The Big Picture | Real Estate

Signs of a Housing Bottom?

Friday, May 09, 2008 | 09:00 AM

This is the very first evidence I have seen that we might be near the bottom in housing.

No, not the chart above -- this:
>

It’s Going to Get Worse
http://www.newsweek.com/id/135724

Economist David Lereah was once the housing market's biggest cheerleader. Now he says the bust isn't near over, and home prices still have a long way to fall.

"We're not at the bottom," he says. "[People] want it to be near the bottom, but we're not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low … There's still supply out there in abundance … This thing is going to get worse before it gets better."

Lereah says that the industry may begin to see a slight uptick in sales later this summer, which could signal the start of the recovery. Home prices, however, will continue to fall. According to the latest numbers from the Case-Shiller index, the average U.S. home has lost around 15 percent of its value since the market's peak. "We're probably going to end up with a 20 percent [decline], but if I'm wrong it will be even more than that," he says.

I'd call that capitulation -- tho its only one person.

Oh wait -- there's this: "So even if this slump remains far from over, David Lereah still thinks it may be a smart time to buy." That suggest no bottom in sight.

Oh Yeah, that's the good stuff . . .

Source:
It’s Going to Get Worse
Daniel McGinn
Newsweek, May 6, 2008 | Updated: 11:15 a.m. ET May 6, 2008
http://www.newsweek.com/id/135724

Gloom in the Housing Market Persists
Asha Bangalore
Northern Trust Global Economic Research, May 7, 2008
http://tinyurl.com/5fqoq8

Related:

U.S. Home Slump Puts Owners Under Water, Zillow Says http://www.bloomberg.com/apps/news?pid=newsarchive&sid=akLd6UL0v004

Subprime Mortgages: America's Latest Boom and Bust

Thursday, May 08, 2008 | 07:00 PM

in Books | Real Estate

Last year, Edward Gramlich published an economic takedown of the mortgage industry, titled Subprime Mortgages: America's Latest Boom and Bust.

Be sure to note the rooflines on the book cover -- they are not so subtle arrows, referencing the "boom and bust" of the book's subtitle.

In addition to his substantial knowledge of subprime and predatory lending, Gramlich was the sort of academic who was able to see through much of the nonsense within the lending industry.

That Greenspan ignored his warnings of predatory lending and the coming subprime mess says as much about Easy Al's tenure as FOMC chair as it does about Gramlich 's prescience.

The NYT recently noted: "For more than a decade, even before he was named a governor of the Federal Reserve Board in 1997, Mr. Gramlich was warning of dangers in the housing market, a stance that has made him a sought-after expert in the current crisis.

As chairman of the Neighborhood Reinvestment Corporation, he urged legislators to better protect consumers against predatory lenders, and toughen regulation of mortgage lenders and banks. Nonetheless, his efforts met resistance within the Fed and on Capitol Hill, and even he admits he could have pushed earlier for reform."

~~~

Last year, despite his advancing illness, Gramlich spoke at length about potential solutions during a televised panel sponsored by the Urban Institute, where he was a senior fellow.

You can listen to his lecture here.

~~~

Fed Governor Edward M. Gramlich
Patricia Sullivan
Washington Post, September 6, 2007; Page B07
http://www.washingtonpost.com/wp-dyn/content/article/2007/09/05/AR2007090502503.html

Being Right Is Bittersweet for a Critic of Lenders
MICHELINE MAYNARD
NYT, August 18, 2007
http://www.nytimes.com/2007/08/18/business/18gramlich.html

Fannie Mae's Home Prices Ex-Foreclosures

Thursday, May 08, 2008 | 06:59 AM

in Corporate Management | Data Analysis | Real Estate

Yesterday morning, we discussed a few fun Fannie Mae (FNM) factoids from their recent quarter and conference call.

Part of that discussion noted that Fannie's CEO sees 7-9% decrease in home prices in 2008 (previous estimate: 5 - 7%).

There's one small rub to that: As Kevin Depew notes at MV, Fannie Mae does not use foreclosed properties in its price index. Thus, FNM significantly understates home price declines.

Let's go to Kevin:

"The fine print at the bottom of the slide is important because it speaks to the use of the case-Shiller index versus Fannie Mae's own index upon which their price projections are based. According to Fannie Mae, because the Case-Shiller index is value-weighted, it places greater weight on higher cost metropolitan areas. Fair enough.

Using the Case-Shiller index methodology, Fannie Mae says its projections would move from a 7-9% home price decline for 2008 to 10-13%, and from 15-19% peak-to-trough to 20-25%. There's just one catch with those projections increases. They strip out the impact of foreclosure sales.

As Fannie Mae observes, "Foreclosure sales tend to depress the S&P/Case Shiller index relative to the Fannie Mae index."

Another awesome new indicator: In addition to Inflation ex-Inflation, we now can add Home prices ex-foreclosures.

Nice!

Source:
Fannie Mae Says: "Not So Fast, Mr. Smarty-Pants Case-Shiller Index Lover"
Kevin Depew
Minyanville, May 06, 2008 12:00 pm
http://www.minyanville.com/articles/fnm-housing-mortgage-economy-pep-ko/index/a/17042

Bernanke Urges Action to Avert Further Foreclosures

Thursday, May 08, 2008 | 03:30 AM

in Economy | Real Estate | Video

Click for Video

Bernanke Urges Action to Avert Further Foreclosures

Federal Reserve Chairman Ben S. Bernanke, seeking to end the worst housing slump in 25 years, urged the government and mortgage lenders to intensify their efforts to avoid home foreclosures.

Bernanke, in a speech in New York today, also reiterated his call for lenders to forgive portions of mortgages for some struggling homeowners. He said proposals should be ``tightly targeted'' at borrowers at greatest risk of losing their properties, and avoid providing an incentive for defaults.

The Fed chief also backed the idea of having the Federal Housing Administration refinance troubled mortgages, a concept included in Democratic legislation in Congress, without explicitly endorsing the bill. His remarks indicate a gap with the Bush administration, which has preferred to rely on industry- led efforts.

"Realistic public- and private-sector policies must take into account the fact that traditional foreclosure-avoidance strategies may not always work well in the current environment,'' Bernanke said in remarks to a Columbia Business School dinner.

Source:
Bernanke Urges Action to Avert Further Foreclosures
Scott Lanman and Alison Vekshin
Bloomberg, May 5 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8EpYTgVyvcQ

Fannie Mae is Fantastic !

Wednesday, May 07, 2008 | 06:42 AM

in Credit | Derivatives | Financial Press | Real Estate

At lunch with a journo friend, the question arose as to whether or not yesterday's front page NYT article on Fannie Mae (FNM) was inflammatory or not.

I am not sure if inflammatory was the correct word, but the Times certainly got the gestalt right of how bad things are at the mortgage GSE these days.

Consider these Fannie Mae facts:

• Their loss of $2.2B was 4X greater than expected ($-2.57B v.s. $-.640m expected)
• FNM accounted for 81% of the home-loan market in Q1 2008
• Shareholder equity dropped to less than zero for the first time in 15 years (from $20.5 billion in Q4)
• Subprime exposure: $51.2B
• Alt-A exposure: $344.6B
• Fair market value of assets dropped to $12.2 billion last quarter from $35.8 billion in December. This includes $56.1 billion in Level 3 assets;
• Moody’s downgrades FNM’s financial strength one level to ‘B’
• Credit and derivative losses rose fivefold to $8.9 billion; expects bigger credit losses in 2009;
• Estimates for credit losses in 2008 were boosted to 13 basis points to 17 basis points (up from 11 to 15 basis points). Each basis point, 0.01%, = 15 cents of earnings/sh (Morgan Stanley)
• Company issued $6B in securities to shore up balance sheet
• FNM cut their dividend to preserve capital
• Fannie Mae warns the housing slump will persist into next year.
• CEO sees 7-9% decrease in home prices in 2008 (previous estimate: 5 - 7%)
• FNM’s regulator, Office of Federal Housing Enterprise Oversight (OFHEO), said it will lower surplus capital requirements to 15 percent from 20 percent. Hence, this should allow more (not less) lending into the troubled mortgage market.
• Ofheo also lifted its consent order -- imposed in 2006 after $6.3 billion in accounting errors;
• Barney Frank’s (approved by BB) proposed mortgage bailout boosted FNM -- it rallied 15% from opening lows.

Hence, the cure for too much leverage and a lack of mortgage lending standards is more leverage and increased lending.

Note: We no longer have any short positions in FNM . . .

As the old cliche goes: "It's not the news; it's how the markets react to the news that matters." We agree.

click for larger graphic

courtesy of NYT

Sources:
Doubts Raised on Big Backers of Mortgages
CHARLES DUHIGG
NYT, May 6, 2008
http://www.nytimes.com/2008/05/06/business/06fannie.html

Fannie to Boost Capital After Posting Big Loss
JAMES R. HAGERTY
WSJ, May 7, 2008; Page C2
http://online.wsj.com/article/SB121007526280870313.html

Feds Expand Mortage Fraud Investigation

Monday, May 05, 2008 | 06:43 AM

in Legal | Real Estate | Taxes and Policy

You mean not following Federal banking laws is a crime? Who knew?!

"Federal agencies are intensifying a criminal investigation of the mortgage industry and focusing on whether some lenders turned a blind eye to inflated income figures provided by borrowers.

The Federal Bureau of Investigation and the criminal division of the Internal Revenue Service have formed a task force to examine mortgages that were made with little or no proof of the earnings or assets of borrowers, a government official who had been briefed on the matter said Sunday . . .
The task force, which was established in January, stepped up its investigation in recent weeks as the financial industry disclosed billions of dollars in additional write-downs from bad mortgage investments. The latest inquiry is broader and deeper than a separate F.B.I. investigation of mortgage lenders that is also under way . . .

In January, the F.B.I. began a wide-ranging investigation of 14 unnamed mortgage companies over their lending and business practices. Those smaller inquiries have tended to focus on local foreclosure schemes. That F.B.I.-led inquiry has since expanded to include several more firms. In March, the Justice Department and the F.B.I. began investigating whether the Countrywide Financial Corporation, the troubled mortgage giant, misrepresented its financial condition and loans in filings with the Securities and Exchange Commission."

No word about any investigations into Predatory Borrowing . . .

Previously:
Tyler Cowen: "Predatory Borrowing The Bigger Problem"
http://bigpicture.typepad.com/comments/2008/01/apologist-for-f.html

Source:
Government Intensifies Mortgage Investigation
LYNNLEY BROWNING
NYT, May 5, 2008
http://www.nytimes.com/2008/05/05/business/05lend.html

Accelerating Housing Declines

Sunday, May 04, 2008 | 03:30 AM

in Real Estate | Video

S&P guest on this Marketwatch video does not mince words:

Martin Wolf on Housing Prices & Bailouts

Saturday, May 03, 2008 | 03:30 AM

in Podcast | Real Estate

Podcast from the UK's Martin Wolf in the FT on Housing Bailouts, and government actions:

Home Prices Fall 12.7%

Tuesday, April 29, 2008 | 10:06 AM

in Data Analysis | Real Estate

Declines in the prices of existing single family homes across the United States worsened in February 2008, with 17 of the 20 now reporting record low annual declines -- 10 of the 20 regions were in
double-digits:

"There is no sign of a bottom in the numbers. Prices of single family homes continue to drop across the nation. All 20 metro areas were in the red for the February-over-January reading. In addition, 19 of the 20 MSAs are still reporting negative annual returns. The monthly data show that every one of the MSAs has now declined" --David M. Blitzer, Chairman of the Index Committee at Standard & Poor's.

S&P/Case-Shiller Home Price Indices

Chart courtesy of S&P

S&P/Case-Shiller Index - February 2008 Table Sp_caseshiller_index_february_200_2

Table courtesy of TFS Derivatives

UPDATE: April 29 2008 11:58am

Tim Iacono posts this lovely charts:

Sources:
Steep Declines in Home Prices Continued
S&P, April 29, 2008
http://www2.standardandpoors.com/spf/pdf/index/CS_HomePrice_Release_042952.pdf

S&P/Case-Shiller Index Release - February 2008
TFS Derivatives, April 29, 2008
http://www.tfsbrokers.com/products.html

KBH: Home Prices May Drop Another 20%

Tuesday, April 29, 2008 | 04:28 AM

in Real Estate | Video

“I don't think we're anywhere near a bottom in housing”

click for video

courtesy of Bloomberg

Excerpt:

Eli Broad, a philanthropist and co- founder of KB Home, the fifth-largest U.S. homebuilder by revenue, said he expects home prices to drop another 20 percent.

"I don't think we're anywhere near a bottom in housing,'' Broad told Bloomberg TV at the Milken Institute Conference in Beverly Hills, California. "We're going to have a big inventory of unsold, unoccupied homes that's going to take three or four years to clear out.''

Homebuilders, hurt by banks' stricter requirements for granting home loans and concern over the rising number of homeowners failing to pay their mortgages, have begun work on the fewest number of houses since 1991, according to the U.S. Department of Commerce."

Source:
KB Home's Broad Says Home Prices May Drop Another 20%
Rhonda Schaffler and Bob Ivry
Bloomberg, April 28 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNGtHO1tbzng

Greenspan's Long-Lost Thesis

Sunday, April 27, 2008 | 06:30 AM

in Federal Reserve | Real Estate

Barron's Jim McTague had a chance to review one of only two existing copies of Greenspan's 1977 NYU Doctoral thesis. Astonishingly, it focuses on Housing booms and busts.

Some highlights:

• A discussion of soaring housing prices and their effect on consumer spending;

• An anticipation of a bursting housing bubble. Greenspan even wrote: "There is no perpetual motion machine which generates an ever-rising path for the prices of homes."

• A failure to anticipate a broader housing mania spilling into the general economy;

• Its doubtful anyone in 1977 could forsee the securitization process of subprime loans, including Greenspan. He did write, however, "a sharp break in prices of existing homes would pull down the prices of new homes to the level of construction costs or below, inducing a sharp contraction in building."

• The thesis shows the future Fed boss was focused on housing early in his career. Barron's notes this casts doubt on his assertions about being surprised by the impact of this decade's housing mania.

• In the introduction to Greenspan's thesis, he noted that homeowners were refinancing for larger amounts than their original mortgage, in essence monetizing increases in their home's market value and spending the excess cash on goods and services. This broke new ground in 1977, as the economic models at the time were not tracking this source of income.

Fascinating stuff, Jim . . .

Sources:
Looking at Greenspan's Long-Lost Thesis
JIM MCTAGUE
Barron's, APRIL 28, 2008
http://online.barrons.com/article/SB120917419049046805.html

Are Homes Becoming Affordable?

Thursday, April 24, 2008 | 02:00 PM

in Real Estate

Nice WSJ interactive graphic on the changes in Housing markets in various regions:

>
click for interactive graphic

via WSJ

Source:
The Brighter Side of Housing
Amid Downturn, 'Unaffordable' Is Within Reach
JAMES R. HAGERTY
WSJ, April 24, 2008; Page D1
http://online.wsj.com/article/SB120900800448540861.html

Volatile Real Estate Market Driving Web Traffic

Thursday, April 24, 2008 | 03:30 AM

in Real Estate | Video

Marketwatch video: Zillow upgrades their algo, claiming a 12% improvement. They also are allowing homeowners to improve and upgrade data about their houses:

Must Read: Triple-A Failure

Wednesday, April 23, 2008 | 03:00 PM

in Credit | Real Estate

Do-not-walk-run to read Roger Lowenstein's piece coming out in this Sunday's NYT Magazine about the rating agencies, titled, Triple-A Failure.

There is so much good stuff here, almost any random paragraph is worth quoting:

"Mortgage volume surged; in 2006, it topped $2.5 trillion. Also, many more mortgages were issued to risky subprime borrowers. Almost all of those subprime loans ended up in securitized pools; indeed, the reason banks were willing to issue so many risky loans is that they could fob them off on Wall Street.

But who was evaluating these securities? Who was passing judgment on the quality of the mortgages, on the equity behind them and on myriad other investment considerations? Certainly not the investors. They relied on a credit rating.

Thus the agencies became the de facto watchdog over the mortgage industry. In a practical sense, it was Moody’s and Standard & Poor’s that set the credit standards that determined which loans Wall Street could repackage and, ultimately, which borrowers would qualify. Effectively, they did the job that was expected of banks and government regulators. And today, they are a central culprit in the mortgage bust, in which the total loss has been projected at $250 billion and possibly much more."

Go.

Hat tip Paul.

Source:
Triple-A Failure
Roger Lowenstein
NYT, April 27, 2008
http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html

This article will appear in Sunday's New York Times Magazine.

Tracking NAR Spin

Wednesday, April 23, 2008 | 11:00 AM

in Financial Press | Psychology/Sentiment | Real Estate

Yesterday saw a subtle shift in the reporting of existing home data from the NAR (Existing Home Sales Down 19.3%). While they haven't quite fully embraced spin-free data reporting, we suspect they may be starting to get religion.

Its about time. As the chart shows, the NAR has a long history of pollyannish calls for a bottom in Real Estate, going on now for about two years.

James Bednar of the New Jersey Real Estate Report send me the following set of their comments, plotted against the Existing Home Sales reported over the same period.
>

NAR Existing Home Sales

Each quote below corresponds to a numbered circle above.

Tracking NAR Spin

1. "There's no question there is a strong demand for housing from a growing population." -David Lereah, NAR Chief Economist

2. "For the foreseeable future, the demand for homes will continue to outstrip supply" -Al Mansell, NAR President

3. "We've been expecting sales to remain at historically high levels, but this performance underscores the value of housing as an investment and the importance of homeownership in fulfilling the American dream." -David Lereah, NAR Chief Economist

4. "We are returning to more balanced markets between home buyers and sellers… We feel confident that housing is landing softly as rates continue to rise." -David Lereah, NAR Chief Economist

5. "This is part of the market adjustment we've been discussing, with a soft landing in sight for the housing sector. The level of home sales activity is now at a sustainable level. Overall fundamentals remain solid…" -David Lereah, NAR Chief Economist

6. "Higher interest rates are slowing home sales, but we see this as another sign of a soft landing for the housing sector which remains at historically high levels." -David Lereah, NAR Chief Economist

"After five years of booming sales, we are now experiencing normal market conditions across most of the country… most owners can expect steadier gains in home values for the foreseeable future." -Thomas M. Stevens, NAR President

7. "Over the last three months home sales have held in a narrow range, easing to a level that is near our annual projection, which tells us the market is stabilizing" -David Lereah, NAR Chief Economist

8. "Now sellers in many areas of the country are pricing to reflect current market realities. As a result, there could be some lift to home sales, but it'll likely take some months for price appreciation to rise." -David Lereah, NAR Chief Economist

9. Existing-home sales stabilized at a sustainable pace in August -NAR

10. "…the worst is behind us as far as a market correction — this is likely the trough for sales. When consumers recognize that home sales are stabilizing, we'll see the buyers who've been on the sidelines get back into the market" -David Lereah, NAR Chief Economist

11. "It looks like we're moving beyond the low for the housing cycle last fall, and buyers are responding to historically low interest rates and competitive pricing by home sellers. In addition, a tightening inventory of homes on the market is supporting prices." -David Lereah, NAR Chief Economist

12. "Fundamentals have improved in the housing market and buyers see a window now with historically-low mortgage interest rates and competitive pricing by sellers," -David Lereah, NAR Chief Economist

13. "We also may be seeing some losses as a result of the subprime fallout. However, this is masking improved fundamentals in the housing market, with lower mortgage interest rates and motivated sellers." -David Lereah, NAR Chief Economist

14. "Buyers who've been on the sidelines may want to take a closer look at current conditions in their area – if they wait for sales to rise, their choices and negotiating position won't be as good as they are now." -Pat V. Combs, NAR President

15. "The rise in sales and prices in the Northeast region on a fairly consistent basis in recent months is promising because this was the first region that underwent sales and price weakness after the boom. Now, it appears that it will be the first region to climb back, indicating that other regions could follow a similar path." -Lawrence Yun, NAR Chief Economist

16. "The unusual disruptions in the mortgage market, including a significant rise in jumbo loan rates, resulted in a fairly high number of postponed or cancelled sales…Once we get through these disruptions, we'll get a better sense of where the actual market is in late fall as conditions begin to normalize," -Lawrence Yun, NAR Chief Economist

17. "Existing-Home Sales Rise in November, Market Likely Stabilizing" -NAR

18. "Home sales remain weak despite improved affordability conditions in many parts of the country, but we could get a quick boost to the market if loan limits are raised in combination with the bold cut in the Fed funds rate," -Lawrence Yun, NAR Chief Economist

19. Existing-Home Sales to Stablize Before Upturn in Second Half of 2008 -NAR

Source:
Tracking Realtor Spin
James Bednar
New Jersey Real Estate Report
http://njrereport.com/index.php/2008/04/09/tracking-realtor-spin/

Existing Home Sales Down 19.3%

Tuesday, April 22, 2008 | 10:30 AM

in Data Analysis | Real Estate

As we noted earlier: As expected, year-over-year sales and prices continue to get punished. The monthly year-over-year existing home sales fell 19.3%, while the national median existing-home price was $200,700, down 7.7% from March 2007. Total housing inventory rose 1.0%, a 9.9-month supply.

February to March sales numbers were down 2.0% (seasonally adjusted) to an annual rate of 4.93 million units -- far worse than we expected in our earlier discussion on seasonality. Note that the non-seasonally adjusted monthly data actually rose, to 374,000 sales.

Lawrence Yun, chief economist for the NAR, was much more circumspect than usual. He noted that buyers face more restrictive lending practices, and that potential buyers remain on the sidelines. Surprisingly, Yun also was cautious about additional Fed cuts, saying: "With elevated inflation, the Federal Reserve should be extra careful about further rate cuts."

I have one picayune disagreement with their data release: "Because the slowdown in sales from a year ago is greater in high-cost areas, there is a downward pull to the national median with relatively higher sales activity in low-cost markets."

We simply do not see that in the data. If the NAR were to break down sales in $100k increments (>$100k, $100-200, etc.) we would be able to track what sections of the housing market were doing better or worse.

Existing Home Sales, NonSeasonally Adjusted

Chart courtesy of Calculated Risk

Source:
Existing-Home Sales Slip in March
NAR, April 22, 2008
http://www.realtor.org/press_room/news_releases/2008/existing_home_sales_slip_in_march.html

New Column at Real Money (04/22/08)

Tuesday, April 22, 2008 | 09:41 AM

in Media | Real Estate

My latest Real Money column is up, looking at what to expect from the latest home sales data: Existing Home Sales Will Rise: Be Cautious With Builders.

It builds on some of the prior work we have done on the Seasonality of home sales.

Here's an excerpt:

"Not surprisingly, it turns out January is the slowest month of the year when it comes to home sales. That intuitively makes sense, as most people are otherwise engaged in December - they are busy with Holidays and vacations. Many fewer people are shopping for homes then, so we get fewer contracts signed in January.

Once we get past January, the lowest sales month of the year, its pretty much all good for existing home sales through June. A pull back in July, a bounce back up in August, and that's the best first part of the year.

Why? Well, consider how many families want to minimize the disruption to their kid's education during a move. It seems most families with school-age children want to be in their new homes before the new school year starts in September. This makes sense in terms of both the overall pattern of sales, and the flurry of closings in August. The big fall off in September reflects the start of the school year; With so few buyers looking in December, its no surprise that January is the weakest month for sales."

Its on the subscription only site, but I will try to get it moved to the free TheStreet.com section tomorrow . . .

Source:
Existing Home Sales Will Rise: Be Cautious With Builders
RealMoney.com, 4/22/2008 9:09 AM EDT
http://www.thestreet.com/p/rmoney/homebuilders/10413083.html

Will Existing Home Sales "Inspire False Hope?"

Tuesday, April 22, 2008 | 07:00 AM

in Data Analysis | Real Estate

Scott Patterson in today's WSJ writes:

"The housing news has been so grim for so long that investors seize on any data that is less than disastrous as a sign of a recovery right around the corner.

That is a risky bet based more on wishful thinking than common sense. With the economy teetering on recession, credit tight and the labor market weakening, odds are that housing will keep getting worse before it starts to get better.

Tuesday's National Association of Realtors' report on existing-home sales in March will test investor thirst for good news. Economists surveyed by Dow Jones forecast that March sales will drop 2% from the previous month. If the report is better than that, expect to hear talk about more lights flashing at the end of the tunnel."

The WSJ article looks at 3 factors that are continuing to impact Home Sales: Falling prices,a weakening labor market, and very tight credit markets.

Despite those three very real concerns, I am going to make a bold forecast: Existing Home Sales (untis, not price) may very likely to increase when reported today at 10am.

An even bolder forecast: Existing Home Sales may very likely to show increases in total homes sold each and every month from now through August.

Why? As we have discussed before, its the Seasonality factor.

Have a look at this chart:

Composite Monthly Sales non-seasonally adjusted

That explains the month to month permutations, and why you need to look at year-over-year data.

(more on this later today)

Previously:
Existing Home Sales, Non Seasonally Adjusted, Explained
http://bigpicture.typepad.com/comments/2008/03/existing-home-s.html

Source:
Home Data May Inspire False Hope
SCOTT PATTERSON
WSJ, April 22, 2008; Page C1
http://online.wsj.com/article/SB120881342587332523.html

Angry Renter Dot Com

Thursday, April 17, 2008 | 03:00 PM

in Psychology/Sentiment | Real Estate

The anti-bailout backlash has already begun: It turns out that Renters and homeowners without mortgages are 60% of the population.

These folks want to know why Congress rushing to bailout speculative builders and high-flying borrowers and their lenders with sweetheart government loans via your tax dollars. . . .

Word of the Day: homedebtor

Thursday, April 17, 2008 | 02:00 PM

in Credit | Real Estate

>

homedebtor n. A homeowner with an extremely large mortgage, particularly one that he or she is unlikely to ever pay off.

>

Unfortunately, for many people the word homedebtor is a more accurate word than homeowner. It refers to those people who are living in houses with "no skin in the game," little or no equity, and a mortgage they are not likely to repay, and may possibly not be able to afford.

Homedebtor (a.k.a. "recent homebuyer") is alsi defined thusly: Perpetual debtor/serf who will probably never own the home outright, thanks to cyclical refinancing (used to fund conspicuous consumption) and property taxes. —Patrick Killelea, "Housing Bubble Glossary," Patrick.net, August 12, 2005
>
In the end, millions of homedebtors will lose their homes, the homes they told everyone they "owned", the homes everyone told them would "be a great investment".
—Bruce D. Stewart, "US foreclosure rate soars 43%," belairhomesforsale.com, November 2, 2006

Source:
Homedebtor
WordSpy, April 16, 2008
http://www.wordspy.com/words/homedebtor.asp

House Price Crash Calculator

Tuesday, April 15, 2008 | 02:30 PM

in Real Estate | Web/Tech

In the UK, you can calculate what price your home would be worth, based on what type of Home you have, where you live (London, Wales, Yorkshire, etc.), and the final variable -- what year your Home's valuation returns to:

Via FT's Alphaville

Our Ass-Backwards Banking System

Sunday, April 13, 2008 | 08:19 AM

in Credit | Economy | Real Estate

As the credit crunch metastasizes its way through the financial system, its worth recalling its simple origins: The lending of money to people who could not afford to pay it back. That error was then compounded, by failing to maintain security for loans by traditional metrics, i.e., insufficient loan-to-value (LTV) measures.

The banking sector's solution to this problem? Cancel loans to the most credit worthy borrowers, including those whose loan-to-value exceeds traditional historical requirements.

Such was today's shocker, as examined in Gretchen Morgenson's column in the Sunday Times:

"The latest example of this is in the mass freezing of home equity lines of credit going on across the country. Reeling from losses on their wretched loan decisions of recent years, lenders are preventing borrowers with pristine credit and significant equity in their homes from tapping into credit lines that they paid dearly to secure.

In the last 30 days, lenders have sent several hundred thousand letters advising borrowers that their home equity lines of credit are frozen, estimated Michael A. Kratzer, president of FeeDisclosure.com, a Web site intended to help consumers reduce fees on home loans.

Major lenders — including Washington Mutual, IndyMac Bank and the Greenpoint Mortgage Unit of Capital One — say that declining property values are prompting the decisions to cut off credit."

While it certainly is in the interest of lending institutions to be cautious with loans where home prices are falling and the LTV no longer protects them against additional loss exposure.

What of regions of the country where property values are rising?

"But these actions are being taken even in areas where property prices are rising, Mr. Kratzer said. What’s worse, the letters provide no explanation for how the lenders determined that the property values underlying the equity lines had fallen.

Frozen home equity lines will surely intensify the consumer spending downturn and put added pressure on an already weak economy. Indeed, on Friday, consumer confidence as measured by the University of Michigan plummeted to its lowest level since 1982. The drop was attributed mostly to higher fuel and food costs, but consumers’ views on their current and expected personal financial situations dropped to their lowest readings since November 1982 and April 1980, respectively."

The timing is perfect: cutting back lending to people who can repay loans just as the economy slips below the waterline.

I should pitch that business idea as a start up to my VC friends: Getting fees from clients for providing no products or services. "And, as you can see in slide 12, this model has an excellent profit margin..."

Here's the sickest part of the entire affair: Borrowers with an excellent credit rating will see their FICO score dinged when their home equity line is frozen. Why? When a lender suddenly caps a $50,000 line at $25,000, it appears that the borrower tapped out the entire amount of the loan. This reduces their score.

The lawyers are -- rightfully -- gonna have a field day with this one!

UPDATE: April 13, 2008 1:31pm

Calculated Risk has a very different read on this: HELOC Nonsense (I'm not sure which offends Tanta more -- the journalistic or banking aspects of this story).

Source:
You Thought You Had an Equity Line
Gretchen Morgenson
NYT, April 13, 2008
http://www.nytimes.com/2008/04/13/business/13gret.html

Taking Moody's to Task

Friday, April 11, 2008 | 06:45 AM

in Credit | Derivatives | Real Estate

Moody's (MCO) is one of the key enablers in the housing crisis and the sub-prime debacle. Considering the massive damage they are at least partially responsible for, they have escpaed been relatively unscathed -- so far. Their reputation is in tatters, and their stock price is down, but given the culpability, payola, and gross incompetence, one might have thought an Arthur Anderson-like demise was a possibility.

I had forgotten that Warren Buffett was Moody's biggest shareholder; he should consider himself lucky that Moody's situation hasn't tarnished his reputation, either.

The WSJ calls Moody's out on their role as objective arbiter of ratings:

"Bond-rating agency Moody's Investors Service used to be an ivory tower of finance. Analysts were discouraged from having a drink with a client. Phone calls from bankers went unanswered if they rang during intense, almost academic debates about credit ratings.

A decade ago, as the housing market was just beginning to take off, Moody's was a small player in analyzing complex securities based on home mortgages. Then, Moody's joined Wall Street and many investors in partaking of the punch bowl.

A firm once known for a bookish culture began to focus on the market share that affected its own revenue and profit. The rating firm became willing, on occasion, to switch analysts if clients complained. An executive overseeing mortgage ratings went skydiving with a client. By the height of the mortgage-securities frenzy in 2006, Moody's had pulled even with its largest competitor, rating nine out of every 10 dollars raised in these instruments. It gave many of the bonds its coveted triple-A rating.

Profits at the 99-year-old firm, which John Moody started to rate railroad bonds, rose 375% in six years. The share price quintupled.

Now, Moody's and the other two major rating firms, the Standard & Poor's unit of McGraw-Hill Cos. and the Fitch Ratings unit of Fimalac SA, are under fire for putting top ratings on securities that ultimately collapsed in value. Investors, many of whom relied on ratings to signal which securities were safe to buy, have lost more than $100 billion in market value. The credibility of the ratings system is in tatters as new downgrades of mortgage securities come almost weekly. Investigators from Congress, the Securities and Exchange Commission and several state attorneys general are e