Oopsie - my bad! But he knew it all along, didn't he?
"House prices are unlikely to continue rising at current rates," said Bernanke, who served on the Fed board from 2002 until June. However, he added, "a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year."
Greenspan has said recently that he sees no national bubble in home prices, but rather "froth" in some local markets. Prices may fall in some areas, he indicated. And he warned in a speech last month that some borrowers and lenders may suffer "significant losses" if cooling house prices make it difficult to repay new types of riskier home loans -- such as interest-only adjustable-rate mortgages
August 29, 2006
October 2005, Ben Bernanke: There is no housing bubble to burst, cooling won't hurt economy
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ROFLMOA
KIETH DID YOU WRITE THIS?
OK, follow this one. The 30-year and the 10-year
6 Jul 2006 by Keith
The mortgage rate is tied to the 10 year, so the mortgage rate will go up. And it will continue to go up even after the Fed stops raising the short-term rates, because there will be less buyers of the 10 year and more buying of the 30 ...
sounds like my stuff - sure
the discussion was around the fed pulling the 30 year, forcing people into the 10 thus driving down interest rates on homes, thus inflating the bubble
then they reintroduced the 30 year, which allowed the buyers (china, etc) the choice, thus lessening demand for the 10 year thus driving rates up on the 10 year and thus rates up on mortgages (which are based on 10 year not 30 year rate)
Pretty good guess back then - nice to see it come true.
This is a must read....
http://www.voiceofsandiego.org/articles/2006/08/28/news/01exotic.txt
""House prices are unlikely to continue rising at current rates,"
Earth to Bernanke: They are actually falling in many places and nationally the median sales prices is decreasing in real dollars.
Froth in some local markets. Does the entire Mid-Atlantic Seaboard count as a local market? How about the West-Coast and South West?
A "local market" is a town or two, not half the continental US!
Crawford, Texas: Sales softer this year, especially for existing homes
By Noelle Knox, USA TODAY
Crawford, Texas, has changed some since President Bush bought his 1,600-acre ranch there in 1999. The town has added a bank, a second gas station and several souvenir stores. With a population of 705, Crawford still has only one traffic light, no hotel and no bar. But tourists and anti-war protesters come anyway, hoping to catch a glimpse of the president.
Despite the rise in visitors, home sales in Crawford are softer this year than last, especially if you're trying to sell an existing home. Only one home sold in July, according to the Waco Association of Realtors.
So far this year, just nine homes have sold in Crawford — down from 21 in the first seven months of 2005.
That's bad news for the 23 sellers in the area who have homes on the market. Those figures, though, don't include new construction, and quite a few buyers are snapping up vacant land and building their own homes.
Last month, Cindy Sheehan bought 5 acres for her anti-war protest village called Camp Casey, named after her son who died in Iraq. Seven years ago, Bush paid $1,000 to $1,500 an acre for his land, local papers reported at the time.
Today, larger tracts fetch $2,500 to $3,500 an acre, says Ralph Medart, an agent at eTexas Realty.
Small parcels — 5 acres or less — usually cost $5,000 to $8,000 an acre, though Sheehan paid about $10,000 an acre, Medart says.
http://www.usatoday.com/money/economy/housing/2006-08-28-close-crawford_x.htm
Mortgage lenders see stock prices sink
Updated 8/29/2006 4:10 AM ET
By Adam Shell, USA TODAY
NEW YORK — It's not just companies that build houses that are seeing their stock prices crumble under the weight of a weakening real estate market. Shares of mortgage lenders who provide the cash to finance deals are also sinking.
Countrywide Financial (CFC) is 20.9% off its May high. Subprime lenders, which cater to borrowers with less-than-stellar credit histories, are down sharply, too. Accredited Home Lenders (LEND), for example, has lost nearly half of its value. Thornburg Mortgage (TMA), which specializes in adjustable-rate mortgages, has shed nearly 20%.
The outlook for lenders has become gloomy amid growing signs that the five-year housing boom is over. Squeezed by high prices and more expensive borrowing costs, sales of both new and existing homes fell more than 4% in July, the National Association of Realtors says. The inventory of unsold homes is also rising.
The fallout: Fewer people are taking out mortgages. Overall applications are down 25% vs. the same period a year ago, the Mortgage Bankers Association says.
"The volume of loans is declining," says Bose George, analyst at Keefe Bruyette & Woods. "The market expects declines for the next few years. And that is obviously a drag on revenue and earnings, because lenders will have to compete more aggressively" to retain market share.
Also weighing on home lenders is the potential financial fallout from the use of exotic mortgages. Many borrowers opted for adjustable-rate mortgages, which offer low teaser rates but result in higher payments when rates reset at higher yields.
The fallout: More people are struggling to make their monthly mortgage payments, causing delinquency rates to rise slightly. Delinquencies in the first quarter hit 4.41%, up from 4.31% in the same period of 2005, MBA says. While the uptick is small, it's the direction of the trend pointing toward more credit problems that worries investors.
"Borrowers are missing more of their payments than before," says Matthew Howlett, analyst at Fox-Pitt Kelton.
H&R Block (HRB) last week set aside $61.3 million to offset potential losses suffered by its subsidiary, Option One Mortgage. Why? Recent borrowers quickly fell behind on their mortgages.
"A downturn will hit the subprime market first," says Jay Brinkmann, an MBA economist. "These borrowers tend to be less stable financially."
Another headache for mortgage lenders is the constant drumbeat of negative news on the housing sector.
Fears of a hard landing, in the form of steeper-than-expected price drops, top the list.
That means investors may continue selling mortgage lenders because of fears that the housing slump will get worse.
http://www.usatoday.com/money/industries/banking/2006-08-29-lender-losses-usat_x.htm
Ben was toast before his seat was warm; he will be the post-Greenscam fall guy for the sins of his predecessors. But, he still has his ivory tower to return to where he can continue to write papers and give lecturs about how not see bubbles on the tips of needles.
WRT bubble, pins, and needles, if you look at the rate structure created by Greenscam and his pals from '01 to '04 or so, the decline in rates and shift to adjustables and option ARMs fully account for the incremental rise in the US median house price above the historical trend during the past 4-5 years.
Now, with prices having diverged so far from the trend owing to Easy Al encouraging banker profligacy and moral hazard, the Fed slashing the funds rate again to 1% or below is not likely to result in prices rising further but merely preventing prices from crashing utterly in the extreme instance.
It is quite likely that a growing share or most of the reserves (monetary base) the Fed creates in the coming years will be absorbed in the process of the Fed having to be the buyer of last resort for the trillions of dollars of US gov't debt issuances to fund the skyrocketing fiscal deficits. This phenomenon is negative for money velocity (as was the case in the 1930s before WW II and in Japan recently) and thus more likely to encourage deflation instead of inflation.
The reemerging deflation risk is bearish for paper assets, as well as commodities, including gold and oil.
After his testimony, he donned his ruby slippers, closed his eyes and said over and over again "There's no place like home, there's no place like home, there's ...."
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