Entries Tagged 'Housing bubble' ↓

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According to Wellesley University professor and housing market guru Karl Case, that may very well be the situation we are seeing. The historical trends and demographics of new home starts and sales data are showing what has in the past 40 years show the bottom of the housing market.

Now, I profess to have all the knowledge that Karl Case has on this, and to be honest the housing index he is associated with, that Case Shiller thing that his partner is always shilling, I have never been a huge fan of. However, it seems like Robert Shiller is the poster child of talking the market down. Now Karl Case comes out of the shadows and tells us that the bottom is upon us.

I tend to listen to the quiet guy when he speaks.

Case is basing his optimism, which stands out in a sea of gloomy predictions, on a key economic indicator. It’s not the first time he’s courted controversy. Back when real estate prices were headed skyward, Case was a lone voice predicting a painful real estate downturn.
“Every single time we have gotten to this point, at this time, almost to the exact decimal point, things start to rebound,” Case said.
According to Case, the decline in housing starts nationally has reached a key threshold, dropping below the 1 million mark last month.
Over the past 30 years, this has signaled the end of a real estate market downturn. Housing construction rebounded sharply in the ’70s, ’80s and ’90s after reaching this low point, Case said. via the BostonHerald.com

In one of the best written articles on the housing market problems and how the Federal Governments intervention could make it worst has now been written by J.D. Foster. If you have a few minutes please read it. It is one of the most succinct articles on how much damage the meddling of our government can do to the housing market.

Stop the housing bailout before it undoes all of us – Federal plan could unravel effective private efforts 

I tried to excerpt the best part of the editorial but it is such a solid piece that I can not do it justice by pulling one part of it.

Borrowers by the millions are falling behind on their mortgages. The problems are most severe in a few states. Some, such as Nevada, California and Florida, enjoyed a huge, multiyear speculative bubble that’s now popped in spectacular fashion. Others, such as Ohio and Michigan, are seeing home prices decline because of more fundamental weaknesses in their economies, in some cases significantly exacerbated by extraordinarily foolish state fiscal policies. Yet just about every state is experiencing a housing problem: unusual numbers of borrowers who are delinquent or soon will be, home prices falling a little or a lot and contraction in construction.
Fortunately, the mortgage industry isn’t waiting for Congress to get its act together. Spurred on by the Treasury Department through a program called Hope Now, the industry — supported by services, counselors and community non-profit organizations — is actively seeking creditworthy borrowers who are or are likely to get into financial trouble. Why? To find a way to rework the mortgage or the payment schedule so the borrower can stay in the home.
Since last summer, the industry has successfully reworked more than a million mortgages, and is reworking hundreds of thousands more every month. via the Houston Chronicle.

The head of Fannie Mae is predicting a slow real estate market spanning through 2009 as indicators such as the Case Shiller report as showing even greater weakness in the market. Daniel Mudd predicts the slowdown lasting longer than many other prognosticators, but interesting enough recognizes that he is guessing as forecasting housing is not an easy job.

This is a great point. We all would love to know the date of the turnaround. But the complex formula of consumer sentiment, finances, macro economics, local economics, and government fiscal policies will make it very hard to determine when and where the bottom will be. Add to that different local and socioeconomic groups may react differently to market conditions you have to remember the classic adage.

All real estate is local.

So before you get all bothered by this report, watch the indicators. The  best example of this are  the charts that are on Doug Quance’s site  for the different towns in Atlanta. Some are showing increases over the past couple of months of 10 percent while others right next door are showing declines. If you did not know any better you never would know all these communities were in one metro region! 

“We think at Fannie Mae that ‘08 is going to be a tough year, kind of a continuation of the end of 2007; ‘09 will be similar,” said Daniel Mudd, the company’s president and chief executive, who spoke at a business journalism conference in Baltimore.

Fannie Mae, which buys and repackages loans to sell to investors, claims about half the market for newly issued securities backed by single-family homes.

Forecasting the bottom of the housing slump is a tricky business, with the many conflicting predictions by economists as proof, he added. He said he has seen recent improvement in the capital markets, which play an important role in the mortgage products and rates that borrowers can get, but a housing-price index released yesterday showed accelerating declines across the largest metro areas. via the baltimoresun.com

Luke Mullins has an excellent interview with former Presidential Gadfly Candidate Ron Paul on the housing crisis and the role Congress may play in it. I would have said fixing it but we all know that is smoke and mirrors.

Paul is very libertarian and on economics we share many of the same principals, let the market work things out. There is a link at the end of the post to read the whole interview, but here is an interesting excerpt of what Ron Paul see’s happening in Congress this year.

I think that if there is something on the floor between now and November [that] will be construed as something to help people getting out of their mortgages, nobody will consider that the responsibility of government is to honor and respect contracts. They are going to go and violate everybody’s contracts and tell people, “Just because you [received] this loan and you can’t pay it [back], we are going to change the rules.” But if you and I had a contract like that, we could see that that’s not right. You owe me that money, or I want my house back. It’s so vague now—who owns these mortgages—they figure, “Well, somebody in China owns these mortgages, so we won’t honor the contract.”

Read the rest at The Home Front at usnews.com.

Interesting tidbit I found reading an article on Republican candidate John McCain changing his position on the foreclosure problem in the country. Political pundits are surmising that as long as we do not have a major terrorist attack, housing will be the dominant issue in the upcoming presidential election.

That should be fairly interesting as it will pit a Republican free market concept versus a Democratic government intervention approach for the American people to decide upon. What scares me is that if the Democratic candidate wins they will be compelled to make changes in how homes are sold in the country with another level of bureaucracy.

“Absent a major act of terrorism, housing will be the major issue of the campaign,” noted Jaret Seiberg, a policy analyst with the Sanford Group in Washington, D.C.

Recalling the famous political maxim ‘It’s the economy, stupid’ that emerged from the 1992 campaign between Bill Clinton and George H. W. Bush, Seiberg said the 2008 maxim might well be “It’s the housing, stupid.”

McCain, according to Seiberg, did his best “to stay true to the conservative perspective on this – ‘you don’t need the government to pick winners and losers, you let the market do that.’ But, unfortunately, to get elected president you need more than just conservative voters. You need the middle class, and the middle class today is very nervous about the state of the housing market.” via Fox News.

A Cyprus financial paper had this article today about how the United States and Europe’s housing prices have  mirrored each other in the past. Europe tends to lag slightly in the reaction to housing news in the United States.

The article is very informative but I was unable to determine where it came from, so read at your own risk but this time I think it is worth it.

Real house prices in the US and the Eurozone rose about 30% between 1970 and 2000, and added another 40% in both regions over the last seven years alone. Price-to-rent ratios revealed a similar picture. House prices and rents advanced at a similar pace in both regions until about 2000. Since then, house price developments started to outpace the increases in rents. Since fundamental factors determining housing supply and demand should affect house prices and rents in similar ways, the observed increase in price-rent ratios in the US and the Eurozone suggests that houses became overvalued in both markets. Affordability ratios, which seek to capture the interplay of movements in income, lending rates and house prices also confirm that house prices have moved out of line with income developments in both regions. Thus, housing affordability has deteriorated to a very similar degree in both the US and the Eurozone.
In short, the housing markets on both sides of the Atlantic are highly synchronized and if a house price bubble developed in the US, one also exits in the Eurozone.  read the  rest at the Financial Mirror

This is a phrase I never thought that I would read about housing, buying in bulk.

But with Detroit is a cataclysmic housing free-fall that is now how the banks are selling their foreclosed upon homes. Not one at a time but in bulk often at prices in the twenty thousand range. So when you read that the Detroit’s housing sales are up dramatically, do not get too excited.

What you are seeing is the vultures swooping in and buying up the inventory at extreme bargain basement prices. My question is with the declining economy is whether there will ever be enough demand for the housing that is there presently or if the homes will be stripped for parts like in Buffalo?

Or the Drive Thru Realtors opening up? I will take a dozen ranches and 4 two stories. Please hold the detached garages? Bulk real estate, what a concept.

Sales were up dramatically in Detroit in February, rising 49% from a year before, and realty watchers say foreclosure properties played a key role in the increase.

Some see significant risk to investors who could get low-end properties without being familiar with pitfalls of the market. “Real estate is not a commodity. You have to know what you are buying,” said Mark Nagy, a broker and consultant for RE Investments Inc. in Southfield. “What typically ends up in bulk sales is stuff that has sat on the market for more than six months.”

Banks see Detroit as a sore spot, Nagy said, because they cannot move the properties and there are so many. “Bulk buying will become more commonplace by the end of the summer,” Nagy said. “Right now, so many properties in Detroit are like a hot potato. Whoever ends up with it will be crushed.” via the Detroit Free Press.

Alphonso Jackson, Secretary of Housing and Urban Development, is expected to resign his post as head of the Cabinet Department. The timing of this resignation is not a great indicator of how the White House and Congress are dealing with housing issues.

There have been reports that one of the stumbling blocks is the relationship between Jackson and the Democrats in the Congress. While this can not be a surprise, the Democrats want huge spending programs enacted to counter the housing issues while the administration is fighting for a market solution, it will put back any agreement between the two.

One of the problems facing the housing industry right now is they do no know how Washington is going to react to the housing and credit problems out there. Companies do not want to make the hard decisions if there is a bailout from Washington coming.

Mr. Jackson, a former top housing official in Texas, Washington, D.C., and Missouri, has consistently denied any improper behavior while leading HUD. Still, his poor relationship with Democrats has hurt the White House’s efforts to broker deals in response to the housing crisis. For example, Democrats have criticized the way he handled public housing after Hurricane Katrina, an issue that has dogged him ever since.

HUD, usually out of the spotlight among the federal agencies, has been at the heart of the administration’s attempts to ease problems for homeowners. Mr. Jackson has been the junior partner to Treasury Secretary Henry Paulson in that effort. At events, the HUD secretary generally stressed the human cost of the nation’s housing-induced financial woes, while Mr. Paulson handled the technical details. via WSJ.com.

Hat tip to the Industry Report.

Last weeks actions by the Federal Reserve were not done in a vacuum.

Wall Street is desperately searching for a bottom in the credit markets so they can get back in. They know that their shareholders will be very upset if they deploy major assets before the market gets it legs.

And most thought that Washington was going to come through after months of rhetoric on the subject. But with Presidential elections on the table, partisan bickering taking center stage, and few wanting to compromise, government action on the foreclosure crisis in the credit markets has not been forthcoming.

This forced the Federal Reserve to take action. They held off as long as they could but when Bear Stearns started to crash and burn they had no alternative. Some will say this is the Fed looking after their own, but the reality if Bear had gone under they may have taken many others with them. Add to that an even greater tightening of the credit market the impact would have created a global crisis.

Of course now the tide seems to be turning and now Washington wants to get into the action. Typical politicians who in their yearning for popular press will now make the problem worse. The Federal Reserve or the Federal Government intervention is needed, not both. Both will create too much credit infused into the market and things will surge the other way instead of offering a calm transition.

The test of the Fed’s latest action will be if oversold mortgage debt begins to look like a mouth-watering opportunity to Wall Street sharpies. Then we’re out of the woods. If not, the chorus for a federal housing bailout will quickly become irresistible, since leaving Mr. Bernanke to fight the problem single-handedly would be to invite an inflationary crisis on top of a mortgage crisis. via  Capital Commerce (usnews.com).

Great find by Binyamin Appelbaum at the Boston Real Estate Now blog over at the Boston Globe.