Housing Depression: September 2008

Tuesday, September 30, 2008

Home Prices drop 16.3%

The S&P/Case-Shiller home price index dropped 16.3 % compared to a year earlier.

The S&P/Case-Shiller home-price index dropped 16.3 percent from a year earlier, more than forecast, after a 15.9 percent decline in June. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
....
``While some cities did show some marginal improvement over last month's data, there is still very little evidence of any particular region experiencing an absolute turnaround,'' David Blitzer, chairman of the index committee at S&P, said in a statement.

Well we have been telling there are more problems with the housing including the economy (jobs) and interest rates. The key question on the interest rates is going to be how the foreign banks respond to the bailout. If they won't buy the debt, either the interest rates will have to go up or we will have to monetize the debt leading to hyperinflation.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEyKpTpk90C0&refer=home

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This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way - such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author. We may hold either long or short positions in securities of various companies discussed in the blog. The information in blog may contain misspellings and other inaccuracies. It is provided "As IS," without express or implied warranties of any kind. HD represents all rights to the information.

Technorati Tags CaseShiller,Housing

Thursday, September 25, 2008

JP Morgan to Acquire parts of Washington Mutual

WSJ is reporting that government has brokered a deal for JP Morgan to acquire deposits and some branches of Washington Mutual. It said this won't effect the FDIC insurance fund.

I wonder what JP Morgan is taking here...especially without the backing of the fed.

Technorati Tags JPMorgan,wamu

Prices in Californi Drop 41%

No that's not a Typo. Prices in California dropped 41% from August 2007! Here it is from Bloomberg

California home prices tumbled a record 41 percent in August from a year earlier as foreclosure sales pushed down values in the biggest U.S. state.

The median price of an existing, single-family detached home fell to $350,140 and will likely fall further, the Los Angeles- based California Association of Realtors said today in a report. Sales increased 56.7 percent from August 2007 and 1.8 percent from July.

People are ready to buy if the prices come down. So instead of the government inerfering, it would be better if they just let the markets correct themselves. Remember, it's not that there are no buyers, it's that prices are still too high.

Technorati Tags housing,california

Jobless Claims, Durable Goods, and GE

Filings for first time benefits increased by 32,000 to 493,000. Last weeks numbers were revised to 461,000. This is the highest since September 2001. Some of the increase probably had to do with the hurricanes.

But we have been saying look for the job markets to get weaker. And now with the bailout plan, the treasury yields should go higher. This will mean a higher interest rate.

Durable Goods

Durable goods - goods meant to last several years - bookings dropped 4.5%. Previously reported numbers were revised lower to .8%.

GE Cuts Forecast, Suspends buyback

From Bloomberg:

General Electric Co. reduced its annual profit forecast for the second time this year and suspended its stock buyback because of ``unprecedented weakness and volatility'' in financial markets.

Full-year earnings will be $1.95 to $2.10 a share instead of the earlier projection of $2.20 to $2.30, Fairfield, Connecticut- based GE said today in a statement. The world's fourth-largest company by market value fell in early New York trading.

Considering all this news, the markets would have tanked had it not been for the optimism on the bailout package. But considering the problems in the economy, I wonder if that optimism will last.

It's going to be interesting to see what happens to the price of gold with the bailout package.

Technorati Tags GE,WeeklyJobless,DurableGoods

Wednesday, September 24, 2008

Fed Bailout

I have been meaning to write about Warren Buffet and the MOAB (Mother of All Bailouts).

It seems that Buffet supports the bailout. He was on CNBC today saying there will be major consequences if there is no bailout. But he also said the securities bought should be bought at market price. So in a sense, he was not supporting Ben B's plan. They want to OVERPAY for the assets. They don't want to buy at fire-sale price and they don't want to have equity because then the capitalized institutions won't participate.

So unlike AIG, they just want to give away free dollars to these institutions.

HP wants complete authority. NO questions asked. Forget about balance of power.

Another issue here is trust. To many people this sounds like Iraq all over again. Remember WMD? Iraq acquiring Nuclear materials? Can you hand over a blank check to Paulson?

With their plan, they want to send billions of dollars worth of Christmas gifts so they are well capitalized.

I know we have to do something. But I don't want to give away free gifts to banks and put the tab on next generation.

Technorati Tags fed,MOAB

Ron Paul Testimony

Ron Paul was as good as ever. Here is a summary of what he said (Note: They are not exact quotes but my estimation of what he was saying).

Where does the money come from? Out of thin air?

Finally, someone talking about where the money is coming from. More inflation.

House prices need to comedown. Price fixing is not a solution. The fed is trying to price fix by buying securities.

Finally, someone being honest and saying something smart. Finally someone said it - House prices need to come down!

Where does this authority (for creation of unlimited amount of money) come from? I do not see anything in constitution.

Thank god someone brought this point up.

Technorati Tags Fed,RonPaul,MoneySupply

August Existing Home Sales

Existing home sales dropped 10.7% from last year and 2.2% from a revised July 2008.

Prices for homes dropped a record 9.5% from last year. Regionally, the price drop in the West was 23.9%!

With lower prices, the inventory dropped to 10.4 months which was at 11.1 just two months ago.

“However, home sales will be constrained without a freer flow of credit into the mortgage market. The faster that happens, the sooner we’ll see a broad stabilization in home prices that in turn will help the economy recover,” Yun said. “Historically, housing has led the nation out of economic doldrums – there will not be an economic recovery without a housing recovery.”

Leave it upto morons at NAR to come up with a solution that will screw things up even more. Now that the government has taken over the GSEs, looks like the NAR want the GSEs to return to NINJA loans. The only way to get out of this mess quickly is for the prices to drop so more people can afford houses - not over leveraging.

And while we have had lower mortgage rates, it is not certain they will remain low. Especially with the bailout package which may lead to hyperinflation.

“The median home price reflects more transactions related to subprime loans,” Yun said. “Fewer than 10 percent of homeowners have subprime loans, but these mortgages are accounting for a disproportionately high share of sales in the current market. On the other hand, areas that have had sharp price cuts are seeing a turnaround in sales, which are rising very fast now in parts of California, Florida and Nevada.”

Yun is complaining about Short sales lowering the price, but does not mention it when those short sales lead to an increase in home sales.

Technorati Tags NAR,ExistingHomeSales,LawerenceYUN

Tuesday, September 23, 2008

Wells Fargo Jumbo Mortgage Rate is 9.00%

Wells Fargo Mortgage rate for a 30-year fixed mortgage is 9.00%!

We have been telling you to watch the jobs market and the mortgage rate to see how far down housing goes. We were worried about the mortgage rate, but with the government bailing out Freddie and Fannie, the rates eased - at least temporarily.

The 30-year fixed is still low.

Technorati Tags housing,mortgagerates

Marcy Kaptur

THEY WANT MAMA TO MAKE IT ALL BETTER! Rep Kapture

Marcy Kaptur Let's them have it.

MSM Starting to Talk about Depression

We have been telling about the risks to the economy and the housing market. We've been saying it's pretty bad out there. Now Pointon's Nitingale says Global 'Depression' is possible. It looks like we are starting to hear analysts on MSM talk about depression.

Another point on the current crisis is that most people compare this to Japan's housing bubble. And most think America can recover quicker than Japan. But one wild card here is that the Japanese consumer had a better balance sheet than American. American's savings rate is 0%!

http://www.bloomberg.com/avp/avp.htm?N=av&T=Pointon's%20Nightingale%20Says%20Global%20%60Depression'%20Possible&clipSRC=mms://media2.bloomberg.com/cache/vbT7lOhH7Jmo.asf

Technorati Tags depression,MSM

Wednesday, September 17, 2008

Dodd and Palin

Senator Dodd says the fed has the autority to set up a debt fund. As if they haven't ruined their balance sheet ennough, you have a senator asking to take on more junk.

``Debating whether or not you're going to set up some new agency or bureaucracy in government is a nice point, but I don't think we have the luxury of waiting another year,'' Dodd said.

It's great. Instead of telling the fed to stop overstepping authority, he is telling them to do this without congress approval.

``But candidly, I want to do a lot more than 400,000 units,'' he said. ``And we have the opportunity to do more than that.''

And if that's not ennough, he wants more housing help. Where are you going to get the money? Stop robbing our future generations for a quick fix today. Let the free markets do it's work. In the long run, it's going to be better than trying to rescue each and everyone.

BTW, what about those who were smart and kept renting instead of buying a house on a interest only. I don't see him talking about the prudent.

Here is another example of how screwed up our politics are. Here is Sarah Palin saying there wont be a bailout for AIG. Of course, after the bailout, Mccain softened his position. We don't have to wait for the candidates to get into the office before they flip-flop - they do it in matter of days.

Technorati Tags SarahPalin,ChrisDodd

More Shotgun Marriages

NYT is reporting Morgan Stanely got a call from Wachovia expressing interest.

WSJ is reporting both Citigroup and Wells Fargo are interested in Washington Mutual. Doesn't Citigroup have ennough of it's own problem? It's kind of stunning to see Citi interested in Wamu.

Technorati Tags ShotgunMarriage,MorganStanely,Wachovia,Citigroup,WellsFargo

Cliff Diving

Today's Cliff diving candidates are Morgan Stanely which was down to 16.10 (more than 42%) and has recovered to 19.00.

The other cliff diver is Wachovia which was down 25% and is down 22% right now.

Technorati Tags CliffDiving

Fed Need More Money

With all the bailouts - not to mention the junk that the fed is holding - the fed is running out of money. So they are going to issue more TBills to bridge the gap.

``The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve,'' the department said in a statement today. ``The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program.''

The new bill program ``will provide cash for use in the Federal Reserve initiatives,'' the Treasury said.

I guess they are preparing for more bailouts. Don't be surprised if the interest rates go up because of more issues. I am surprised they have already not gone up. With the treasury selling more TBills, there is going to be more supply. There better be more demand or else....

BTW you don't hear anyone in the MSM talking about a housing bottom anymore. Ofcouse you still had trolls saying Fannie and Freddie bailout marked a bottom. NOT!

I heard another analyst on Bloomberg today. Who sounded more honest than most. He was saying that we are deleveraging from a 40-year credit expansion. This is going to take at least one year to fix the problem. Now granted he did say "At least". But given it's a 40 year expansion, I doubt it's going to be resolved in a year. I would say at least two-three years before we can even think about resoving these issues.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ58hpS0fRH8&refer=home

Technorati Tags Fed,TBills

Tuesday, September 16, 2008

Fed Loans $85 to AIG

Fed Invokes 'Unusual and Exigent' Clause to bailout AIG. Just days after Treasury secretary said no to bailing out AIG, the fed is providing AIG with $85 billion of "loans".

It's a dramatic turnabout for the federal government, which has strongly resisted overtures from AIG for an emergency loan or some intervention that would prevent the insurer from falling into bankruptcy. Just last weekend, the government effectively pulled the plug on Lehman Brothers Holdings Inc., allowing the big investment bank to fail instead of giving it financial support.

It seems Lehman did not have ennough toxic stuff to be bailed out.

The precise details of the government's plans were still being formulated late Tuesday. The primary option being hammered out involved the Fed providing AIG with a short-term "bridge" loan of $85 billion, according to people familiar with the situation. In exchange, the government would receive warrants in AIG representing the right to buy its stock, under certain conditions. That could put the government in a position to potentially control a private insurer, a historic move, particularly considering that AIG isn't directly regulated by the federal government.

Now we know why the fed did not cut the rate. They had much bigger issues on their mind. Bailout AIG and then we can use the rate cut next time around. I was surprised when the fed held especially when the markets were pricing in more than 80% chance of a rate cut.

Sen. Richard Shelby of Alabama said he didn't receive a "satisfactory" answer from Mr. Paulson in an early conversation about the ultimate scope of government intervention. "I laid out -- where do you stop? Where do you draw the line?"

The automakers are already begging. So I guess they are next.

The AIG bailout caps a tumultuous 10 days that have remade the American financial system. In that time, the government has engineered rescues that insert it deep into the housing and insurance industries, while Wall Street has watched two of its last four big independent brokerage firms exit the scene.

http://online.wsj.com/article/SB122156561931242905.html#articleTabs%3Darticle

Technorati Tags AIG,Bankruptcy

AIG Bankruptcy

We are truly getting into scary stuff.

According to NYT, AIG is hiring a law firm to draw up bankruptcy papers.

It is not known whether the Fed would now change course and agree to provide an emergency infusion of capital to the cash-starved insurance giant, or what form such aid would take. If the Fed decides not to intervene, A.I.G. will probably file for bankruptcy by Wednesday, these people said.
.....
A.I.G.’s collapse seemed so likely on Tuesday that the company hired the law firm Weil, Gotshal & Manges — which is also handling the Lehman Brothers bankruptcy — to draw up bankruptcy papers.
Many of A.I.G.’s subsidiaries have drawn down on their credit lines, people briefed on the matter said.

In another report, the fed says it does not have the legal authority for an AIG conservatorship. So it's going to be an interesting day tomorrow.

Federal Reserve Leaves Rates Unchanged

Federal Reserve leaves rates unchanged...more to come.

Monday, September 15, 2008

Fed Buying Equities

I had to read it twice to really believe if this was true. People have been talking about PPT and Fed Manipulating the stock markets. But now, the fed is expanding it's lending program to include Equities! I am not making this up.

The Federal Reserve will expand its lending facilities in the wake of the likely demise of Lehman Brothers Holdings Inc., taking a wider array of securities, including equities, as collateral for its loans, the central bank said late Sunday.

I had to read it twice to belive it. With the prices of equities going up and down everyday, how can the fed take it as collateral?

The fed is expanding lending programs and yet the media keeps talking about fed avoiding the moral hazard.

Technorati Tags ppt,fed,moralhazard

Lehman and Merrill

Lehman Brothers is filing for Chapter 11. It is with great sadness I say this as I have many friends who are employed at Lehman. They seem to have gotten the worst possible deal as the fed did not help bail them out.

Bank of America is buying out Merrill for $50 billion. BoA will pay $29 a share - 70% more than Sept 12 price. I wonder if they needed to pay that kind of premium for Merrill. I guess Ken Lewis likes to pay premiums for "Bargains". If this was driven by fed, I don't think they needed to pay a 70% premium!
So this is where we are. A year after governement officials kept telling us subprime issues were contained, we now have Bear Stearns, Lehman Brothers, and Merrill either merged or dissappeared.

Of course, you will have ennough analysts on CNBC calling for another bottom. But we have a long way to go.

Technorati Tags Lehman,Merrill,BoA

Thursday, September 11, 2008

Lehman Sale

According to the latest report, Fed and Treasury are arranging sale of Lehman through a consortium of private investors according to Washington Post.

Before this report, there were rumors of Bank of America. But like JP Morgan & Bear Stearns deal, BoA wanted a government money.

I wonder how much tax payer dollar they are using this time for Lehman sale.

Technorati Tags Lehman

Wednesday, September 10, 2008

Fannie Still Paying Q3 Dividend

Just when you thought you had heard it all. Here are more tax dollars going to waste.

Fannie Mae has recieved consent from FHA and US Treasury to pay Q3 dividend that was announced earlier but was unpaid. Going forward the dividend will be eliminated.

Why pay the third quarter dividend? You are paying dividend to preferred shareholders from tax payer dollars.

http://www.marketwatch.com/news/story/fannie-allowed-pay-third-quarter-preferred/story.aspx?guid={B1D358BF-C343-4AF0-8861-E270F025BE46}&dateid=39701.7312979745-937637636#comments

Technorati Tags Fannie,FannieDividend

Washington Mutual Cliff diving

Washington Mutual stock's cliff diving continues this morning. The stock is down another 16% today. That is on top of the 20% drop yesterday. Since Monday's F&F Boost, the stock has gone from $5.03 to $2.75.

Technorati Tags WashingtonMutual

Lehman Reports a $3.9 billion loss

Lehman reports a bigger loss. Plans real estate spinoff.

Lehman reported a $3.9 billion third-quarter loss on $5.6 billion of writedowns. It will also spinoff it's real estate which is expected to be completed in Q1 2009.

This is one of the things we have been warning about. Remember that Lehman had a chance to raise capital earlier. But instead of raising capital, we heard Fuld saying we don't need it. Now that they need it, the capital has dried up.

Lehman gained almost 15 percent to $8.95 at 8:57 a.m. in New York trading, while the cost to protect against a default by Lehman rose to a record. Credit-default swaps on Lehman jumped 115 basis points to 590 basis points as of 8:08 a.m., according to broker Phoenix Partners Group. That surpassed a previous peak of 580 basis points in March after the collapse and emergency sale of Bear Stearns Cos. to JPMorgan Chase & Co.

Once again, there is a divergence between credit and equity. Lehman stock has been very volatile this morning.

``The opportunity has been there, but the lack of willingness to deal on Fuld's part has been huge,'' Bove said.

Didn't Bove recently say that Lehman is a buy and there will be someone to buy it out? Bove seems to be flip-flopping on Financials faster than a politician.

Standard & Poor's said yesterday it may lower its A1 long- term rating on Lehman because the ``precipitous decline'' in the share price creates uncertainty about the firm's ability to raise additional capital. S&P said Lehman's liquidity is ``sound,'' noting the firm has the ability to borrow from the Federal Reserve.

Like this agencies have the guts to downgrade anything. Remember they did not downgrade the insurers. They will not downgrade anything until after it's too late. If they were honest, we may never be in this mess in first place.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYbnRS8fidHw&refer=home

Technorati Tags Lehman,3Q2008

Tuesday, September 9, 2008

July Pending Homes Sales down 3.2%

July pending home sales fell 3.2 percent to 86.5. June pending home sales were revised upward to 89.4. July numbers are down 6.8 percent from a year earlier.

Lawrence Yun, NAR chief economist, said home sales continue to edge up and down. “Pending home sales are oscillating month-to-month, with the long-term trend essentially flat,” he said. “Overly stringent lending criteria imposed by Fannie Mae and Freddie Mac in the past month no doubt held back contract signings.”
Even with the latest pullback, pending home sales have been fairly stable on a national basis for nearly a year, with dramatic local market differences continuing. “Contract signings have been steaming ahead, nearly doubling in activity from a year before in several California and Florida markets,” Yun said.² “The outer Washington, D.C., exurbs also are coming around very strongly. The Northeast region retreated following a robust gain in the previous month, and soft activity was observed in the broad midsection of America despite very affordable conditions.”

Affordable? The reason they are not selling is they are not affordable. Just because the prices go down does not mean they are affordable. The prices still need to come down further in order to be affordable.

It's going to be interesting to see where the interest rates go with the nationalization of Freddie and Fannie. The MBS securities yield went down 25 basis points yesterday. Will the mortgage rates go down further? Or will the nationalization pull up all the other interest rates?

Yun said there are many ambiguities in the marketplace. “The economy is producing more, yet cutting jobs. A first-time home buyer tax credit and lower interest rates on newly conforming jumbo loans favors consumers, yet buyer confidence remains low,” he said. “Even with the Treasury Department’s direct intervention in the secondary mortgage market, it is unclear if we will go back to sound normal underwriting criteria, or if it will remain overly stringent. The housing market outlook is very cloudy.”

Glad you asked. The economy is producing more because the inflation rate used for GDP calculations is 2%. Looks like Yun wants NINJA loans back. What a moron..he wants "sound" and "normal" underwriting criteria! How about let's have 20-30 percent down back?

But then again may be this is the first time I've heard NAR saying the housing market outlook is very cloudy.

http://www.realtor.org/press_room/news_releases/2008/home_sales_in_narrow_range

Technorati Tags NAR,PendingHomeSales,LawrenceYUN

Friday, September 5, 2008

Tax Dollars at Work

WSJ is reporting that the Treasury is close to finalizing plan to backstop Fannie and Freddie. Remember Paulson just "needed" to show the bazooka. Now, he is using it. Congress wrote a blank check so they are all (those who voted for the bill) are responsible for this.

More of our tax dollars at work.

The markets rebounded today - especially the financials. Do you think someone had a word on this early? Just wondering.

Technorati Tags Freddie,Fannie,Treasry,Bailouts

Unemployment Reaches 6.1%

The US unemployment rate climbed to the highest in five years to 6.1%. Payrolls fell by 84,000 in August. And remember when I thought the last one was going to be the big bad one. Well, a revision added 58,000 more job losses to prior two(not just one) months.

With more layoffs and hurricane effecting job losses, this number will get worse.

``It certainly increases the probability that we really are in a recession,'' William Poole, former president of the Federal Reserve Bank of St. Louis, said in an interview with Bloomberg Television. ``It is a weak number, including the revisions.''

....

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 27,000 workers after cutting 12,000 in July. Retail payrolls fell by 19,900 after a drop of 18,100.

``We're losing jobs in all kinds of industries now,'' Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York, said in an interview with Bloomberg Radio. ``This is the clearest recessionary signal we've seen.''

So much for the housing recovery that "analysts" seem to predict everyday.

In other news, a record 9.2 percent of homeowners were either behind on their mortgage payment or in foreclosure at the end of June.

The latest quarterly snapshot by the Mortgage Bankers Association on Friday broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure.

Breaking records in delinquency or foreclosure is not good news for the housing market.

The percentage of loans at least 30 days past due or in foreclosure was up from 8.8 percent in the January-March quarter, and up from 6.5 percent a year earlier.

Folks, we are just at the beginning of this downturn. We've got a long way to go. Along the way, you are going to have analysts calling bottoms. Here is Jim "Bubble" Cramer on Tuesday (From SeekingAlpha)

“The rally this morning was the real deal,” Jim Cramer told viewers. He said that market expectations have turned too negative and when companies report their earnings they should blow away those estimates. Cramer said he was buying into today's afternoon selloff for his charitable trust and said now is the time to start building positions. Cramer told viewers not to pay any attention to the Dow Jones Industrial Average, which traded as high as 230 points before closing down 26.63 points today. Instead he said they should concentrate on the KBW Bank Index and Philadelphia Housing Sector Index, which he says are the real indicators of where the market is headed. He said the markets will not see a meaningful rally with the Philadelphia Housing Sector Index in free fall. “The markets need home prices to stabilize,” he said. Cramer reiterated his views that the markets will not re-test the lows of July 15, noting his prediction of a bottom in the housing market is now just 302 days away. He said a market rally will likely precede that bottom.

Cramer cited several reasons why he feels a market rally is on the horizon.

There will be an uptick in consumer spending when gasoline hits just $3 a gallon.

The Federal Reserve won't raise interest rates as long as commodity prices continue to fall.

Any companies who raised prices due to higher commodity costs will now reap the rewards as those commodities begin to recede in price.

Cramer told viewers not to wait until next year to start buyer, as a recent Wall Street Journal article suggested, but rather to start buying now ahead of the positive news that's on its way.

Since Cramers "bottom" call, the S&P has gone from a high of 1302 to 1220. Good call Jim!

Thursday, September 4, 2008

Weekly Unemployment Up

The jobless claims for last week unexpectadly turn higher. New claims jumped higher by 15,000 last week. It climbed to a seasonally adjusted 444,000. The prior weeks were revised higher from 425,000 to 429,000.
In a seprate report, US private employers cut 33,000 jobs in August. So tomorrows job numbers is going to be critical.

The jobs markets seems to be barely staying above water. I've been saying two things about housing market. Watch the labor market and the mortgage rates. While mortgage rates have come down a little bit, the labor markets seem to be getting worse.

Technorati Tags WeeklyJoblessClaims

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