Commentary by Edward Pinto
(Edward Pinto, a mortgage-finance consultant, was executive vice president and chief credit officer at Fannie Mae from 1987 to 1989. The opinions expressed are his own.)
Sept. 8 (Bloomberg) -- On the second anniversary of the bailouts of Fannie Mae and Freddie Mac, it’s now obvious that weak lending standards, serving the political interest of affordable housing for all, were the main reason for the nation’s mortgage meltdown.
But the government just can’t permit lending to anyone and everyone; it must insist on prudent judgment about who will repay and who will default. Not only will borrowers who lack a down payment, steady income, employment and a good credit history probably get into trouble -- surprise! -- but too much irresponsible lending also creates artificial demand for houses, driving prices into the stratosphere and, as we have just experienced, puts all homeowners at risk.
The same mistake occurred in 1929, when any investor could buy stocks on margin with as little as 10 percent down. Small wonder that after the crash the U.S. government instituted a margin requirement of 50 percent down.
Congress should apply the same principle to housing purchases, increasing the amount a buyer must put down and other safeguards to assure prudent lending. Congress refuses to do this. Why? Giving citizens cheap, easy housing is a great way to win votes, no matter what horrific repercussions ensue.
Who’s Following Whom?
Consider the prevailing narrative that holds a greed-driven private sector responsible for the 2008 financial crisis. A secondary narrative points to a greed-driven Fannie Mae and Freddie Mac abandoning their credit standards in an effort to follow the lead of Wall Street.
If these explanations fail to convince, a third blames a combination of deregulation and insufficient regulation, again driven by greed, as rulemakers were asleep at their posts.
What is missing is the central role played by an affordable housing policy built upon the misguided concept of loosened underwriting -- a policy created by Congress and implemented for
15 years by the Department of Housing and Urban Development and banking regulators.
From 1993 onward, regulators worked with weakened lending policies as mandated by Congress. These policies systematically dismantled a housing-finance system based on the common sense principles of adequate down payments, good credit, and an ability to handle the mortgage debt.
No Money Down
Substituted was a scam of liberalized lending standards that turned out to be no standards at all. In 1990, one in 200 home-purchase loans (all government insured) had a down payment of less than or equal to 3 percent. By 2003, one in seven home buyers had such a low down payment, and by 2006 about one in three put no money down.
These policies led millions of Americans to buy homes with little or no money down, impaired credit and insufficient income. As a result, our economy has been brought down and the taxpayers have had to foot the bill for bailout after bailout.
Congress and U.S. President Barack Obama’s administration refuse to learn the lesson that is painfully aware to American taxpayers, and they have made it clear that they have no intention of fixing broken underwriting.
Let’s start with the latest pieces of evidence. The Dodd- Frank Bill, signed in July 2010 by the president, omitted both an adequate down payment and a good credit history from the list of criteria indicating a lower risk of default as regulators sought to define a qualified residential mortgage.
‘Prudent Underwriting’
This was no oversight. Republican Senator Robert Corker and others proposed an amendment that would have added both a minimum down-payment requirement and consideration of credit history along with the establishment by regulators of a “prudent underwriting” standard. This amendment was defeated.
In early September 2010, Fannie and Freddie’s regulator, the Federal Housing Finance Agency, following requirements set out in 2008 by Congress, finalized affordable housing mandates that are likely to prove more risky than those that led to Fannie and Freddie’s taxpayer bailout. As required by Congress, these new goals almost exclusively relate to very low- and low- income borrowers. Meeting these goals will necessitate a return to dangerous minimal down-payment lending, along with other imprudent lending standards.
Of course, FHFA Director Edward DeMarco notes that Fannie and Freddie aren’t to undertake risky lending to meet these goals. As has already been noted, Congress doesn’t consider low down payments and poor credit as indicative of risky lending.
How convenient.
Return to Subprime
The Federal Housing Administration, in its actuarial study released late last year, projected that it will return to an average FICO credit score of 635 by 2013. This signals the FHA’s intention to return to subprime lending. Once again, Dodd-Frank supports this policy change.
The FHA, the Veterans Affairs Department and the Agriculture Department’s grip on the home-purchase market increases month by month. They now guarantee more than half of all home-purchase loans. However, skin in the game isn’t a requirement. For example, the FHA’s average down payment is just
4 percent. Even this meager amount disappears after adjusting for seller concessions and financed insurance premiums.
On Christmas Eve in 2009, the Treasury Department announced new terms to the bailouts of Fannie and Freddie. Starting on Jan. 1, 2013, the terms of the bailout agreement provide for a continuing obligation to provide about $274 billion in capital to Fannie and Freddie. This amount is in addition to the unlimited sums that are available between now and Dec. 31, 2012.
As a result, one or both of these entities can now continue indefinitely as zombie institutions under conservatorship.
As a society, we have to go back to at least 20 percent down, with limited exceptions. Credit histories need to be solid. Documentation has to be iron-clad. Lender capital levels need to be raised.
Here’s my proposal to bring Congress’s penchant for imprudent lending to a quick end: All congressional pension assets should be invested in funds backed solely by the high- risk loans mandated by federal housing legislation. I have a feeling that things would change fast.
Showing posts with label housing. Show all posts
Showing posts with label housing. Show all posts
Thursday, September 9, 2010
Wednesday, September 1, 2010
Analysis: There's nothing to celebrate in U.S. home-price data
Markets have overlooked a crucial fact in their joy for the latest S&P/Case-Shiller U.S. National Home Price Index, which shows a 4.4% increase for the second quarter, according to The Economist. Because of the way the index is calculated, nearly all transactions that went into the data were concluded before a homebuyers' tax credit expired. The housing market has suffered serious deterioration since, and that is likely to show up in future home-price data, the magazine notes.
The Economist
The Economist
Thursday, August 26, 2010
New-home sales are nearly nonexistent in many U.S. cities
Statistics on new-home sales in the U.S. are as troublesome as those for existing homes, according to The Economist. Last month, 25,000 new homes were sold, a 90% drop from nearly 120,000 in July 2005. "When one takes into account that sales aren't
spread evenly around the country -- most are taking place in tighter markets xperiencing job growth -- it becomes clear that in some metropolitan areas housing markets have all but shut down," the magazine notes.
The Economist (click on headig for a link)
spread evenly around the country -- most are taking place in tighter markets xperiencing job growth -- it becomes clear that in some metropolitan areas housing markets have all but shut down," the magazine notes.
The Economist (click on headig for a link)
Thursday, August 19, 2010
Billions spent on housing tax breaks accomplish little, experts say
The U.S. government spent $230 billion last year to support homeownership but accomplished almost nothing beyond putting money into the pocket of the rich, experts told a conference on housing policy. The rate of homeownership in the U.S.
is about the same as in Canada and less than that of Australia, Britain, Ireland and Spain, which all offer little in the way of homeownership tax breaks. The Urban Institute said tax incentives for U.S. mortgage holders are worth $5,459 a year to people making more than $250,000 but only $91 a year to those earning less than $40,000. USA TODAY
No one working on FNM/FRE is even paying attention to this it seems (click on heading to read the full article)
is about the same as in Canada and less than that of Australia, Britain, Ireland and Spain, which all offer little in the way of homeownership tax breaks. The Urban Institute said tax incentives for U.S. mortgage holders are worth $5,459 a year to people making more than $250,000 but only $91 a year to those earning less than $40,000. USA TODAY
No one working on FNM/FRE is even paying attention to this it seems (click on heading to read the full article)
Tuesday, August 17, 2010
Santelli rant on housing
Rick Santelli tells it like it is. Again.
The problem he points to is that a further collapse of the housing in dustry is inevitable as long as the Fed continues to meddle.
It is an axiom of economics that the longer you interfere and distort a market the harsher the ultimate inevitable correction becomes.
The interest rate on the mortgage is irrelevant if there is no equity left to lend against..even for well qualified borrowers with a job and an income.
The problem he points to is that a further collapse of the housing in dustry is inevitable as long as the Fed continues to meddle.
It is an axiom of economics that the longer you interfere and distort a market the harsher the ultimate inevitable correction becomes.
The interest rate on the mortgage is irrelevant if there is no equity left to lend against..even for well qualified borrowers with a job and an income.
Friday, August 6, 2010
An Argentinaville Stimulus?
Today the Wall Street Journal (article linked here:http://online.wsj.com/article/SB10001424052748703748904575411553343672456.html?mod=ITP_opinion_2, or click on heading above)commented on yesterdays rumors of another "stimulus" that might come in August.
This trial balloon could presage something good, something that might stave off the disaster that a monetization of the deficit would create.
Christine Romer follows Peter Orzag out of the current Administration, removing the intellectual barriors to further "stimulus" (Romer has written an embarrassing analysis with her husband, that casts serious doubt in the multiplyer effect of stimulus).
These excertps illustrate the scepticism that greets such an effort:
" The argument behind the "free stimulus" is that Fannie, Freddie and the Federal Housing Administration own or back about 37 million loans, and so the government "already owns the risk." If the mortgage agencies effectively forgive some of that debt, voila, the indebted homeowners have more cash to spend.
Skeptical mortgage analysts were quick to point out that the government's two existing programs for struggling homeowners—HAMP for loan modifications and HARP for refinancings—have poor acceptance records. Their failure suggests that even a huge new forgiveness program is unlikely to work as hoped. An analysis this week by Credit Suisse, which calls the idea "too difficult to do properly," estimates the "stimulus" would be more like $10 billion to $15 billion."
I do not propose a "Free Stimulus" ..again the journalistic uninitiated have mis-diagnosed the problem.
I propose a disciplined, simple method of relieving the mortgage crisis which is at the heart of our financial malaise.
No debt is "forgiven", it is attached to a tangible asset and is recovered over time by the lender with the most ability and patience to wait for that recovery - the Federal Government.
"Stimulus" spending using money created out of thin air is a doomed exercise for all.
Creating the conditions for the population to assume sane levels of debt and spend their surplus income WILL create the conditions for economic growth.
The only way out of our impending economic disaster is to create these conditions and unleash the great creative, economic might currently curled up in fear in the bosom of all citizens.
The time is now, soon it will be too late.
This trial balloon could presage something good, something that might stave off the disaster that a monetization of the deficit would create.
Christine Romer follows Peter Orzag out of the current Administration, removing the intellectual barriors to further "stimulus" (Romer has written an embarrassing analysis with her husband, that casts serious doubt in the multiplyer effect of stimulus).
These excertps illustrate the scepticism that greets such an effort:
" The argument behind the "free stimulus" is that Fannie, Freddie and the Federal Housing Administration own or back about 37 million loans, and so the government "already owns the risk." If the mortgage agencies effectively forgive some of that debt, voila, the indebted homeowners have more cash to spend.
Skeptical mortgage analysts were quick to point out that the government's two existing programs for struggling homeowners—HAMP for loan modifications and HARP for refinancings—have poor acceptance records. Their failure suggests that even a huge new forgiveness program is unlikely to work as hoped. An analysis this week by Credit Suisse, which calls the idea "too difficult to do properly," estimates the "stimulus" would be more like $10 billion to $15 billion."
I do not propose a "Free Stimulus" ..again the journalistic uninitiated have mis-diagnosed the problem.
I propose a disciplined, simple method of relieving the mortgage crisis which is at the heart of our financial malaise.
No debt is "forgiven", it is attached to a tangible asset and is recovered over time by the lender with the most ability and patience to wait for that recovery - the Federal Government.
"Stimulus" spending using money created out of thin air is a doomed exercise for all.
Creating the conditions for the population to assume sane levels of debt and spend their surplus income WILL create the conditions for economic growth.
The only way out of our impending economic disaster is to create these conditions and unleash the great creative, economic might currently curled up in fear in the bosom of all citizens.
The time is now, soon it will be too late.
Thursday, August 5, 2010
Mortgage Workout 4: The real urgency
China is warning the USA not to inflate the dollar. Economic activity is declining as unemployment rises and home prices fall further.
The investment banks are warning that the Fed Reserve Board is running out of options to fix the malaise and will soon turn to the problem of the GSE's Fannie Mae and Freddie Mac.... unless we focus laser-like on the problem a POLITICAL solution will compromise the recovery.
It is time for politicians to be patriotic and not parochial.
They MUST rescue the people of this great nation or the American Dream of home ownership will be lost forever.
They must do this for the benefit of the country. To do anything other than a clean fix aimed laser-like at the problem of home valuation is to charge the country headlong out of the current recession into a second Great Depression of unimagined magnitude and consequence.
Here is an example of how this would work to restore the great hope of prosperity for this great nation and the world:
EXAMPLE:
The Smith Family owns a house with a current mortgage of $700,000 ( Smith had refinanced to take out rising equity). It is their primary residence - they live in it.
Smith household income reported on 2009 Federal tax return was $125,000 gross before any deductions (ie NOT their taxable income).
Current US 30 year Treasury notes have an interest rate of approximately 4%.
So, 30% of $125,000 means Smith can afford to pay no more than $37,500 per year or $3,125 per month for Principal & Interest on the mortgage. He is still on the hook for taxes and insurance.
Smith gets a new mortgage under this program with a 30 year term at 4.5% (4+0.5) for a nominal value of approx $600,000 (arrived at through DCF analysis based on what Smith can afford to pay).
This may/may not be more than the current appraised value.
The Government gets the right to 80% of the difference between $600,000 and the original mortgage amount of $700,000 when the house is sold.
Ten years from now Smith sells the house for $700,000 the value of the original mortgage.
He has paid about $2,900/month in interest for 10 yrs or $348,000 that has gone back into the US treasury.
He has also paid about $27,000 in principal.
He owes $573,000 on the new government mortgage, and $100,000 difference between his old and new mortgage originally financed by the US govt. ( The Treasury has already recovered nearly 50% of the amount loaned).
His gross profit on the sale of his house is $127,000.
He owes 80% of this or $101,600, under his mortgage contract so that the Government gets the $573,000 and its $100,000 back and $1,600 more.
Smith has had his property written down to a reasonable value and his mortgage therefore becomes valuable in a resale.
Banks and the Government can resell it.
Smith has lived with a new lower payment and still got the tax deduction for interest AND has made a profit on the sale of the home!
Most importantly, Smith is not tempted to hand the keys of the house to the bank because he is upside down in the mortgage.
The bankruptcy/foreclosure process is completely avoided.
There is a very real potential for gain by the government.
Interest and principal on mortgages comes into the Fed Reserve balance sheet NOT from new taxes.
Potential for profit exists on sale of properties.
No new government agencies need to be established.
The Fed will hire the necessary personnel to administer the program. Unemployment declines!
The banking system is unclogged and consumer confidence is restored.
Economic recovery can begin.
The investment banks are warning that the Fed Reserve Board is running out of options to fix the malaise and will soon turn to the problem of the GSE's Fannie Mae and Freddie Mac.... unless we focus laser-like on the problem a POLITICAL solution will compromise the recovery.
It is time for politicians to be patriotic and not parochial.
They MUST rescue the people of this great nation or the American Dream of home ownership will be lost forever.
They must do this for the benefit of the country. To do anything other than a clean fix aimed laser-like at the problem of home valuation is to charge the country headlong out of the current recession into a second Great Depression of unimagined magnitude and consequence.
Here is an example of how this would work to restore the great hope of prosperity for this great nation and the world:
EXAMPLE:
The Smith Family owns a house with a current mortgage of $700,000 ( Smith had refinanced to take out rising equity). It is their primary residence - they live in it.
Smith household income reported on 2009 Federal tax return was $125,000 gross before any deductions (ie NOT their taxable income).
Current US 30 year Treasury notes have an interest rate of approximately 4%.
So, 30% of $125,000 means Smith can afford to pay no more than $37,500 per year or $3,125 per month for Principal & Interest on the mortgage. He is still on the hook for taxes and insurance.
Smith gets a new mortgage under this program with a 30 year term at 4.5% (4+0.5) for a nominal value of approx $600,000 (arrived at through DCF analysis based on what Smith can afford to pay).
This may/may not be more than the current appraised value.
The Government gets the right to 80% of the difference between $600,000 and the original mortgage amount of $700,000 when the house is sold.
Ten years from now Smith sells the house for $700,000 the value of the original mortgage.
He has paid about $2,900/month in interest for 10 yrs or $348,000 that has gone back into the US treasury.
He has also paid about $27,000 in principal.
He owes $573,000 on the new government mortgage, and $100,000 difference between his old and new mortgage originally financed by the US govt. ( The Treasury has already recovered nearly 50% of the amount loaned).
His gross profit on the sale of his house is $127,000.
He owes 80% of this or $101,600, under his mortgage contract so that the Government gets the $573,000 and its $100,000 back and $1,600 more.
Smith has had his property written down to a reasonable value and his mortgage therefore becomes valuable in a resale.
Banks and the Government can resell it.
Smith has lived with a new lower payment and still got the tax deduction for interest AND has made a profit on the sale of the home!
Most importantly, Smith is not tempted to hand the keys of the house to the bank because he is upside down in the mortgage.
The bankruptcy/foreclosure process is completely avoided.
There is a very real potential for gain by the government.
Interest and principal on mortgages comes into the Fed Reserve balance sheet NOT from new taxes.
Potential for profit exists on sale of properties.
No new government agencies need to be established.
The Fed will hire the necessary personnel to administer the program. Unemployment declines!
The banking system is unclogged and consumer confidence is restored.
Economic recovery can begin.
Tuesday, August 3, 2010
Fannie and Freddie need fundamental change, another "Entitlement?"
Government-controlled mortgage giants Fannie Mae and Freddie Mac must be subjected to "dramatic" change, but this can't be done quickly while the housing market is still weak, said Treasury Secretary Timothy Geithner. He said the government will always have to provide some support to the mortgage industry to provide "reasonable security that you can borrow to finance a house even in a deep recession."
The Wall Street Journal
Interesting that the Government sees home-ownership support as another "entitlement".
The Wall Street Journal
Interesting that the Government sees home-ownership support as another "entitlement".
Monday, August 2, 2010
Falling home prices could take U.S. back to recession, Greenspan says
"Tragic unemployment" has trapped every part of the U.S. economy except the wealthy, and the weak recovery might turn into a double-dip recession if home prices keep falling, said former Federal Reserve Chairman Alan Greenspan. Asked on NBC's
"Meet the Press" whether a deepening housing crisis will send the U.S. back into recession, Greenspan said, "It is possible, if home prices go down."
Los Angeles Times
"Meet the Press" whether a deepening housing crisis will send the U.S. back into recession, Greenspan said, "It is possible, if home prices go down."
Los Angeles Times
Friday, July 30, 2010
Foreclosure activity up across most US metro areas
Households across a majority of large U.S. cities received more foreclosure warnings in the first six months of this year than in the first half of 2009, new data shows. The trend is the latest sign that the nation's foreclosure crisis is worsening as homeowners battling high unemployment, slow job growth and an uneven rebound in home prices continue to fall behind on their mortgage payments.
As I've said since the beginning of 2007 call me in 2013 and we'll talk about the bottom of the U.S. real estate market.
Click on heading for link to full story
As I've said since the beginning of 2007 call me in 2013 and we'll talk about the bottom of the U.S. real estate market.
Click on heading for link to full story
Tuesday, July 27, 2010
Urgent: Real Estate Recovery is a fairy tale;Why Are Banks Withholding High-End Repossessions Over $300,000 From the Market?
The recently touted "recovery" in real estate sales (see post below) is a dangerous myth. At some point soon the Real Estate market will implode; and with it the banks holding the mortages to high end (More than $300,000 in price) foreclosed houses.
Bank Withholding of High-End Foreclosures from the Market is Nationwide
The Data from RealtyTrac reveal a clear pattern on the part of banks to withhold most repossessed homes from the market and nearly all of those listed on RealtyTrac for more than $300,000. Is this occurring throughout the nation?
CLICK ON HEADING FOR LINK TO ARTICLE WITH A REVEALING TABLE AND DECIDE FOR YOURSELF
Will this bank strategy keep the market for homes over $300,000 from imploding? Not a chance.
For example: In Bergen County NJ, just across the GW Bridge, there are 615 already bank repossessed homes, according to RealtyTrac. 31 (5%) are on the market currently, but only 4 (less than 1%)are priced over $300,000!
This is a better example; look at the article linked above for much worse numbers.
Fannie Mae now requires an average down payment of 30% for securitized loans which it purchases or guarantees. According to Fitch Ratings, mortgage delinquencies for prime jumbo mortgages soared to 10.3% in May as underwater owners walked away in droves. That spells serious trouble for the five states which account for 2/3 of all outstanding jumbo loans - California, Florida, New Jersey, Virginia and New York. The problem goes well beyond these states, however. Housing markets throughout the United States for $300,000+ homes are in for rough sailing and prices are extremely likely to be headed for a real plunge.
Bank Withholding of High-End Foreclosures from the Market is Nationwide
The Data from RealtyTrac reveal a clear pattern on the part of banks to withhold most repossessed homes from the market and nearly all of those listed on RealtyTrac for more than $300,000. Is this occurring throughout the nation?
CLICK ON HEADING FOR LINK TO ARTICLE WITH A REVEALING TABLE AND DECIDE FOR YOURSELF
Will this bank strategy keep the market for homes over $300,000 from imploding? Not a chance.
For example: In Bergen County NJ, just across the GW Bridge, there are 615 already bank repossessed homes, according to RealtyTrac. 31 (5%) are on the market currently, but only 4 (less than 1%)are priced over $300,000!
This is a better example; look at the article linked above for much worse numbers.
Fannie Mae now requires an average down payment of 30% for securitized loans which it purchases or guarantees. According to Fitch Ratings, mortgage delinquencies for prime jumbo mortgages soared to 10.3% in May as underwater owners walked away in droves. That spells serious trouble for the five states which account for 2/3 of all outstanding jumbo loans - California, Florida, New Jersey, Virginia and New York. The problem goes well beyond these states, however. Housing markets throughout the United States for $300,000+ homes are in for rough sailing and prices are extremely likely to be headed for a real plunge.
Tuesday, July 20, 2010
No relief is in sight for the U.S. housing market
It is clear that the U.S. housing supply was too big to be affected much by the tax credit for buyers, and for that reason, a bleak future awaits the market, according
to The Economist. "A durable solution to the crisis in housing needed to involve an answer to the epidemic of negative equity and a meaningful labour market recovery," The Economist notes. "America has neither."
The Economist
I'm concerned my outlook for further house price declines may be too conservative
to The Economist. "A durable solution to the crisis in housing needed to involve an answer to the epidemic of negative equity and a meaningful labour market recovery," The Economist notes. "America has neither."
The Economist
I'm concerned my outlook for further house price declines may be too conservative
Wednesday, July 14, 2010
Interest rate dilemma
"At 4.6 percent, 30-yr mortgage rates are already at historic lows, yet housing demand cratered as soon as the government's homebuyer tax credit expired in April. If you think lowering long-term rates and reducing the spread between short and long rates will stimulate the economy,think again. The steep yield curve is the most powerful thing the economy has going for it right now."
Caroline Baum
Caroline Baum
Thursday, June 24, 2010
Analysis: U.S. home sales crash after tax credit ends
Sales of homes in the U.S., along with their prices,
soared after Congress gave first-time buyers an $8,000 tax credit. When the subsidy expired, so did the boost,
with only 28,000 home sold in May, the lowest number recorded for that month. The tax credit did nothing
about high inventory, unemployment close to 10% and millions of underwater homeowners, according to The
Economist. "And Americans are now left wondering when housing's second dip will find its bottom and real
recovery begin," The Economist notes. The Economist
soared after Congress gave first-time buyers an $8,000 tax credit. When the subsidy expired, so did the boost,
with only 28,000 home sold in May, the lowest number recorded for that month. The tax credit did nothing
about high inventory, unemployment close to 10% and millions of underwater homeowners, according to The
Economist. "And Americans are now left wondering when housing's second dip will find its bottom and real
recovery begin," The Economist notes. The Economist
Tuesday, May 19, 2009
Shiller: Now You Can Short Housing
Friday, May 15, 2009 4:58 PM
By: Dan Weil Article Font Size
While the government is going through conniptions trying to stop investors from shorting stocks, housing guru and economist Robert Shiller is going the other direction.
He’s providing a security for investors to short the Case-Shiller home-price index. His firm MacroMarkets recently received approval for exchange-traded traded funds based on the index.
“One reason we have bubbles in the housing market is because there's been no way to short housing,” the Yale professor tells Time.
“The ability to short is essential to an efficient market, otherwise there's nothing to stop zealots from pricing things abnormally high.”
One version of the ETF (UMM) allows investors to buy the index.
“It's like buying a house, except you don't have to go through the real estate agent, take possession of a property, maintain it, rent it out,” Shiller says.
The other offering (DMM) provides an opportunity to short the index.
“Markets like this will also create an infrastructure for products,” Shiller says. “For example, insurers could issue home-equity insurance and then hedge themselves by taking a position in this market.”
As for housing’s current status, Shiller doesn’t think the market has bottomed.
“The conspicuous fact with our [Case-Shiller] data is that prices are still falling, although at a somewhat lower rate,” he explains.
Mark Zandi, chief economist of Economy.com, puts it in only slightly more optimistic terms.
“I think we’re clearly moving in the right direction,” he tells Bloomberg TV. “I think a year from now we’ll find a bottom.”
© 2009 Newsmax. All rights reserved.
By: Dan Weil Article Font Size
While the government is going through conniptions trying to stop investors from shorting stocks, housing guru and economist Robert Shiller is going the other direction.
He’s providing a security for investors to short the Case-Shiller home-price index. His firm MacroMarkets recently received approval for exchange-traded traded funds based on the index.
“One reason we have bubbles in the housing market is because there's been no way to short housing,” the Yale professor tells Time.
“The ability to short is essential to an efficient market, otherwise there's nothing to stop zealots from pricing things abnormally high.”
One version of the ETF (UMM) allows investors to buy the index.
“It's like buying a house, except you don't have to go through the real estate agent, take possession of a property, maintain it, rent it out,” Shiller says.
The other offering (DMM) provides an opportunity to short the index.
“Markets like this will also create an infrastructure for products,” Shiller says. “For example, insurers could issue home-equity insurance and then hedge themselves by taking a position in this market.”
As for housing’s current status, Shiller doesn’t think the market has bottomed.
“The conspicuous fact with our [Case-Shiller] data is that prices are still falling, although at a somewhat lower rate,” he explains.
Mark Zandi, chief economist of Economy.com, puts it in only slightly more optimistic terms.
“I think we’re clearly moving in the right direction,” he tells Bloomberg TV. “I think a year from now we’ll find a bottom.”
© 2009 Newsmax. All rights reserved.
Housing Starts Released on 5/19/2009 8:30:00 AM For April, 2009
Previous Consensus Consensus Range Actual
Starts - Level - SAAR 0.510 M 0.540 M 0.500 M to 0.560 M 0.458 M
Permits - Level - SAAR 0.513 M 0.494 M
Highlights
Housing starts in April fell sharply to a new record low for a series going back to 1959, largely on cutbacks in multifamily construction. Starts dropped another 12.8 percent, following an 8.5 percent decline in March. The April pace of 0.458 million units annualized was down 54.2 percent year-on-year and came in well below the market forecast for 0.540 million units. April's decrease was led by the multifamily component which plunged 46.1 percent while single-family starts edged up 2.8 percent.
By region, the fall in starts was led by a monthly 30.6 percent drop in the Northeast along with declines of 21.4 percent in the Midwest and 21.1 percent in the South. Starts rose in the West jumped 42.5 percent.
Permits also declined at the national level, falling 3.3 percent in April, after dropping 7.1 percent the month before. The April permit pace of 0.494 million units annualized was down 50.2 percent on a year-ago basis.
Equities should be disappointed by today's starts numbers. It appears that many have forgotten that starts are far downstream in the list of housing indicators. It should be expected that improvement in indicators such as the homebuilders housing market index or mortgage applications will take a long time to trickle down to actual new construction. This is especially the case as a spike in foreclosures is threatening to delay the sell down of housing inventories. Homebuilders clearly understand that any new construction will likely sit on the market for some time, having to compete with fire sale prices on foreclosures.
Market Consensus Before Announcement
Housing starts fell back 10.8 percent in March, following a 17.2 percent rebound the month before. But going back to January, atypically wet and cold weather in the South depressed starts, leading to the sharp rebound in February - which also was abetted by milder-than-usual weather. Looking ahead, many analysts see a glimmer of hope for housing from the 3.2 percent boost in pending home sales. But supply is still quite bloated and existing homes on the market may be getting heavier with the recent spike in foreclosures. Homebuilders still are likely to keep starts low for some time.
Definition
Housing starts measure initial construction of residential units (single-family and multi-family) each month. A rising (falling) trend points to gains (declines) in demand for furniture, home furnishings and appliances. Why Investors Care
Data Source: Haver Analytics
Starts - Level - SAAR 0.510 M 0.540 M 0.500 M to 0.560 M 0.458 M
Permits - Level - SAAR 0.513 M 0.494 M
Highlights
Housing starts in April fell sharply to a new record low for a series going back to 1959, largely on cutbacks in multifamily construction. Starts dropped another 12.8 percent, following an 8.5 percent decline in March. The April pace of 0.458 million units annualized was down 54.2 percent year-on-year and came in well below the market forecast for 0.540 million units. April's decrease was led by the multifamily component which plunged 46.1 percent while single-family starts edged up 2.8 percent.
By region, the fall in starts was led by a monthly 30.6 percent drop in the Northeast along with declines of 21.4 percent in the Midwest and 21.1 percent in the South. Starts rose in the West jumped 42.5 percent.
Permits also declined at the national level, falling 3.3 percent in April, after dropping 7.1 percent the month before. The April permit pace of 0.494 million units annualized was down 50.2 percent on a year-ago basis.
Equities should be disappointed by today's starts numbers. It appears that many have forgotten that starts are far downstream in the list of housing indicators. It should be expected that improvement in indicators such as the homebuilders housing market index or mortgage applications will take a long time to trickle down to actual new construction. This is especially the case as a spike in foreclosures is threatening to delay the sell down of housing inventories. Homebuilders clearly understand that any new construction will likely sit on the market for some time, having to compete with fire sale prices on foreclosures.
Market Consensus Before Announcement
Housing starts fell back 10.8 percent in March, following a 17.2 percent rebound the month before. But going back to January, atypically wet and cold weather in the South depressed starts, leading to the sharp rebound in February - which also was abetted by milder-than-usual weather. Looking ahead, many analysts see a glimmer of hope for housing from the 3.2 percent boost in pending home sales. But supply is still quite bloated and existing homes on the market may be getting heavier with the recent spike in foreclosures. Homebuilders still are likely to keep starts low for some time.
Definition
Housing starts measure initial construction of residential units (single-family and multi-family) each month. A rising (falling) trend points to gains (declines) in demand for furniture, home furnishings and appliances. Why Investors Care
Data Source: Haver Analytics
Monday, May 18, 2009
Thomas Sowell: Regulators Started Housing Crisis
Thomas Sowell: Regulators Started Housing Crisis
Sunday, May 17, 2009 5:18 PM
to read the full article click on the heading above
Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."
Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.
"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.
"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."
Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.
"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.
"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.
"But it existed in various coastal communities primarily and a couple of other places. Unfortunately, the elites whose strongholds are on the East and West Coasts don't seem to understand that there's a whole country in between, and in most of that country housing was quite affordable by all historical standards.
"So they set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.
"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."
Walter asked: "Who is really responsible for all this?"
"There are a lot of people who were irresponsible," Sowell responded.
"But the fundamental problem, the problem of reduced lending standards, with people buying houses even with no money down in some cases, that all came precisely from the regulators that people are now talking about as the salvation of the housing market.
"There's no such thing as regulation in the abstract. There are certain kinds of regulation that can have beneficial effects. Canada does not have the same problem that we have even though they have regulations. But their regulators are trying to make sure that the banks and other lending institutions are obeying clear-cut rules. Ours were trying to produce higher statistics on home ownership in general, and in particular trying to reduce the gap between low-income people and high-income people, blacks and whites, et cetera."
Walter asked what Americans can do to ensure that the housing boom and bust will not happen again.
"First and foremost the voters have to learn to be skeptical and to find out what the facts are," Sowell said.
"There is not the slightest incentive for a politician to behave better in the future. If voters don't understand that, it's going to happen again.
"This is the worst housing crisis we've had but it is not the first. This very same drive to increase home ownership occurred under the Republicans in the '20s. It occurred under the Democrats in the '30s, and it occurred under both parties in the '40s and '50s.
"There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it. And they'll never pay a price for it as long as the voters don't make an effort to find out what is going on."
Sowell added: "I see absolutely no reason why politicians should take charge of which way prices go. That's precisely what led to the current disaster. . .
"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
© 2009 Newsmax. All rights reserved.
Sunday, May 17, 2009 5:18 PM
to read the full article click on the heading above
Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."
Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.
"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.
"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."
Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.
"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.
"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.
"But it existed in various coastal communities primarily and a couple of other places. Unfortunately, the elites whose strongholds are on the East and West Coasts don't seem to understand that there's a whole country in between, and in most of that country housing was quite affordable by all historical standards.
"So they set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.
"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."
Walter asked: "Who is really responsible for all this?"
"There are a lot of people who were irresponsible," Sowell responded.
"But the fundamental problem, the problem of reduced lending standards, with people buying houses even with no money down in some cases, that all came precisely from the regulators that people are now talking about as the salvation of the housing market.
"There's no such thing as regulation in the abstract. There are certain kinds of regulation that can have beneficial effects. Canada does not have the same problem that we have even though they have regulations. But their regulators are trying to make sure that the banks and other lending institutions are obeying clear-cut rules. Ours were trying to produce higher statistics on home ownership in general, and in particular trying to reduce the gap between low-income people and high-income people, blacks and whites, et cetera."
Walter asked what Americans can do to ensure that the housing boom and bust will not happen again.
"First and foremost the voters have to learn to be skeptical and to find out what the facts are," Sowell said.
"There is not the slightest incentive for a politician to behave better in the future. If voters don't understand that, it's going to happen again.
"This is the worst housing crisis we've had but it is not the first. This very same drive to increase home ownership occurred under the Republicans in the '20s. It occurred under the Democrats in the '30s, and it occurred under both parties in the '40s and '50s.
"There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it. And they'll never pay a price for it as long as the voters don't make an effort to find out what is going on."
Sowell added: "I see absolutely no reason why politicians should take charge of which way prices go. That's precisely what led to the current disaster. . .
"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
© 2009 Newsmax. All rights reserved.
Thursday, May 14, 2009
The State of Housing Markets Around The World: Not Bottoming Yet?
Only two countries (Germany and Switzerland) out of 32 main property markets saw positive momentum in 2008 (a slower downward house price movement or faster upward movement), while 28 countries saw momentum deteriorating. Around 8 out of 32 countries saw house prices rise, adjusting for inflation, while 20 countries experienced house price falls with the sharpest in Latvia (37%), Lithuania (27%), U.S. (20%), UK (18%), Iceland (16%), Ireland (12%), and Ukraine (Kiev) (12%). Downward price momentum accelerated in Q4 2008 (Global Property Guide)
While stock market recoveries often precede an economic recovery, a key driver of property occupancy - employment - is often one of the last economic indicators to turn. This suggests that 2009 will remain a difficult year for commercial and residential property globally (Jones Lasalle)
While stock market recoveries often precede an economic recovery, a key driver of property occupancy - employment - is often one of the last economic indicators to turn. This suggests that 2009 will remain a difficult year for commercial and residential property globally (Jones Lasalle)
Thursday, February 19, 2009
Obama's Housing Plan: Legislating Conflicting Goals
by Eric Falkenstein
Obama has announced a new plan to help renters (oops, 'homeowners') who cannot afford their mortgages.
There are two types of people who aren't paying their mortgage bills, and it is not simple to separate them. There are those whose incomes are insufficient to make the monthly payment. Then there are current homeowners who are merely underwater, and do not want to pay (mortgages are limited liability, so they can walk away and not owe anything). So the government has some rule, and 30% of people with such mortgages get to basically write down their old mortgages to a new level that make them able and/or willing to pay.
There are two problems with this:
First, it directly lowers the value of the bank's assets. We are simultaneously trying to shore up banks. That the government is legislating this implies that banks will have to write down their assets more than they would have otherwise. So it is directly inconsistent with the Treasury's other objective, to strengthen banks.
Second, it generates huge moral hazard. Say 4 million mortgage owners take advantage of this as targeted. Those who were not targeted will look at what their neighbor did, on a house bought at the same time, and try to figure out how they too can write down their mortgage obligation. A good number will successfully navigate the lame top-down criteria applied, because any cookie-cutter criteria in Washington creates a very simple target to game.
This process will put more pressure on housing, because it creates zombie properties as owners figure out if they can get this done, and it creates a new wave of defaults. Thus, previously people who, while underwater on the property or in trouble because of standard vagaries of chance, might have otherwise paid their mortgage. But to do so in this environment is to be a sucker. Many will find this unethical, but many won't. This creates the second wave of mortgage defaults, the opportunists. I imagine there will be incentives on the demand and supply side to play this game.
The most melancholy of human reflections, perhaps, is that on the whole, it is a question whether the benevolence of mankind does more good or harm. - Walter Bagehot
Obama has announced a new plan to help renters (oops, 'homeowners') who cannot afford their mortgages.
There are two types of people who aren't paying their mortgage bills, and it is not simple to separate them. There are those whose incomes are insufficient to make the monthly payment. Then there are current homeowners who are merely underwater, and do not want to pay (mortgages are limited liability, so they can walk away and not owe anything). So the government has some rule, and 30% of people with such mortgages get to basically write down their old mortgages to a new level that make them able and/or willing to pay.
There are two problems with this:
First, it directly lowers the value of the bank's assets. We are simultaneously trying to shore up banks. That the government is legislating this implies that banks will have to write down their assets more than they would have otherwise. So it is directly inconsistent with the Treasury's other objective, to strengthen banks.
Second, it generates huge moral hazard. Say 4 million mortgage owners take advantage of this as targeted. Those who were not targeted will look at what their neighbor did, on a house bought at the same time, and try to figure out how they too can write down their mortgage obligation. A good number will successfully navigate the lame top-down criteria applied, because any cookie-cutter criteria in Washington creates a very simple target to game.
This process will put more pressure on housing, because it creates zombie properties as owners figure out if they can get this done, and it creates a new wave of defaults. Thus, previously people who, while underwater on the property or in trouble because of standard vagaries of chance, might have otherwise paid their mortgage. But to do so in this environment is to be a sucker. Many will find this unethical, but many won't. This creates the second wave of mortgage defaults, the opportunists. I imagine there will be incentives on the demand and supply side to play this game.
The most melancholy of human reflections, perhaps, is that on the whole, it is a question whether the benevolence of mankind does more good or harm. - Walter Bagehot
Market Reflections 2/18/2009
President Obama unveiled a $75 billion plan to help limit foreclosures especially for those who fail to qualify for refinancing because their homes have contracted in price. Unlike last week's Treasury stability plan which was met with disappointment, reaction to today's announcement was quiet though initial word of the plan did give the stock market a push last week.
The day's economic data was headed by a 17 percent plunge in January housing starts and a less frightening though still severe 5 percent plunge in permits. The Fed updated its 2009 projections calling for an unemployment peak of up to 8.8 percent. The rate is currently at 7.6 percent. The Fed also sees full year economic contraction of up to 1.3 percent. But the Fed is optimistic, at least for 2011 when it sees growth as high as 5 percent.
The Dow industrials were fractionally changed on the day while money moved out of the Treasury market where the 2-year yield rose 10 basis points to 0.96 percent. The dollar gained another 1/2 cent against the euro to end at $1.2553. Gold is pressing back toward $1,000, ending higher on the day at $988. Oil ended under $35.
The day's economic data was headed by a 17 percent plunge in January housing starts and a less frightening though still severe 5 percent plunge in permits. The Fed updated its 2009 projections calling for an unemployment peak of up to 8.8 percent. The rate is currently at 7.6 percent. The Fed also sees full year economic contraction of up to 1.3 percent. But the Fed is optimistic, at least for 2011 when it sees growth as high as 5 percent.
The Dow industrials were fractionally changed on the day while money moved out of the Treasury market where the 2-year yield rose 10 basis points to 0.96 percent. The dollar gained another 1/2 cent against the euro to end at $1.2553. Gold is pressing back toward $1,000, ending higher on the day at $988. Oil ended under $35.
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