Seems sensible to keep away from the US housing disaster, at least for the time being....
BOSTON (Reuters) - For decades, buying a home was a key step on the path to financial security for the American middle class. Home owners could count on a fixed mortgage payment rather than rising rent, take advantage of tax breaks, and build equity as their houses increased in value over time.
But with home prices falling and families losing their homes to foreclosure, some people who under other circumstances would be looking to buy their first home now see greater security in renting. One such person is Lisa Chesnut, who lives in Tucson, Arizona, and works as an information systems coordinator. With a good job and two young sons, 29-year-old Chesnut and her husband, Bryan, look like classic first-time buyers.
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More bad news, if more were needed.....
As if investors didn't have enough to worry about, Friday's batch of economic numbers shows more signs of recession as well as its evil twin--inflation. First, the government reported that U.S. consumer spending rose more than expected in January, but the gain was eaten up by swiftly rising prices.
Then, a Chicago-based business group said U.S. Midwest business activity contracted sharply in February, showing that even areas of the country least affected by the boom-bust housing cycle are feeling ripples from the crisis. On top of that, U.S. consumer sentiment dropped to a 16-year low in February, hitting levels that usually sound the alarm bells of recession, on worries about declining incomes and rising unemployment, a survey showed.
No surprise, then, that stocks opened sharply lower on Friday--and then proceeded to fall even more. Friday's reports were just the latest in a string of worrisome news about the growing threat of recession and inflation.
"Over the last three to four weeks, there have been a string of economic releases that were dramatically weaker than expected," said John Canavan, a market analyst at Stone and McCarthy Associates. "The implications are quite negative for the economy."
The only bright spot: futures traders are now speculating that the Federal Reserve will cut interest rates by three-quarters of a point at its March 18 meeting instead of the half point that was expected previously.
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Does Bernanke know what he is doing? He gives a good impression of being incompetent.
Feb. 28 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke's readiness to cut interest rates to avert a recession is stoking concerns that prices will get out of hand.
``Bernanke has really overweighted the economic risks relative to inflation,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, following the Fed chief's testimony to Congress yesterday. ``He may get some disagreement'' among colleagues on the Federal Open Market Committee, Silvia said.
Investors' expectations for inflation over the next 10 years jumped to the highest since June after Bernanke pledged to the House Financial Services Committee to act in a ``timely manner'' to combat ``downside risks'' to growth. A day after government figures showed wholesale costs rose 7.4 percent in January from a year ago, Bernanke said the price outlook has deteriorated ``slightly.''
Bernanke is at the Senate Banking Committee today in the second day of semiannual testimony on the economy. His prepared remarks were the same as yesterday's.
You could see this one coming. The Fed has cut rates but so far, mortgage rates have remained high. Could it be something to do with risk?
The Fed's effort to bail out the credit crisis and Housing crash has run into an odd problem: Despite cutting rates 225 basis points since September, mortgage rates have actually gone up. "The Fed's efforts so far to soften the blow of the housing slump with lower interest rates appear to be having a muted effect. Since September, the Fed has reduced its target for short-term interest rates by 2.25 percentage points to 3%. But some mortgage rates are actually rising, and those that are falling haven't fallen that much.
The average interest rate on a standard 30-year fixed-rate mortgage was 6.38% yesterday, little changed from September but up from 5.61% in late January, according to HSH Associates, a mortgage-data publisher in Pompton Plains, N.J. Interest rates on so-called jumbo mortgages -- those larger than $417,000 -- were at 7.35%, also close to their September levels.
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.....it is really that bad..... oh boy.....I never realized it was that bad......
Check out the Northern Virginia bubble fallout blog.
This story is just too crazy.....
Spanish banks are issuing mortgage securities and asset-backed bonds on a massive scale to park at the European Central Bank, using them as collateral to raise money at favourable rates from the official credit window in Frankfurt.
The rating agency Moody's said lenders had issued a record E53 billion (L39 billion) in the fourth quarter, yet almost none of the securities have actually been placed on the open market. Most have been sent directly to the ECB for use in "repo" operations.
"Few, if any, of the transactions in the RBMS market [mortgage securities] have been placed since September. Some of the banks are hoping that the market will open up again, but most are just preparing these deals to use as repos, which they can do since the ECB accepts AAA-rated securities," she said.
The total volume of securities issued since the credit crunch began to bite in July has reached E63 billion
The NAR just published this quarter’s house price data. No surprises here; prices are falling; the bubble is definitively over. Here are the sorry details:
• During the first three months of this year, the nationwide median price for houses and condominiums slid 1.8 percent to $212,300.
• Prices are at a two year low.
• Over half the cities in the US experienced declines.
• Sales are down 6.6 percent compared to last year.
Just to complete the grim picture, here are a few additional numbers, which again confirm that the housing market is in the middle of a massive recession:
• The National Association of Home Builders/Wells Fargo index of sentiment fell to 30 this month from 33 in April, matching a 15-year low reached in September.
• In April, U.S. foreclosure filings jumped 62 percent compared to last year.
To summarize; prices are falling, sales are falling, and foreclosures are rising. In other words, the market is falling off a cliff.
Admitttedly, this graphic is a little difficult to view. However, if you click on it, you will be able to see it more clearly in another window. It makes three quick points, in the new home market, a) sales are down, b) prices are down, and c) inventory is up.
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Today, readers were confronted with the Post's "Housing outlook: 2007". The newspaper is still at it, spinning out feel-good stories for realtors, despite the fact that the market is crashing in flames.
Take for example the article A Buyer's Market? Lenders Permitting. It is highly representative of the kind of rubbish for which the Post is famous. Rather can speak the truth and say that the market is collapsing, and that it is unlikely to recover for years, this is what the newspaper passes off as analysis:
"Once upon a time, would-be home buyers had to outbid each other and forgo inspections to get the place of their dreams. Now, sellers are the ones making concessions. "The buyers are in the driver's seat," said John Eric, a real estate agent with Long & Foster in Arlington.
But not completely. The real estate boom that ended in 2005 was driven partly by lenders' willingness to give money to people with blemished credit or with no money for down payments. Nontraditional loans, such as adjustable-rate mortgages with low introductory interest rates that increased dramatically after two or three years, became popular. With foreclosures now at a record high, banks are once again getting picky. "It's not just a buyer's market," said Leon Bailey, a real estate agent at Exit Powerhouse in Prince George's County. "It's a buyers-with-great-credit market."
Think for a moment about supply and demand. On the supply side, Washington is flooded with overpriced and largely unsellable housing inventory. Moreover, there is a glut of half constructed condos, waiting to pour onto the market. More supply means inevitably lower prices. It may take some time for sellers to understand this reality. There may be a lot of denial out there. But, more supply means lower prices.
It is true that lenders are now scared witless by sub prime defaults. It is also true that mortgage lenders will be much more reluctant to extend loans to people who don't have the capacity to repay them. However, that is a demand side issue. Less financing means less demand, which means lower prices.
So lets summarize for the benefit of all economically illiterate real estate journalists out there. Greater supply means lower prices; less financing means less demand, which in turn means lower prices.
So, if you are a buyer, in the sense that you have the financial capacity to buy a home, the collapse of the sub prime market means that it really is a buyers market. In contrast, if you are a recidivistic credit-crippled debt defaulter, yes, it will be much harder for you to buy that overpriced POS in Manassas, or the converted crack house in SE DC.
If the Post wants to regain its credibility, it has to stop quoting self-interested realtors. It needs to start telling the truth. The truth is simple enough to understand, just think about supply and demand, and it will follow like water flowing from a tap.
Today's housing market problems gave plenty of warning. Since the summer of 2005, real estate indicators everywhere had been flashing red. Inventory, sales, new home incentives were all telling the same story. The market had peaked and it was going to crash.
For example, take a look at just one indicator - KB homes, and in particular, its share price. In early summer 2005, the stock was trading at around $84; three months later it was down at $66. Although there was a temporary rebound during the winter of 2005, thereafter it has traded at around half of what it was during those heady days of summer.
Back then, smart investors knew that the housing bubble was over. Prices were just too far out of whack with reality. The KB homes share price reflected that unsustainability. Since everyone with an Internet connection had access to KBH data, it should not have been too difficult to see where things were going.
Of course, it did not quite happen that way. People looked at the rising housing inventory, declining sales and rising interest rates and somehow could not bring themselves to admit that the market had topped out. Denial and delusion are essential ingredients to any financial catastrophe, and America had both in abundance.
Up until a few weeks ago, many people still believed that the housing slowdown was only temporary. It has taken a 5 percent mortgage delinquency rate and the disappearance of 40 or so sub prime lenders before America as a whole woke up and understand that there was a crisis.
What about KB homes today? What is it telling us about the future for US housing? Well, the recent numbers are grim. The company just reported numbers for the first quarter. Compared to the same period last year, revenues are down 20 percent; net income fell from $173 million to $27.5 million; while orders fell by 12 percent. The only ray of sunshine comes from their cancellation rate, which improved slightly compared to the fourth quarter of last year.
Chief Executive Jeffrey Mezger suggested that "it is hard to predict when the housing markets will stabilize". Perhaps Mezger should try thinking about it a little harder. If he did bother to think, two somewhat related problems would give Mezger sleepless nights. Thinking on a little further, he would understand that the market will not stabilise any time soon.
First, the recent rise in mortgage delinquency and foreclosure rates, will mean distressed sales at knock down prices. In turn, this will undermine KB homes revenue growth potential. Second, the sub prime fiasco will lead to tighter lending standards, drying up housing demand.
KB homes are looking at nasty double-dip; increased supply of unwanted houses, lower demand due to fearful mortgage lenders, this means only one thing, lower sales volumes at lower prices. Since 2005, the share price has implicitly priced in these problems. The share price was flashing red, telling us that the housing bubble is over. Take heed, it is still flashing red today, and it is telling us that the collapse has only just begun.
Let's keep this simple, no hype, no sham and no talking things up. This is what happened to the US housing market last year:
More than half the national metro areas it surveys reported deflating home prices on a year-over-year basis.
The fourth-quarter report from National Association of Realtors showed largest price decline on record as markets with price declines now outpace those with gains.
As David Lereah said "2006 was a year of contraction".
Sit back, relax and think about where you would like to be when you are sixty five. Spend five long minutes pondering the joy of retirement. Joy? Wake up. There is nothing joyful about growing old. It is hard, often lonely and painful.
Old people have only one reliable friend - money. The more you have, the easier life will be. So, now ask yourself this much more important question - how much wealth will you have accumulated for retirement?
Oh, so you are depending on the capital gains from your house. Think that one through for a moment. Lots of other people are doing the same thing. So when you are trying to cash in those sweet capital gains, many people will be dumping their house onto the market. Housing is a very unlikely retirement fund. Besides, you will have to live somewhere. Moreover, moving house as an elderly person sounds way too stressful.
Are you saving? No? So how are you going to live once you stop working? Social security, you say. Again, far too many people are depending on that clapped out retirement plan. Social security is going broke; everyone knows this and so do you. In ten years time, it will be gone.
So what is the answer? The 20-60-20 rule. It is very simple; you should be spending no more than 20 percent of your income on housing costs, 60 percent should be used for current non-housing expenditure, and 20 percent should be saved. And no, that 20 percent is not your estimate of the capital gain on your house. It is net income, put aside every month and placed into a savings account.
If you save for long enough, you might, just might have enough put away to make the grim reality of old age a litte more palatable.
Remember - 20-60-20.
Personally, I always liked the Grinch.
Remember when your local realtor told you that house prices never fall. Well, housing prices fell in nearly every major U.S. market in November. Boston prices fall back dramatically; down 5 percent for the 12 months through November. Detroit was little better, off 4.5 percent. Of 20 major cities tracked, all but three showed declines in November and seven recorded 12-month losses.
It is enough to make you cry.
Oh misery, misery when will the housing market recover?
Sales of existing homes plunged again in December. The National Association of Realtors reported that sales were down 0.8 percent last month. For the year, sales fell by 8.4 percent, the biggest annual decline since 1982.
What happened to the once high-flying housing market. For five straight years, prices increased at record levels. Today, the market is slipping into the abyss.
It is going to get worse, I tell ya, much worse.
Hey! You've won a ride back to the top
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