17-$2.25/share to $1.90-$2.00, which tanked their stocked.

The GSE’s stock tanked too, with Fannie Mae falling 6% and Freddie Mac falling 3%. It turns out that the relaxed lending limits has the market spooked that this will lead them into more losses, which, of course, it will.

If I had to make a bet between Fannie and Freddie, I’d go with Freddie though. their CEO has a good grasp on reality, he thinks that the housing market is only 1/3 of the way to the bottom.

I’m a bit more of a bear than he is, but I think that Richard Syron is a member of the reality based community.

Despite the rate cuts, and the talk out of the Fed about more rate cuts, mortgage rates are up, and applications are down as a result.

In the more general doom and gloom scenarios, I present the following:

Citigroup is having to pump $1 billion into six of its internal hedge funds. I guess that they have to sell another piece of themselves to some Arab sovereign wealth fund.

Finally, we have ING New Zealand suspending withdrawals from two of their CDOs.

New Zealand???? New F#$@ing Zealand? Whisken Tango Foxtrot.

The meltdown is now fully global.

Independent Appraisers May Cost Home Buyers More

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Andrew Cuomo cut a deal with the GSE’s to require independent appraisers, and since the GSE’s buy up and resell about 70% of the mortgages out there, this is thankfully going to become the norm.

CNN Money is now warning that independent appraisers will end up increasing mortgage fees, particularly since now each lender needs a separate appraisal.

The financial press is very big on showing these costs, but they are still far less than the costs that are currently being incurred by all of us as a result of the housing bubble.

Bush Political HUD Staffers Too Stupid for Email

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You may have heard of HUD Secretary Alphonso Jackson.

He was the one who said in a public speech, that he would not make grants to Democrats.

Well, it now appears that he cut off funding to the Philadelphia Housing Authority because they refused to give a vacant lot to a friend of his.

The housing authority sued, and their email records have been introduced into evidence, and it’s ugly*.

After Philadelphia’s housing director refused a demand by President Bush’s housing secretary to transfer a piece of city property to a business friend, two top political appointees at the department exchanged e-mails discussing the pain they could cause the Philadelphia director.

“Would you like me to make his life less happy? If so, how?” Orlando J. Cabrera, then-assistant secretary at the U.S. Department of Housing and Urban Development, wrote about Philadelphia housing director Carl R. Greene.

“Take away all of his Federal dollars?” responded Kim Kendrick, an assistant secretary who oversaw accessible housing. She typed symbols for a smiley-face, “:-D,” at the end of her January 2007 note.

Cabrera wrote back a few minutes later: “Let me look into that possibility.”

*I don’t just mean ugly, I mean ugly even by the standards of the Bush administration, which is makes this AMC Pacer ugly.

Merrill Lynch Bear Says this Will be Ugly

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A prominent bear, Merril Lynch economist David Rosenberg, is saying that will be the worst one since the 1970s.

I think that it will be worse, because we are in a debtor economy, and bills will be coming due sooner, rather than later.

In fact, I think that some of the indicators may show it to be more profound than that of the 1930s.

Here’s why:

  • In the 1930s, we were a net exporter of oil, now we are a net importer of oil.
  • In the 1930s, the rest of the industrialized world was still suffering from the shocks of WWI, which had left the US largely unscathed.
  • The US was running a trade surplus.
  • The Federal government was running a budget surplus.
  • The amount of leverage and risk are far higher now than in 1930.
  • The US industrial base has been decimated over the past 35 years.
  • Consumer savings is non-existent.
  • We have crushing defense expenditures.
  • The dollar is overvalued, meaning that we will be experiencing a foreign exchange driven inflation.

Note, however, that but I’m an engineer, not an economist, dammit*!

*I love it when I get to go all Doctor McCoy!!!

Did Lack Of Regulation Cause This Mess?

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Mish’s Global Economic Trend Analysis: Did Lack Of Regulation Cause This Mess?

Yes.

This has been another episode of stupid answers to stupid questions.

But Mike “Mish” Shedlock seems to think that it’s the FDIC which has caused all thi, because no one would have put a dime into countrywide in 2004 if not for the FDIC insurance, which created a moral hazard allowing people to place their money at risk, despite the fact that in 2004, Countrywide was golden with soaring stock.

Additionally, most of the money that Countrywide to bury itself was not the sub $100k investments of ordinary account holders. It was many times that from Wall Street investors, who had no guarantee at all, even for the first $100K.

This is mindless Randroid Objectivist claptrap, and it is actually the purveyors of this mindless Randroid Objectivist claptrap, most notably Alan Greenspan, who has never passed up an opportunity to deregulate a market, or to bail out a major capitalist bigwig, who created this mess.

Mr. Shedlock is therefore wanker of the day.

Economics Update

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It looks like people are starting to notice that the cost of groceries are going through the roof. According to the article, Bush’s dumbass corn-ethanol program, increased demand from overseas because the dollar has fallen, and increased energy costs are the primary drivers.

Then we have experts saying that Banks face a “systemic margin call” to the tune of nearly half a trillion dollars, according to analysts at JP Morgan.

“Systemic Margin Call” is a nice way of saying that the credit markets are imploding.

Thornburg Mortgage is teetering on the edge of liquidation as a result of more specific margin calls. They do not have the capital to repay their loans, and this will lead to more of their loans becoming non-conforming, resulting in more capital.

Thornburg is not the first, and it’s nowhere near the last.

The Housing Crisis Just Got Bigger

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Yes, the GSEs limits on the mortgages that they can buy have just been increased from 417,000 to as high as $793,750, and the FHA limits on insurance have gone from $362,790 to $729,750.

The market has responded by increasing the yield spread between debt issued by Fannie Mae and Freddie Mac and 10 year Treasury bonds to 2.38%, the highest spread in 20 years.

Historically, it’s been in the 1.0 to 1.5% range, and this means higher mortgage rates, even if the GSEs can now carry your jumbo paper.

Economics Update

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Well, we don’t need to feel so alone any more, U.K. house prices Fell 0.3% in February. What the French call “Anglo-Saxon” capitalism seems to be working wonderfully.

Back in the US, the housing market is not looking up, with Foreclosures hitting an all time high:

Over 900,000 households are in the foreclosure process, up 71% from a year ago, according to a survey by the Mortgage Bankers Association. That figure represents 2.04% of all mortgages, the highest rate in the report’s quarterly, 36-year history.

Even if you are paying your mortgage, you are probably still losing home equity. Total home equity is below 50% for the first time ever. It was 49.7% in Q2 2007, and 47.9% in Q3 2007, and the total equity dropped from $9.65 trillion from $9.93 trillion, or about $1000 for every man woman and child in the united states.

There is not a whole bunch of confidence in real estate now, so the spread on mortgage backed bonds is at its highest level in 22 years, and S&P has downgraded WaMu to BBB from BBB+.

We don’t have a stampede out of mortgages and real estate yet, but there are now rumors that UBS dumped $24 billion in Alt-A residential mortgage backed securities (RMBS). If this is reality, we could very see a stampede for the door, and Alt-A, which is for people with credit ratings above 700, will go the way of subprime.

So it’s no wonder that Fannie has dropped to a 12 year low.

It looks like the world is noticing this because the Dollar hit another record low, and oil hit another high.

This may have been driven by the European Central Bank and Bank of England not lowering rates, when it is expected that the Fed will.

We do have some mildly positive news retail sales were good in February, and new unemployment claims have fallen, though continuing claims are still going up.

It seems that Ambac is going to be a laugh a minute, see here, here,
and here. Basically, they have a plan to raise much needed capital, but no one thinks that it will work, and the markets halted trading at one point due to volatility over rumors.

Finally, in a case of the weak helping the even weaker, GM will provide $3 billion in loans to Delphi in an attempt to help them emerge from bankruptcy.

If that ain’t good money after bad, I don’t know what is.

Economics Update

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Yawn, another day, another all time low for the Dollar vs. the Euro, breaking the $1.53:€1.00 barrier.

The expectation of a major fall in the dollar is one of the major causes of oil prices rising again today, though the fact that OPEC his telegraphing that there will be no production increase, contributes to this.

The job market is looking increasingly grim, with
nonfarm employment declining by 23,000, and, in a good indication of an incoming recession, productivity growth is declining.

We do have some good news, the appraisal standards for Fannie Mae and Freddie Mac are not officially implemented.

It would have been better news a year, or 5 years, ago.

I have this rule of thumb when looking at the economy, which is when something happens in high finance that is truly bizarre, start by assuming that it is bad news.

That’s the case with yields falling below 0% on Treasury Inflation-Protected Securities (TIPS).

TIPS are government bonds in which the principal appreciates along with the consumer price index. They are sort of inflation proofed as a result.

They are less riskier, because if inflation shoots up, you will get that back in the end, so the interest rate, which are set by auction, is lower.

Only for the past three days, the interest rate has been bid to less than zero, meaning that the bidders expect significant increases in inflation.

Paulson Sees New Capital Markets Proposals in ‘Weeks’

Bush’s Treasury Secretary is, after months of prodding by Democrats, coming up with a plan to close the barn door after the cow is gone, saying that, “We’re looking at the mortgage-origination process, we’re looking at the securitization process, we’re looking at rating agencies, we’re looking at disclosure issues, we’re looking at capital issues and regulatory issues in the weeks ahead.”

If it were done by honest decent and competent people, it would still be too late, but in this case it’s being done by Bush and His Evil Minions™, which means that it’s primary goal will be two fold, preventing meaningful regulation, and benefitting Bush, His Evil Minions™, and his campaign contributors.

The auction bond failure rate is nearly 70%, and appears to be getting worse, which means that at this critical time, with revenues falling, cities and states will find raising money for projects much more difficult.

In real estate, we now have mainstream press using phrases like, “Housing in ‘deepest, most rapid’ decline since Great Depression“, the alt-A crash is well and truly starter (Alt-A are not quite prime, typically credit scores over 700), and we have Ben Bernanke saying that housing woes could persist for years.

Additionally, we are about to see the revenge of the 2005 bankruptcy law, with filings up 18% from January, and 28% from the year before.

We are about to see the negative effects of the law, which were predicted when it was initially proposed.

BTW, all is not quiet in the ever entertaining world of the monoliner bond insurers. Ambac has announced a reorganization, where it will exit the mortgage securities market and raise $1.5 billion in new capital.

What About Ayn Rand’s Buddy Alan Greenspan?

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Members of the Senate Banking committee just grilled regulators and accused them of being, “Asleep at the switch” on the housing debacle.

One wonders why it appears that Alan Greenspan’s name never came up. He was aggressively working towards dismantling financial protections and ignoring basic regulations during his tenure at the Fed, pausing only to bail out fat cat investors when they got into trouble.

With Friends Like These…..

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Specifically Penny Pritzker, Obama’s national campaign finance chair.

It turns out that she was chairman of the board, and from all accounts an engaged and active one at that, of the, “borderline shady and failed Superior Bank”, which collapsed in 2002.

It appears that these guys were the folks who created the so-called innovations that have led in large degree to the subprime mess, and it led to their downfall in the middle of the most bullish housing market in history.

See here, here, and here.

If there is one lesson to be had from the Bush administration, it is look at who the candidate keeps around him.

I agree with Earl Ofari Hutchinson’s assessment, “If Obama’s for real on the sub-prime crisis, he’ll dump his campaign finance chair“.

Economics Update

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Let’s lead off with the dollar on it’s way down, it’s at a 3-year low vs. the Yen, and a new record low vs. the Euro, which is one of the things that has oil breaking another all time record, $104/bbl.

The value of the dollar is dropping, so the price of oil, which is sold in dollars, is increasing. One wonders how many countries are considering a Euro oil bourse other than Iran.

In real estate, we have the largest drop in residential and commercial construction in 14 years.

So much for commercial real estate being “immune” from this contagion.

The poster child for the real estate meltdown, Countrywide, is still hemorrhaging on its mortgages, with 90 day delinquencies at 5.6% (up 900% from a year ago), and this is threatening to torpedo the deal with Bank of America to buy them out.

FWIW, there are more foreclosures than sales in a number of the states in the West, and Florida.

On the macro level, we have Warren Buffett saying that the recession is pretty much all ready here, and the president of the Philadelphia Federal Reserve saying that inflation is not important, and that the first priority is keeping the economy on track.

When a central banker says, “Inflation, no big deal”, you know that you are up a certain creek sans paddle.

Further evidence of a slowdown is the fact that Ford and Toyota sales declined in February. Ford having declines is not a shocker, but when Toyota is not selling cars, no one is selling cars.

The happy news is that the FDIC doesn’t see there being a surge in bank failures, though it does make one wonder why they are calling back retirees and generally staffing up.

They expect to be as busy as a one legged man in an ass-kicking contest.

In the world of municipal bonds, which should be safe-havens in a time like this, it appears that the costs are increasing, and the ratings falling, for municipal bonds, because of the collapse of the auction security markets.

In bond insurance, we have a new, or at least new to me, bond insurer bleeding, Security Capital’s to the tune of $1.5 billion on various complex investments.

It’s already been downgraded.

Finally, Buffet is now saying that his offer to buy the muni business of bond insurers is no longer operative.

Berkshire Hathaway is aggressively bidding on municipal bond portfolios, and as other insurers are downgraded, their position can only get stronger.