The Impact of the Subprime Mortgage Squeeze Across the U.S.
This lovely Sunday morning info-porn comes to us via the NYT
click for ginormous chart:
graphic courtesy of NYT
>
Source:
In the Shadow of Foreclosures
METRICS
NYT, April 6, 2008
http://www.nytimes.com/2008/04/06/business/06metricstext.html
Sunday, April 06, 2008 | 07:58 AM | Permalink
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Comments
Barry, I hope you will comment on Saturday's Times story re: the vulnerability of home prices and mortgage debt in European markets. I was astounded by what I read.
Posted by: Eric | Apr 6, 2008 8:45:30 AM
Let's see.
In the worst part of subprime hell, in Fort Meyer's FL, 15% of the mortgages are subprime and 24% of those are in foreclosure. This translates to a WHOPPING 3.6% of total mortgages in Ft Meyers FL.
In Sacramento, 15% of 17% equals 2.6% of total mortgages are subprime related and in foreclosure.
In Dallas, 6% of 15% equals less than 1%.
Sub prime mess = Media Hype? Mark to market write-ups are a comin' (aka cookie jar reserves)? Financials are the best value in town if you have a moderate time horizon?
Posted by: cinefoz | Apr 6, 2008 9:48:21 AM
Cinefoz:
First of all, the graphic shows only subprime mortgage FORECLOSURES. It doesn't address subprime loans that are delinquent. It doesn't address subprime loans that are scheduled to reset. It doesn't address ALT-A foreclosures, delinquencies and coming resets. And the next wave, Payment Option Arms, where 80% of the holders pay less than the interest payment.
You sound like Don Luskin last year saying he was buying financials "with both hands". BWAHAAA! Go for it. Good luck!
Posted by: Tanker | Apr 6, 2008 10:32:13 AM
Eric,
Could you please provide the link. I could not find the article.
Posted by: blin | Apr 6, 2008 10:38:07 AM
If I recall, the ECB through $500 billion at the markets last December to quell the run on Spanish property. Europe is indeed vulnerable.
But not just Europe. In late 2002 I bought a 60 meter flat in Moscow for $115,000. I sold it in July 04 for $185,000. Purchases and sales of Russian real estate back then were all cash transactions. Now they have a mortgage market. God help them.
In 07 I tried to buy a flat in Sochi Russia where the winter olympics will be held. No luck with that one. Prices are obscene. Yea, it's an international problem and not just Europe.
Posted by: Ross | Apr 6, 2008 10:51:14 AM
Quote:
"There is economic utopia in America today and you just keep trying to shove this liberal propaganda down our throats to make Bush look bad.
If there is any, and I say that with great disbelief, economic weakness it was all Clinton's fault anyway." End Quote
Now I know why sharks eat their young.
Posted by: Winston Munn | Apr 6, 2008 11:05:03 AM
Here is the link to the Saturday NYT piece on the European mortgage situation:
http://www.nytimes.com/2008/04/05/business/05charts.html?_r=1&scp=1&sq=ireland+mortgage&st=nyt&oref=slogin
Graphic says it best and suggests perhaps things could get worse in Euro-land.
Eric
Posted by: Eric | Apr 6, 2008 11:11:38 AM
Cinefoz, if the houses are so "undervalued" that you will expect these banks to "write-up" what they just "wrote-down" then why aren't the homes selling? Have you seen the data on home sales and/or home inventory lately? I'll assume the answer to that is NO and/or NO.
More specifically, have you looked at those houses in Cape Coral? The majority are STILL overpriced. The ones that are becoming "fairly valued" (by no means under priced) are short sales. Per Realtor.com the lowest priced houses in any given house range, according to square feet, begin with the disclaimer "This is a Short Sale subject to Bank Approval." But guess what, the short sales aren't selling!
Why do you think that is?
If you are irrational you might think this:
Houses are so cheap that people are simply falling all over themselves trying to buy these houses, which is somehow slowing down the buying process. Maybe there are simply not enough flights (even though 4 airlines went bankrupt last week) into the Ft Myers area that the would be buyers (buyers would have to be flying in to buy these houses because clearly the local economy can’t support these prices) can’t get to these houses fast enough.
If you are rational you probably think this:
Buyers aren’t buying because the houses are still over priced.
Buyers can’t get financing. (Have you tried to get a loan lately? Talk about full doc. Also, I doubt most people will get financing unless they can put 20% down. Who has 20% to put down? Well, the people who don’t need to be buying (own their house and have no mortgage) are the ones who have 20% to put down.)
Sellers (especially the banks in short sales) aren’t willing to take fair offers. (Because they are in disbelief that the house has gone down in value, or because they don’t understand investing and would rather sit on the house and lose more money, or because they have some vested interest in not taking a lower price, like for example a bank wont record the loss on the house until it sells the house)
Now let’s look at the “WHOPPING 1% (I’ll give you the benefit of the doubt that it’s that low nationwide) of all loans in foreclosure.” Assuming the housing market is $24 trillion, then that would be a $240 billion drag on the economy, especially once all the trickle down effects are felt. Assuming that US GDP is $14 trillion then $240 billion real estate problem would be a 1.7% drag on GDP. Did you see the GDP numbers for last quarter? .6%. Clearly that is a big deal.
Lastly let’s review the idea of buying financials if you have a moderate time horizon. Just how moderate are you talking about? Last time I checked, Japan’s Nikkei is still over 50% lower today than it was 18 years ago.
Thanks for posting. I need to run through the motions every so often.
Posted by: Owner Earnings | Apr 6, 2008 11:21:34 AM
Winston Munn
The ProBush guy must be a spoof on the neo-cons, no one could be that stupid!
Posted by: gunthestops | Apr 6, 2008 11:25:55 AM
Don't forget yesterday's post re: lenders allowing owners to stay in their homes and or delaying foreclosure proceedings. (i.e. data has yet to reflect)
The problem is much worse.
Posted by: portland Refugee | Apr 6, 2008 11:32:26 AM
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That's right, now is the time to buy gold coins, this is the greatest boom in gold ever, you cannot delay because gold is on the move, and we cannot hold these prices!
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Gold is your chance to protect your family. War and violence is exploding across the globe, with the threat of nuclear terrorism:
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The financial market meltdown will take the world into a global depression. By this time next month, gold could be $1200, or even $2400 an ounce! Protect your retirement by buying original US government issue gold coins from the US Mint at West Point!
[vfx: cheesey pile of gold coins kibbled over by obviously fake bank guards actors]
Thanks guys. Isn't that incredible???!!"
Posted by: Nowlook Atwahimholding | Apr 6, 2008 12:23:24 PM
Although interesting, the chart only shows one aspect of the greater problem - home prices.
To sustain the runup in valuations, weaker and weaker borrowers using more and more leverage were necessary to utilize as buyers.
Greenlaw, Hatzius, Kashyap, and Shin - a paper for which Barry provided a link - reveals the real problem.
From 2001-2003, 10% of all mortgage originations were Alt-A or subprime. In 2004, that number increased to 25%, and in 2005-2006 it was 30%.
There are approximately 50M households in the U.S. with a mortgage.
A 15% drop in value would place $2.6T in equity underwater.
Regardless of the rate of foreclosures, it is the contraction of credit availability due to falling home prices that will cause problems foreward going.
Posted by: Winston Munn | Apr 6, 2008 12:24:27 PM
I call it the bend over map. Pass the KY!
Posted by: SPECTRE of Deflation | Apr 6, 2008 1:29:54 PM
If you haven't eaten today, do not read this article because it will ruin your appetite the rest of the day:
The Subprime Crisis is Just Starting
by Daniel R. Amerman, CFA | March 20, 2008
financialsense.com/fsu/editorials/amerman/2008/0320.html
Posted by: SPECTRE of Deflation | Apr 6, 2008 1:33:24 PM
Be more fun to show the reverse graph of the collapse of housing prices as big smoking craters everywhere....
Posted by: donna | Apr 6, 2008 1:35:59 PM
It should have little moving dots for people walking away.
Posted by: Roger Bigod | Apr 6, 2008 1:40:34 PM
is there any way to superimpose the time magazine cover from june 2005 over the top of that chart? now that would be good humor.
Posted by: Jack Stevison | Apr 6, 2008 1:40:54 PM
Resolution Trust II is coming soon.
I think we'll also see someone propose opening the immigration gates to 10 million or so aliens with down payments and decent credit who are willing to commit to buying a vacant house.
Posted by: Bob A | Apr 6, 2008 1:55:38 PM
Probush. Ah, I love the smell of sarcasm in the morning.
Cinefoz, there does seem to have been an over-exuberance in the bank write-downs, in the short term, but given the banks' stunning skills with numbers (more sarcasm) I think they are going to get burned again. But like you said, "moderate" term. I'd say "short", but whatever. The market does indeed seem to be pricing things in farther and farther ahead of time, leaving contrarians in a great position. (Disclosure, I only have mutual funds, so this is all just academic for me and reinforces that I should stay away from playing the markets.)
One of the things that is always vague about these charts and makes debates difficult, is how exactly the counting is done. Foreclosure is a process, a transient state, or it is supposed to be. So, when a chart says "houses in foreclosure" is this literally, houses in that part of the process during the month of december? Well, trouble with that is, if the foreclosure goes slowly the house will be also on november and january's charts too, right? Is it only new houses added to the foreclosure pool in that month? I want to see a chart of houses that went through foreclosure in the last 12 months vs. the previous 12 months. Some timespan long enough to average that out. Because like home sales, foreclosures themselves are seasonal. Not that I believe cinefoz, but I also don't think these charts tell the whole story.
Cinefoz, to use Sacramento's 2.6% of homes example... that's 2.6% just that month. You have to keep that in mind. It's not a cumulative number from Jan 2007 to Dec 2007, which I think would be a more meaningful number. In december 2007, 1395 houses were sold, total, out of 263,811 in the county (75% of which have mortgages). 2.6% of the total number of units with mortgages is 5144 in foreclosure. Basically you are poo pooing a situation as meaningless where 4 times more houses went into foreclosure than were sold just in december.
And Dallas: 484,053 total units (65% with mortgages). 1% in foreclosure = 3147 units in foreclosure in december. Total sales in December: 5257. So still far and away enough to drive the market, which is not a healthy selling situation, which will continue to drive people under water, which will continue to drive write-downs... in the long term.
Posted by: Darkness | Apr 6, 2008 1:58:48 PM
Many higher end prices around the Seattle area dropped 10% or so since the last published figures which were pre Bear Stearns. And things aren't exactly hopping even at those prices. Lot's of builders wishing and hoping. Lot's of them on the verge.
Posted by: Bob A | Apr 6, 2008 2:04:59 PM
Good old Burlington at 8.3%. And just to think IBM hasn't announced the plant closing here with a transfer of about 10% of the jobs to Fishkill, New York. IBM is the heart and soul of Chittenden county, Vermont. So far IBM has been quiet as a mouse. The same thing happened back in 2002 on a smaller scale; workers arrived at work and were fired the same day. For sale signs sprouted on lawns like dandelions in spring. I'm glad I don't plan on selling any time soon. It looks like we're going from computer chips to wood chips. What next, cow chips?
Posted by: AGG | Apr 6, 2008 2:35:36 PM
Here's a truly delicious irony: the Mortgage Banker's Association is having trouble with, of all things, meeting its own mortgage payments on its new headquarters in Washington. I really wish I could make this stuff up. Article in the Washington Post is titled "Housing Crisis Hits Its Own: Mortgage Bankers Group Faced With Tougher Terms", link is
http://tinyurl.com/5hla65
Posted by: evanesce | Apr 6, 2008 2:47:00 PM
ProBush,
Well done. You sounded as convincing as Rupert from Fixed News who claimed the latest polls only proved that 81% of Americans are wrong.
Posted by: Winston Munn | Apr 6, 2008 3:10:04 PM
Noticed that states on either side of the Rocky Mountain chain didn't have much of a subprime problem. Oh yeah, populations are thin in those states. Tell you something?
Where there were few people no market was being made. Probably viewed as not worth the effort.
Posted by: Pat G. | Apr 6, 2008 3:28:48 PM
Cinefoz doesn't know how to read a graph. The color index is 15% or greater, not 15% maximum. From 2006 stats 35% of all mortages in Naples were subprime. In 2006 20% of all mortgages in the US were subprime, 18% in 2005. Expect those foreclosures to keep growing.
Posted by: brian | Apr 6, 2008 3:36:20 PM
