Housing Declines

Some interesting thoughts about where the housing market is and might be going…..

Housing Declines, Zillow

Bernanke and the Housing Challenge

An honest and straight forward discussion about housing, Bernanke and the direction of the market……

Warning – a loud beep on the video at about 30 seconds…..

Oh, and Ron Insana actually talks about an exit strategy and how that is important.

Tom

Bernanke, Housing, Consumer Confidence, Shiller

Overly Optimistic Homeowners?

60% of Americans believe that their homes lost value in the last 12 months.

In reality, 83% of them lost value.

That’s a sign that all isn’t well on the real estate front if you ask me.

Tom Vanderwell

What Are American Homeowners Smoking? – Daily Brief – Portfolio.com

That whole American-optimism thing is mighty tough to kill, even when reality does its best to beat it down.We believe in that better future just around the corner, even though 83 percent of our homes lost value in the past 12 months.The survey says 60 percent of homeowners believe their place lost value in the past year, resulting in what Zillow calls a home value misperception index of 13.

So maybe the optimists are right. But don’t hold your breath if you’re waiting for your house to actually increase in value, says Zillow chief economist Stan Humphries. There are still lots of homes for sale, lots of foreclosures, and lots of homeowners who owe more on their mortgages than their homes are worth. Those are not exactly the signals of a boom in the making.

“Hope springs eternal for the U.S. homeowner,” Humphries said in a statement. “Each quarter homeowners express the opinion that the worst is behind them. Unfortunately, that has not been the case thus far, and it’s far from clear that it’s the case today.”

House Prices, Zillow

Housing – Glass Half Full or Half Empty?

House Prices

$1 Trillion Stimulus Plan?

Calculated Risk provides some much needed perspective on how the numbers have chnaged since it first started in August of 2007……

From the WSJ: Meatier Stimulus Plan in Works

Obama aides and advisers have set $600 billion over two years as “a very low-end estimate,” … The final number is expected to be significantly higher, possibly between $700 billion and $1 trillion over two years.

Remember when $1 trillion was a big number?

It seems like ages ago (Dec 2007) that I wrote this:

If every upside down homeowner resorted to “jingle mail” (mailing the keys to the lender), the losses for the lenders could be staggering. … Not every upside down homeowner will use jingle mail, but if prices drop 30%, the losses for the lenders and investors might well be over $1 trillion (far in excess of the $70 to $80 billion in losses reported so far).

And the WSJ called it “the big number” (Dec 27, 2007):

The global race is on to find the best phrase to describe the housing and credit mess. The U.K.’s Telegraph quotes an economist who says it “could make 1929 look like a walk in the park” if central banks don’t solve the crisis in a matter of weeks.

The report cites the recent prediction from Barclays Capital that losses from the subprime-mortgage meltdown could hit $700 billion. That would top Merrill Lynch’s recent estimate of $500 billion. The Australian newspaper notes that a $700 billion “bloodbath” — potentially leading the U.S. economy into “the blackest year since the Great Depression” — would top the GDPs of all but 15 nations.

Back in the U.S., the Calculated Risk blog sidestepped the colorful language and went straight for the big number: “The losses for the lenders and investors might well be over $1 trillion.”

Now we’re talking “the big number” for a stimulus package.

Note: the Bush stimulus package, signed in February 2008, was for only $152 billion.

Calculated Risk: $1 Trillion Stimulus Plan?.

Two thoughts….

1. Our economy needs something because it’s not behaving well.

2. It’s going to be crucial that it’s done the way that provides a couple of main components:

• The greatest benefit for the least amount of dollars.
• The most likely long term benefit for the country.
• The highest likelihood that the government will benefit from the investment and reduce the amount that taxpayers have to pay.

Okay, three thoughts….

I wonder what the effect would be if rather than spending $1 Trillion (that’s $1,000,000,000,000) they instead just gave that money to the citizens of the country.   It seems to me that there would be three likely outcomes:

• Some people would spend it and that would stimulate the economy.
• Some people would use it to pay off debts and that would improve their financial situation and it would improve the financial situation of the places (banks etc.) who loaned them money.
• Some people would put the money in the bank (save it) and that would help them avoid the use of credit cards and it would help banks because it would increase the amount of their deposits.
• Some people would use it to make payments on their mortgage and that would decrease the number of delinquent mortgages and would reduce the amount of foreclosures and help the housing market
• Some people would take the funds and use it as downpayment on a new house.   That would help the housing market.

What do you think?

Tom Vanderwell

Goal: Increase Minority Homeowners by 5.5 Million in a Decade

“More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That’s a home ownership gap. It’s a — it’s a gap that we’ve got to work together to close for the good of our country, for the sake of a more hopeful future. We’ve got to work to knock down the barriers that have created a home ownership gap.

I set an ambitious goal. It’s one that I believe we can achieve. It’s a clear goal, that by the end of this decade we’ll increase the number of minority homeowners by at least 5.5 million families . . .

Home ownership is also an important part of our economic vitality. If — when we meet this project, this goal, according to our Secretary of Housing and Urban Development, we will have added an additional $256 billion to the economy by encouraging 5.5 million new home owners in America; the activity — the economic activity stimulated with the additional purchasers, the additional buyers, the additional demand will be upwards of $256 billion. And that’s important because it will help people find work.”

- George W. Bush, U.S. President, October 15, 2002 1:55 P.M.

via The Big Picture | Goal: Increase Minority Homeowners by 5.5 Million in a Decade

Read the rest of what Barry has to say about the cause and effect of the housing mess by clicking the link above.

The Big Picture | George Soros on Markets (Bill Moyers)

Well, first of all you have to prevent housing crisis from overshooting on the downside the way they overshot on the upside. You can’t arrest the decline, but you can definitely slow it down by minimizing the number of foreclosures and readjusting the mortgages to reflect the ability of people to pay. So you have to renegotiate mortgages rather than foreclose.

And you provide the government guarantee. But the loss has to be taken by those who hold the mortgages, not by the taxpayer.

BILL MOYERS: You mean the homeowner doesn’t take the loss. The lender.

GEORGE SOROS: The homeowner needs to get relief so that he pays less because he can’t afford to pay. And the value of the mortgage should not exceed the value of the house. Right now you already have 10 million homes where you have negative equity. And before you are over, it will be more than 20 million.

via The Big Picture | George Soros on Markets (Bill Moyers)

That is just an excerpt of an interview between George Soros and Bill Moyers that talks about the housing market.   I’d recommend reading the rest of it, but that’s the only part that directly impacts the housing market.

Tom Vanderwell

I just got a phone call from a producer at Fox Business News

and he asked me a question that is good for discussion.

Here’s what he said, “There is pretty good evidence that the issue started with housing.   Is there something the government can or should be doing to “put a floor” in the housing market as a way to stop this crisis?”

We’re going to be talking again next week.   I’m curious, what do you think?

Let me know, either in the comments or e-mail me privately.

Tom Vanderwell

Update on the Bailout….

and yes, after doing some more reading on it, I do still consider it a bailout.

I’m going to put a copy of a post that Yves at Naked Capitalism wrote in italics and then my comments will be interspersed in bold print and then I’ve got more thoughts at the end.

Hope this helps you understand it better.

Congressional Charade: Changes in Bailout Bill Cosmetic, and Everyone Knows That

For a quick, one-stop synopsis of the Mother of All Bailouts (as of this month), see this readable version at Clusterstock (we’ve become a recent convert to this site).

Reader and sometimes contributor Lune, who was once a Congressional staffer and still subscribes to the the inside-the-Beltway press, provided a wrap of their coverage of the bailout bill. It makes clear that everyone understands that turning Hank Paulson’s three pager into a 110 page draft made for a nice fig leaf but made virtually no substantive difference.

Gee, why doesn’t that surprise me.   They added 107 pages of rules and regulations and it’s basically just spelling out the same difference as before.

From Lune:

Well folks, we’re almost to a done deal (certainly closer than Thursday). The Hill papers are reporting that they’re getting closer in both the Senate and the House to the needed votes to pass the new bailout bill. Roll Call gives the most frank assessment of what happened over the weekend in an article entitled “Same Bailout, New Dynamic” (subtitle: Outrage Prompts Sales Effort).

All the late-night talks, last-minute demands and dramatic pronouncements aside, the fundamental structure of a $700 billion Wall Street rescue plan that Congress spent the weekend wrangling over has not changed significantly from the outline proposed by a bipartisan group of Senators and House Members last Thursday.

Did you hear that?:  It’s basically the same deal as last week Thursday, just spun differently.

“This is in essence the same,” said Sen. Bob Corker (R-Tenn.), who attended those talks.
. . .
Assuming enough House Republicans agree to vote for the package, it appeared that the House could vote as early as today, while the Senate might have to wait to take it up Wednesday after Rosh Hashana on Tuesday.

“If it doesn’t pass, we shouldn’t be in Congress,” a confident Sen. Judd Gregg (R-N.H.) said on Sunday, adding that he thought the measure would pass with broad bipartisan support in both chambers.

Maybe we shouldn’t be in Congress?   Now there’s one of the best ideas that I’ve heard from an elected official in a while.

Members and staff disagreed about why the bones of the package stayed the same but took so long to hash out.

I’ve got an idea on why it took so long – political posturing and spin that would hopefully give enough people the time to “fall in line.”

Negotiators on Saturday added a mortgage insurance program to the proposal at the request of rebellious House Republicans, though that plan is unlikely to be used by failing companies given the Treasury’s ability to take bad debt off the books of troubled financial firms.

Read that last sentence again – the mortgage insurance plan is unlikely to be used – why?   Because the Treasury is going to buy the debt otherwise.   Look at it this way, you’ve got a 1974 Plymouth Valiant (don’t laugh, I had one in college) that has 240,000 miles on it but it still runs.   If you bought insurance for it, it would cost you $1000 a year for insurance.   However, if you didn’t buy insurance, and the car got totalled (became “worthless,” you could sell it to the government for $2500.)    What would you do?

That means the high-stakes negotiating sessions over the weekend served mainly to generate buy-in and political cover for Republicans and Democrats.

Some Democrats said the time between Thursday and Sunday was largely wasted on back-and-forth talks that yielded few changes. In addition, there was the distraction of presidential nominee Sen. John McCain (R-Ariz.) inserting himself into the mix, they said. Keep in mind it’s Democrats who are saying that the Republican candidate got in the way – it’s all about spin…..

“They were very close to an agreement on Thursday,” one senior Senate Democratic aide said. “Then John McCain blew into town and blew things up for three days. Now, they have virtually the same agreement now that they had before, with a couple of options in it that [Treasury Secretary Henry] Paulson will never use.”

One Senate Democratic leadership aide echoed that notion, saying, “This is largely based on the draft we had Thursday morning. … Once we got past the McCain shenanigans, the legislative process took over and people worked very hard to work out an acceptable agreement.”

. . .
House Republicans proposed a mortgage insurance idea so Wall Street could fund its own bailout. House Democrats proposed a pay-as-you-go trigger requiring a fee on financial firms if the bailout results in losses for the Treasury.

The political goal was the same — both sides wanted to be able to tell constituents that Wall Street, not average citizens, would pay for the bailout.

Read that again, both sides wanted to be able to tell constituents that Wall St, not Main St. will pay.   Does it say, “BOTH SIDES WANT TO MAKE SURE THAT WALL STREET PAYS?”   Nope, it’s about image.

But neither proposal won out — the mortgage insurance idea will largely be a side option for the Treasury secretary, and Paulson reportedly already rejected the proposal in internal Treasury talks this summer.

. . .
A senior House Democratic aide at press time estimated that Democrats could wrangle about 125 votes for the plan, meaning GOPers would need to find nearly 100 supporters in their ranks if the numbers remained unchanged.

All eyes are on the House. From another article in Roll Call entitled “House Moves Shakily Forward on Bailout“:

Both the House Republican Conference and House Democratic Caucus spent hours cloistered in closed-door sessions Sunday night as Congressional leaders tried to gather support for the package within their own ranks by putting outstanding questions about it to rest.

All eyes are on the House Republicans, who threw talks on a deal into disarray Thursday when they abandoned bipartisan, bicameral negotiations with the White House.

. . .

The bill filed tonight is “a giant improvement” over previous proposals, namely because it considerably reduces taxpayer risk, House Minority Leader John Boehner (R-Ohio) told reporters after the meeting.

“At the end of the day, there really is no taxpayer risk in this bill,” Boehner said, referring to mandated insurance provisions in the package.
Gee, how does he figure that?   The US Taxpayer is going to buy $700 Billion in bad loans and there is no tax payer risk?   I’m glad he’s not a commercial lender at my bank…..

Asked how many Members will vote for the bill, Boehner said he didn’t know but that GOP leaders “are working on it. … I made it pretty clear to our Members that we are supporting this.”

. . .

At one point, Rep. Mike Pence (R-Ind.) [Ed: chair of the Republican Study Committee, a conservative Republican caucus in the House which has been the primary roadblock to the bailout plan] received “a tepid response” when he proposed starting from scratch and coming up with a new bill, according to one aide.

. . .

Rep. Scott Garrett (N.J.), a member of the influential Republican Study Committee, told reporters outside the Conference meeting that at least some of the conservative group will back the plan, although he said he would be voting against it.

I heard on Wood Radio this morning that Pete Hoekstra (Republican Congressman from “my” county) will be voting against it.   Thank you Pete!

And finally, the wizard behind the curtain is revealed (“It’s Frank’s World, We Just Live In It“):

In case there was any doubt who was running the show over the past week, or how confused even most Members were about what was happening with the Wall Street bailout, a few lawmakers confirmed it for us.

A handful of Members — guys who are ostensibly getting briefings and actually sit in on meetings — were apparently so confused about the status of the bailout, they sunk so low as to actually join press scrums (those knots of lowly reporters crowding a particularly in-the-know Member) around House Financial Services Chairman Barney Frank to try to get a clue.

Is it any surprise that Congresspeople elected for their ability to clear brush or deliver sound bites with a photogenic smile are about to cast one of the most important votes of their careers without a clue about what they’re voting for? Winston Churchill once said “The best argument against democracy is a five minute conversation with the average voter”. The American corollary to that adds a 5 minute conversation with the average elected representative…

Now some more comments from me about this:

1. Is the Financial world in trouble right now?   Yes it is.   The financial services world grew to bloated heights fed on the search for new and easy debt.   That party has blown up in our faces.   We are now faced with a readjustment of the financial markets.    I read an article this morning that said that when Sweden went through a similar problem in the early 1990’s, what they did is they looked at it and said, “Which banks are healthy enough to make it?”  Then, they set up a plan to help those and set up a plan to liquidate and/or merge the ones that aren’t.   I guess you could call it a sort of “Financial Triage.”    For those of you not familiar with the term “triage” it’s a medical term for sorting out, at the scene of a disaster, the patients who are dead, not going to make it, can make it given immediate support and/or are fine.

2. Do I think we need to do “something” right now?   Yes I do, but I don’t feel good about this.   I’d really like to, instead, see something similar to the Sweden plan that would work not to keep everyone floating (because let’s face it, it’s getting to be a pretty long list of instituitions that have sunk in the last 2 weeks alone, but to keep those who are strong enough going so they can service the new financial markets that are evolving.

3. What impact will this have on the housing market and real estate market?   I’m not really sure, but here’s my take on a couple of scenarios:

• If the bailout works well and truly stabilizes the markets, we could see rates holding steady and consumer confidence returning and more people venturing out into the real estate market.
• If the bailout doesn’t work well and the markets continue to remain troubled, then we’re going to see the non-Fannie-Freddie-FHA markets dry up.   That doesn’t bode well for those in the higher priced markets (where over $417,000 is needed to buy a house).
• If the bailout raises concerns about the borrowing capabilities of the US Treasury (because of the massive amount of debt that it’s taking on, then I think we’re going to see rates start creeping upward.

Of those three options, I’d put the odds at 20% that the bailout works well, and split 40/40 between the other two.

Keep in mind, these are only my opinions, thoughts and ruminations about the dynamics that are literally changing on almost a minute by minute basis.

Hope this helps, let me know if you have questions,

Tom Vanderwell