Financial News

[NorthSideSox72]

Supply is low? No way. Demand is trickling back up because of some of the incentives out there, but in no way is there a large demand - as you said, jobs, credit, etc. are still damn hard to come by. Inventories are pretty large at this point as well.

I'l have to find the articles, but as I recall, the generalized overall market capacity in completed homes was like 15 months at one point. It has dropped to something like 7 to 9 months, and once its below 6 or 7, you start to see significant price increases. So its not yet in the territory where it is going to be a major kick up, but its made a lot of ground.

 

Caveat: there will be major regional differences in these numbers of course.

 

Also: credit is getting easier slowly, but you are right on about unemployment.

 

And here is an odd little thing to consider... think about this for a moment. In previous recessions over the past 70 years, unemployment in a household was a 100% axe in almost all cases. Dad lost job, now no income. Today, as most homes have two working parents, its a much less massive event. Still awful of course, but, less so, less often, than it was. That will ultimately help cushion the fall from unemployment.

 

[NorthSideSox72]

I am not hearing of lenders easing up - in fact, I'm hearing it's tougher and they don't really want to work with people. You either have that 750 score, or you don't.

Not what I have seen. Heck, one of my people here was just telling me they were below 700, and will get dinged on the rate, but will still get a new loan.

 

I think your statement was true back in the winter and spring. Less so now.

 

NBC and others have done some stories lately about people having trouble re-financing to make things affordable, and having trouble - and that doesn't surprise me. But that is also a different equation than new lending (new buyers or buyer/sellers).

 

[kapkomet]

I'l have to find the articles, but as I recall, the generalized overall market capacity in completed homes was like 15 months at one point. It has dropped to something like 7 to 9 months, and once its below 6 or 7, you start to see significant price increases. So its not yet in the territory where it is going to be a major kick up, but its made a lot of ground.

 

Caveat: there will be major regional differences in these numbers of course.

 

Also: credit is getting easier slowly, but you are right on about unemployment.

 

And here is an odd little thing to consider... think about this for a moment. In previous recessions over the past 70 years, unemployment in a household was a 100% axe in almost all cases. Dad lost job, now no income. Today, as most homes have two working parents, its a much less massive event. Still awful of course, but, less so, less often, than it was. That will ultimately help cushion the fall from unemployment.

It will? ()

 

Yes and no, but I guess I'm looking at it from my personal situation.

 

Starts have dropped dramatically, but I thought inventories were still obnoxiously high. I can say that the builders must be seeing some light because they are consolidating (Pulte buying Centex, etc.) and that would not have happened unless they thought they were seeing some "green sprouts". Plus, that does show some of the lending is easing from a big standpoint, but from a personal standpoint, I would say not.

[NorthSideSox72]

It will? ()

 

Yes and no, but I guess I'm looking at it from my personal situation.

 

Starts have dropped dramatically, but I thought inventories were still obnoxiously high. I can say that the builders must be seeing some light because they are consolidating (Pulte buying Centex, etc.) and that would not have happened unless they thought they were seeing some "green sprouts". Plus, that does show some of the lending is easing from a big standpoint, but from a personal standpoint, I would say not.

I was hoping someone would take my bait about the two income household - you sort of did. But I can play both sides here...

 

The main counter to my argument about two-income households, is that the increase in overall family incomes has meant a serious increase in their monthly spending levels. This would seem to make any adjustment to lower incomes all the more difficult.

 

Jumping back to my side though, I think what you have here is the better of two models. If the increased spending was being done on more expensive necessities (which it hasn't - inflation has been very low for some time now), then the simple odds of being struck by a job loss would outweigh the flexibility. But since core inflation has stayed generally low, the extra spending was actually a broadening of spending into many different non-necessary sectors. This sector schism will, IMO, start to become apparent in the performance and markets in the next year. Families will adjust down their spending on non-necessary items (i.e. consumer electronics), but still generally support the necessities (grocery, hardware). This type of model is more flexible and more able to take on the burden of loss of income, than the other one.

 

So, investors, take note. Watch for commodity and necessity sectors to perform well from here out for a while, with elective spending areas lagging.

 

[Chisoxfn]

The low supply you are referring to is a fundamental support in the market. The fact that is has gotten a lot lower is good, not bad. Its not an indication of anything temporary, its quite the opposite. If sales and prices suddenly jumped while supply was not going down significantly, then THAT would tell me this this will go back down again, and that it was purely tax-deal and foreclosure-inspired blips. But as supply keeps getting lower in going with the prices, and more people snatch up the foreclosure properties, the market is correcting in a fundamental way.

I'm talking about a supply where there are 30 offers per place, which tells you that you that the reason for the price increase is because the demand/supply curves are currently off and it is because of where the markets are currently priced.

 

This is basically a full on shortage in the supply of homes for sale. In fact, in a typical market where supply was this low you would expect prices to sky-rocket much more than they have, which again, to me is a cause for concern.

[Chisoxfn]

Except I really don't believe that supply is nearly as low as it seems. There are a ton of people who want to see but can't, because of either job, credit, credit market, or upside down issues right now. The resistance for a recovery in the housing market is huge right now. I can think of no better example than the auto market fundamentals we just saw, except this is much bigger because of the huge price losses in many markets.

Supply is incredibly low when you look at the supply of homes that is actually available for sale. I'm referring to homes that aren't on short sales. These homes will eventually get foreclosed on and go the REO route and become available and as soon as that happens you'll see the prices fall back down again.

 

The biggest thing that will keep the markets stagnant is that there will still be another year or two of this short sale to REO cycle. When you than realize that is all that is on the market and that there is zero incentive for equity sellers to move (unless they are forced too) since there is very little available on the market that they'd want to move up to or down to and no true motivation (aside from increasing family size, or a new job which moves you to another market) and I really see very little things which would indicate that the housing market is in recovery mode.

 

I think its stabilized, but I don't think we are about to see appreciation anytime soon. And this is before we even talk about the ease of getting capital, which right now, is very very difficult. In fact, I ultimately think the item which will launch an appreciation might just be a government program which further stimulates capital and allows for loans to start getting processed and thus maybe opening up equity sellers and putting money out onto the markets.

[Chisoxfn]

Supply is low? No way. Demand is trickling back up because of some of the incentives out there, but in no way is there a large demand - as you said, jobs, credit, etc. are still damn hard to come by. Inventories are pretty large at this point as well.

It depends on the supply you look at and the marketplace. But in my area I'd consider supply extremely low. Buyers are more extensive than sellers but even than we are talking about low numbers, scaringly low, it just happens to be that supply is at all time lows and the volume of transactions is as well.

[Chisoxfn]

Not what I have seen. Heck, one of my people here was just telling me they were below 700, and will get dinged on the rate, but will still get a new loan.

 

I think your statement was true back in the winter and spring. Less so now.

 

NBC and others have done some stories lately about people having trouble re-financing to make things affordable, and having trouble - and that doesn't surprise me. But that is also a different equation than new lending (new buyers or buyer/sellers).

If you are doing that type of loan you are putting 20% down for the most part and while that might have been the standard thing, that isn't the easiest thing for the younger buyer who is the person leading this so called housing recovery.

 

FHA is the route I think most new home-buyers are going in, but you'll pay a bit more long-term although given the shakiness of the market I can't blame anyone for not wanting to sink 20% into something.

 

[NorthSideSox72]

It depends on the supply you look at and the marketplace. But in my area I'd consider supply extremely low. Buyers are more extensive than sellers but even than we are talking about low numbers, scaringly low, it just happens to be that supply is at all time lows and the volume of transactions is as well.

I think having it THAT low is a very localized thing. Nationally, that isn't the case. Its a lot lower than it was, but most places aside from a few isolated counties are not that way yet.

 

[Chisoxfn]

I think having it THAT low is a very localized thing. Nationally, that isn't the case. Its a lot lower than it was, but most places aside from a few isolated counties are not that way yet.

All of my stuff was referring to the SoCal market which was the hardest hit by this entire thing (along with Nevada, AZ, and Florida).

[kapkomet]

It depends on the supply you look at and the marketplace. But in my area I'd consider supply extremely low. Buyers are more extensive than sellers but even than we are talking about low numbers, scaringly low, it just happens to be that supply is at all time lows and the volume of transactions is as well.

Well, supply of existing homes is small maybe because if anyone sells, they lose their rears on the price, so they'll stay put until they see an appreciation of the value of their house.

[Chisoxfn]

I think having it THAT low is a very localized thing. Nationally, that isn't the case. Its a lot lower than it was, but most places aside from a few isolated counties are not that way yet.

In fact, put it this way, if I'm Joe Blow equity owner and I've seen prices drop by ~30% (which is the standard in SoCal) well than my only options are the following (unless I'm forced into selling, ie, by a transfer or an increase need for a different sized home):

 

1. Stay where I am and let the economy rebound

2. Move to a more expensive place knowing that that place is also down 30% so the net impact is really no big deal

 

The problem with point 2 is that in this economy it is probably very difficult for someone to be in a position where they can afford that new home and even if they can the next question is how are they going to get financing.

 

The above is the exact reason that the supply is so out of whack in most areas that were hard hit currently, imo. Or at least its my theory.

[Chisoxfn]

Well, supply of existing homes is small maybe because if anyone sells, they lose their rears on the price, so they'll stay put until they see an appreciation of the value of their house.

Yep, I made a post below with regards to the people in that position, but the reality is you won't have any true recovery until we start seeing the everyday homeowner begin to sell there places and move to new ones.

 

Most sales are new home-buyers and that is a great thing, but its tough when you don't have a ton of people selling nor do you have much new production.

[kapkomet]

Yep, I made a post below with regards to the people in that position, but the reality is you won't have any true recovery until we start seeing the everyday homeowner begin to sell there places and move to new ones.

 

Most sales are new home-buyers and that is a great thing, but its tough when you don't have a ton of people selling nor do you have much new production.

Dallas Fort Worth is one of the markets that has lost only in the single digit %'s on home values (they weren't inflated like everywhere else seemed to be) and that's honestly one of the biggest reasons why I haven't opened up my job search anywhere else is there's very little chance of me selling and recouping my loan value. Everyone says just take the loss... I'd only lose probably $10K, but then I think to myself that this job market has to be one of the first ones to come back because it wasn't hit as hard. Then my friends call me and tell me that their companies are still laying off mass people. It's nuts. Sorry for the detour there.

 

NSS: I was just outside pulling grass out of my flower bed. Exciting, huh? And I was thinking about your dual income home thing. I would argue that in a sense, the dual income issue is a part of the "bubble" we're going through now. It led to HUGE inflation. Because our fundamentals changed (household income) it allowed for the money to be put into houses because there were two incomes available to pay for these ginormouse valuations. That's all contracting back. I know it's not "inflation" in the truest sense, yet, it kind of is "inflation". I hope that makes sense. So now, we're going through "deflation" and unless employment comes back, we're not going to see what we saw in 2005ish ever again.

[NorthSideSox72]

Dallas Fort Worth is one of the markets that has lost only in the single digit %'s on home values (they weren't inflated like everywhere else seemed to be) and that's honestly one of the biggest reasons why I haven't opened up my job search anywhere else is there's very little chance of me selling and recouping my loan value. Everyone says just take the loss... I'd only lose probably $10K, but then I think to myself that this job market has to be one of the first ones to come back because it wasn't hit as hard. Then my friends call me and tell me that their companies are still laying off mass people. It's nuts. Sorry for the detour there.

 

NSS: I was just outside pulling grass out of my flower bed. Exciting, huh? And I was thinking about your dual income home thing. I would argue that in a sense, the dual income issue is a part of the "bubble" we're going through now. It led to HUGE inflation. Because our fundamentals changed (household income) it allowed for the money to be put into houses because there were two incomes available to pay for these ginormouse valuations. That's all contracting back. I know it's not "inflation" in the truest sense, yet, it kind of is "inflation". I hope that makes sense. So now, we're going through "deflation" and unless employment comes back, we're not going to see what we saw in 2005ish ever again.

That's true - and those are the folks in foreclosure now. But in the long run, this ends up creating a healthier housing market. And we've seen so many foreclosures, I think we've played out a substantial part of the burst. Not all, though - foreclosures are a laggard of unemployment, so we'll still see big numbers there for a while. But as unpmployment stays generally even (around that 10% mark), the foreclosures will start to drop off, which further decreases over-cheap supply. Its sort of Darwinian, but it ends up helping.

 

Still though, I don't think the 40% increase in incomes (on average, my guess) that people get from going from 1 income to 2, all went to mortgages. A substantial part of that (and just look around at the s*** your friends have in their homes to see this) was stuff no one really needs. They are wants.

 

Also, as lenders have tightened the rules for lending in terms of amount put down and income requirements, that will prevent people from making as many of the same mistakes going forward.

 

[kapkomet]

Our next door neighbors, who have been here as long as we have, just walked out the day we were coming up to Chicago. Threw everything they had on the curb and left their house sit. They've got "LOSS MITIGATION" from their mortgage company sitting on their porch, so I know that they're getting foreclosed on (does anyone want to buy a house? anyone, anyone? Anyone? )

 

I'm pretty sure that the same thing happened to them. The other side of us is in the same boat I am. Their highest income earner got fired for something stupid (it was an excuse to get rid of her).

 

I'll tell you, there are more people I know that have had this happen to them then NOT right now. It's insane.

 

I wish I could refinance, but I don't even want the bank to know my issue. As soon as I refinance, all my other credit probably gets shot, I would imagine. And I'm still able to pay, so I just sit here and hope.

 

The dual income earner thing has changed everything. It really has. I know you say "wants" but a "big house" is a want.

[southsider2k5]

I was hoping someone would take my bait about the two income household - you sort of did. But I can play both sides here...

 

The main counter to my argument about two-income households, is that the increase in overall family incomes has meant a serious increase in their monthly spending levels. This would seem to make any adjustment to lower incomes all the more difficult.

 

Jumping back to my side though, I think what you have here is the better of two models. If the increased spending was being done on more expensive necessities (which it hasn't - inflation has been very low for some time now), then the simple odds of being struck by a job loss would outweigh the flexibility. But since core inflation has stayed generally low, the extra spending was actually a broadening of spending into many different non-necessary sectors. This sector schism will, IMO, start to become apparent in the performance and markets in the next year. Families will adjust down their spending on non-necessary items (i.e. consumer electronics), but still generally support the necessities (grocery, hardware). This type of model is more flexible and more able to take on the burden of loss of income, than the other one.

 

So, investors, take note. Watch for commodity and necessity sectors to perform well from here out for a while, with elective spending areas lagging.

 

On a gross level yes it has, but the two earner incomes are a necessity for a lot of people right now who are trying to support their large house, their auto loans, their credit cards, etc. Most families if they lost an income, would lose their house.

[Balta1701]

That's true - and those are the folks in foreclosure now. But in the long run, this ends up creating a healthier housing market. And we've seen so many foreclosures, I think we've played out a substantial part of the burst. Not all, though - foreclosures are a laggard of unemployment, so we'll still see big numbers there for a while. But as unpmployment stays generally even (around that 10% mark), the foreclosures will start to drop off, which further decreases over-cheap supply. Its sort of Darwinian, but it ends up helping.

Looking at the nubmers on the "Option ARM" market and when those reset/whatever they call it...we're only at "The end of the beginning" in terms of the foreclosure surge. Especially now that the banks have figured out how to make a lot of money off of the stragglers in foreclosure.

[kapkomet]

Looking at the nubmers on the "Option ARM" market and when those reset/whatever they call it...we're only at "The end of the beginning" in terms of the foreclosure surge. Especially now that the banks have figured out how to make a lot of money off of the stragglers in foreclosure.

What do you mean?

[NorthSideSox72]

On a gross level yes it has, but the two earner incomes are a necessity for a lot of people right now who are trying to support their large house, their auto loans, their credit cards, etc. Most families if they lost an income, would lose their house.

I don't think its most, but its certainly a lot. And as I said, everything requires adjustment. But unless someone can convince me that the lifestyle increase is 100% necessities (home, food, utilities), then its going to be less risky to the segment as a whole than it would have otherwise been.

 

[Chisoxfn]

What do you mean?

Ya, balta, I'm curious what you are referring to?

[Balta1701]

Here's a version that I can find tonight.

More troubling are reports that some lenders and mortgage servicers -- companies that collect monthly payments from homeowners and send the money to banks and investors who hold the loans -- are deliberately putting off modifications in order to collect lucrative fees on delinquent loans.

 

"Even when borrowers stop paying," Peter S. Goodman reported in the July 30 New York Times, "mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure.

 

"So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue -- fees for insurance, appraisals, title searches and legal services."

 

Worse, The Associated Press reported Thursday, at least 30 mortgage servicers -- some of which are owned by major banks -- "have been accused in lawsuits of harassing borrowers, imposing illegal fees and charging for unnecessary insurance policies."

[southsider2k5]

Here's a version that I can find tonight.

 

Um, this is a product of Democratic intervention to stop foreclosures. All of the fees and interest keep accruing. Instead of a foreclosure taking place, the house keeps accruing interest and latel payments. Are they just supposed to completely stop everything when someone stops paying?

[Balta1701]

Um, this is a product of Democratic intervention to stop foreclosures. All of the fees and interest keep accruing. Instead of a foreclosure taking place, the house keeps accruing interest and latel payments. Are they just supposed to completely stop everything when someone stops paying?

You just gave the perfect argument for why stripping out the cram-down provision (allowing bankruptcy judges to modify mortgages like they can all sorts of other loans) would have been so effective.

[NorthSideSox72]

You just gave the perfect argument for why stripping out the cram-down provision (allowing bankruptcy judges to modify mortgages like they can all sorts of other loans) would have been so effective.

You're both right, IMO.