RSS Feed
Twitter
Facebook
Email
HomeSheila Bair’s Final ‘Sense on Cents’
Posted by Larry Doyle on June 9th, 2011 1:37 PM |
In one corner, we have Jamie Dimon who on behalf of his shareholders would seemingly like to maintain as much of the status quo for the powers that remain in the Wall Street oligopoly.
In another corner, we have Barack Obama grasping at straws that might breathe some lifeblood into the economy and support his prospects for reelection.
Who occupies the center of the ring and is neither compromised by the large money interests on Wall Street nor the pursuit of perpetuating a political career in Washington?
Sheila Bair.
The soon-to-retire head of the FDIC–she steps down in early July–provided perhaps her final dose of ‘sense on cents’ this morning. What did she have to say? (more…)
Housing: Cheap and Getting Cheaper
Posted by Larry Doyle on May 26th, 2009 10:59 AM |
The Case-Shiller Home Price Index was released this morning and disappointed with a worse than expected reading of -19% versus a year ago. Relative to the 4th quarter 2008, home prices nationwide are down 7.5%.
Are home prices continuing to decline despite the support of a variety of government programs or perhaps because of them? What do I mean? Any market – whether stocks, bonds, currencies, commodities, or housing – is constantly trying to assess both current and future demand and supply. Potential buyers or investors can most accurately assess the value of an asset when provided with full and accurate information.
In my opinion, our housing market is suffering from the unknown supply of homes – currently involved in a mortgage modification process – that will likely hit the market in the future due to foreclosure. The fact is that the ultimate default rate on many of the homes involved in a mortgage modification is extremely high. As the Wall Street Journal highlights this morning, Mortgage Modifying Fails to Halt Defaults:
A key finding from the Fitch report was that subprime, pooled loans that have been modified are souring at high rates despite a change in the loan terms. Fitch said a conservative projection was that between 65% and 75% of modified subprime loans will fall 60-days or more delinquent within 12 months of the loan change. That finding echoes prior U.S.-bank-regulatory agency reports of high redefault rates for modified loans.
The Fitch report said one reason for the high redefault rate was public pressure to modify loans even for borrowers who were likely to default whether the loan terms were changed or not. Fitch said another cause was falling home prices. Ultimately, these homeowners, deep underwater, walk away from the home, resulting in the redefault of a loan.
The simple fact is a significant percentage of the loans being modified NEVER should have been written in the first place. Modifying these loans merely forestalls the home from being foreclosed and sold. I do not believe government officials have real appreciation that this forestalled supply actually puts further pressure on housing overall. Why? The market is not being allowed to “clear,” a process in which an asset is moved from weaker hands to stronger hands. To wit, I believe we will continue to see ongoing declines in home values on a going forward basis.
A Look at Case-Shiller Numbers as provided by the WSJ:
“The tone of this report was clearly weak, and it comes at a time when markets were beginning to sense and price in (perhaps prematurely so) a stabilization in the U.S. housing market,” said Millan L. B. Mulraine of TD Securities. “Despite the encouraging signs that have been coming from the other housing market reports, we continue to highlight the risks that the correction in the U.S. housing market may continue for some time as the worsening labor market conditions and historically high inventory of unsold homes continue to off-set the favorable affordability conditions.”
That overhang of inventory will be perpetuated via the mortgage modification process. A full numerical chart highlighting the dynamics within respective metro regions is quite interesting. Not sure why Minneapolis is showing the greatest declines. Anybody who can provide color on the situation in MN, it would be deeply appreciated. Away from that, the other locales suffering the greatest declines continue to be in the obvious areas (Detroit, Las Vegas, Phoenix, Miami). Charlotte, Dallas, and Denver are displaying signs of stability.
Please share insights on housing in your region!!
LD
(About the numbers: The Case Shiller indices have a base value of 100 in January 2000. So a current index value of 150 translates to a 50% appreciation rate since January 2000 for a typical home located within the metro market.)
Home Prices, by Metro Area
