February 22, 2007

Do Greenspan, Bernanke, Lereah, Retsinas, Toll and now Yellen think we're buying their bullsh*t?

Yes, disinformation, spin, lying and distortion are in their job description. And yes, the MSM doesn't actually "report" anymore, they just copy and paste.

But good god, how dumb do these people think we are? We're in the second inning of a nine inning game and they say it's over. Not.

Here's the latest BS from a Fed member - Janet Yellen, Fed SF president. You won't believe this one. Either she's stupid, a liar or corrupt. Take your pick.

Note to Yellen and friends - you can't spin your way out of a ponzi scheme or financial mania unwinding and crash. This will run its course. No matter what BS you spout. You will look like a fool next year for quotes like these.

Federal Reserve's Yellen is sleeping better - Says she's less worried about possible housing bust

SAN FRANCISCO (MarketWatch) -- Janet Yellen, president of the Federal Reserve Bank of San Francisco, is sleeping better than she was a year ago, thanks to signs of stabilization in the housing market.

Still, her slumber is occasionally disturbed by worries about inflation, she said after a speech in Santa Clara, Calif. on Wednesday.

Last year, when it looked like the housing downturn could turn into a bust that risked tipping the broader economy into recession, Yellen said she found it more difficult to sleep.

But Yellen said she has noted recent signs of stabilization in the housing market and slim evidence that housing's slowdown has spilled into other parts of the economy.

"I'm waking up less at night than I was," she said. "So far, there's been remarkably little effect on the rest of the economy."

"We're not stepping on the brakes as hard as policy makers have done in the past," she said.


Anonymous said...

I wonder how her Migraine Headaches, Depression, and Fibromyalgia are doing?

Maybe we should all buy gold since they found a polyp in Bernake's Colon.

This is the most capricious indicator I have seen yet!

Anonymous said...

Can 4% of Homeowners Sink the Entire Market? (February 21, 2007)

If 4% of all American homeowners fall into foreclosure, could that "small number" cause a collapse in the entire housing market? The Pareto principle says: yes.

Despite months of suspiciously negative data--housing sales and starts sagging, cancellations of sales and foreclosures rising--housing apologists have maintained that the problems with subprime borrowers and lenders can be "contained." In other words, only those "few" who lose their homes will suffer any economic impact; Home Depot and Lowes sales will remain robust, construction activity will continue unchanged, employment in construction, home furnishings, remodeling, lending and real estate will continue to hold up with minimal declines, etc.

That's the happy story. Let's get some facts before we buy into it. Here is a recent story in the Wall Street Journal: Sharp Drop in Housing Starts Adds To Fear of Wider Economic Impact (2/17/07) (subscription required)

So far, defaults and late payments have remained very low on prime mortgages, which are made to lower-risk borrowers and account for the bulk of home loans. But late payments have risen swiftly over the past year on subprime mortgages -- those made to risky borrowers with spotty credit histories -- and on "Alt-A" mortgages, a category between prime and subprime which includes many loans for which borrowers haven't documented their income. According to trade publication Inside Mortgage Finance, 13% of mortgages outstanding are subprime.

In November, payments were at least 60 days overdue on 12.9% of subprime loans packaged into mortgage securities, up from 8.1% a year earlier, according to First American LoanPerformance, a research firm in San Francisco. For Alt-A loans, the delinquency rate jumped to 2.1% in November from 1.1% a year earlier.
But if we dig a little deeper, we find that seems to understate the true scope of delinquencies and foreclosures. Here is the Financial Services Fact Book:

Adjustable rate mortgages, loans in which the interest rate is adjusted periodically according to a pre-selected index, accounted for 31 percent of mortgage originations in 2005, up from 12 percent in 2001.
The factbook also lists some very interesting charts of delinquencies: 12.9% of all FHA loans are delinquent. Are these listed as subprime? No. These are "conventional mortgages."

The Factbook also states that 24.7 million homes are owned "free and clear," with no mortgage, and about 50 million have mortgages of one kind or another. About 10 million homeowners have equity lines of credit as well as a mortgage--in effect, second mortgages. Though rarely mentioned in all the hoopla about subprime ARM (adjustable rate) mortgages, it is important to note that equity lines of credit are adjustable-rate loans; they are not 30-year, fixed-rate "conventional" mortgages.

The upshot: 10 million homeowners who statistically have "safe" conventional mortgages are at risk of their home equity line loans re-setting to higher rates. There's about $9 trillion in home mortgages on the books, and $500 billion is due to re-set higher. More Americans are losing their homes:

Nothaft estimates that $500 billion in variable rate mortgages will reset, or rise, sometime this year, leaving many with a payment they can no longer afford. “Those would be the candidates for … delinquent status,” he said.

Foreclosures had been at historic lows in the past three years as rapidly appreciating home prices gave financially strapped owners the option to refinance, sell their house at a profit or take out a cheap home equity line of credit. But with the pace of appreciation slowing in many markets and interest rates rising, for many, these avenues have been cut off.

“You’re really out of options,” said Susan Wachter, professor of real estate at the Wharton School at the University of Pennsylvania.
Meanwhile, back at the ranch, Number of vacant homes for sale surges 34%
The number of vacant homes waiting to be sold surged 34% to 2.1 million at the end of 2006 compared with the end of 2005, by far the fastest increase ever recorded, the Census Bureau reported Monday.

"We have more than a million housing units of excess supply," said James O'Sullivan, an economist for UBS. "If you are looking for evidence that the worst is over for housing, you're not going to find it in this report. This argues that housing starts need to go down more."
According to the Financial Times, The inventory of new and existing homes waiting for buyers is now approaching 4m.
The total value of US residential property is now around $19 trillion, according to the Joint Center for Housing Studies at Harvard University. The US Census Bureau calculates that there are around 123.9m housing units in the US. (ED: this includes condos and rental apartments)
Total household debt is $11 trillion: $9 trillion in mortgages and $2 trillion in revolving credit (credit cards, etc.) That means net equity for all 75 million American homeowners is $8 trillion--including the 25 million households who own their homes free and clear. What if we subtract those folks? Since 1/3 of all homes are owned free and clear, let's assume about a 1/3 of the $19 trillion is represented by these mortgage-free homes.

That's $6.5 trillion, which means all 50 million mortgage holders are left with a grand total of $1.5 trillion in net equity. If housing values decline 15%, that's a $2.85 trillion haircut off net equity. If we set 2/3 of that against mortgaged real estate, (the other 1/3 being a decline in the value of free and clear homes), then the decline collectively suffered by all mortgage holders is $1.9 trillion--enough to put them in a negative equity hole.

This is a staggering conclusion, for it suggests just how a "mere" 4% delinquency/foreclosure rate could trigger a "modest" 15% decline in housing values, which would put the nation's mortgage holders (if taken in aggregate) under water: the nation's household debt would exceed the value of the mortgaged residential real estate.

So let's put this together. With the Pareto Principle in hand, we can foresee the distinct possibility that when a mere 4% of outstanding mortgages enter delinquency / foreclosure, then a "tipping point" will be reached, triggering effects which far outsize the proximate causes.

Please examine the chart above carefully. Over 69% of the population are homeowners, and another 26% are in poverty. According to the FDIC, the recent surge in ownership from 64% to 69.5% has created a pool of "at-risk" borrowers who couldn't have purchased a house with a conventional mortgage. Of the remaining 4% who are not homeowners or those living below the poverty line, the recent stalling home ownership rates at about 69.1-69.7% suggests these households are just above the poverty level and unable to buy a house, not yuppies renting penthouse suites who are now ready to buy a McMansion.

There are 50 million mortgages. If 4% is the magic number, that's 2 million mortgages. In other words, when 2 million mortgages enter delinquency / default, then according to the Pareto principle, that will affect the 64% "trivial many," i.e. those holding "safe" conventional mortgages.

According to the FDIC, about 4 million recent buyers are at risk of defaulting. Recent news items suggest 1 million subprime mortgages are already in that category. There are at least 6.7 million subprime loans outstanding, and if 13% are in foreclosure, that's nearly 900,000. We can be confident that a much larger number are delinquent, and that lenders are scrambling to keep them out of foreclosure.

Also recall that 13% of FHA loans--"conventional fixed-rate mortgages"--are already in delinquency. (see Factbook link above for the chart) So while the foreclosure rate on those mortgages is still low--2% or so--the pool of potential foreclosures is large, and increasing.

How close are we to the "tipping point" where a "small" 4% (2 million defaulted mortgages) will cause 64% of the effects, i.e. declines in housing prices? If you total up delinquencies, it would seem we are already well over the 2 million mark. As for 2 million foreclosures--the clock is ticking.

Here's a question that deserves to be asked: if everyone who can afford a house--even those who stretched their credit to the breaking point--has already bought a house, then who's left to buy the 4 million empty dwellings? Please don't say someone who's selling their existing house--they're adding one unit of inventory even as they take one off.

If you add up the facts presented above, it is difficult not to reach disturbing conclusions: there is no way buyers will emerge to snap up 4 million empty homes; the number of mortgages in delinquency is large, and rising, meaning the number of foreclosures in the future pipeline must also rise; once 2 million mortgages/homes are in foreclosure, a "tipping point" may well be reached which will lead to significant declines in all housing values far in excess of the supposedly "contained" "small" number of delinquent / foreclosed loans.

Here's another way to consider the possible Pareto effects: if 20% of the housing stock in the "hot markets" of Florida and the West and East coasts declines in value, then will that cause a decline in 80% of the U.S. home market?

Anonymous said...

Gotta love how we hear after the fact she's been having sleepless nights worrying about housing. All those Fed statements last summer and fall barely made mention of the topic (what was the lingo? moderating market???)

The sleepless nights are coming back soon. Unless she can make several of the other recent resignations and hit the road before the stuff hits the fan...

Anonymous said...

Good thing I have HP where high school dropout paranoid, nazis living in rented apartments can give me the "real" news as opposed to well educated members of the Fed.

Thanks KEIF. Thanks HP. I sleep better at night too knowing nobody listens to you...well except for other nazi, renting, high school dropouts across the land.

Anonymous said...

re 4% theory:

And if a butterfly flaps its wings in Hong Kong there is a 2.3% chance that some crazy shit will happen in Miami.

Come on, this is not a scientifc analysis but a of "what if".

Anonymous said...

She's sleeping better nowadays because she's popping lots of little pills just before beddie-bye.

LauraVella said...
This comment has been removed by a blog administrator.
JAFO said...

That seems to be the ongoing pattern where every few days some Homebuilder CEO, NAR rep or Federal Reserve yutz pulls their head out of their ass long enough to spout this nonsense. Seems to calm a jittery stock market though. How much longer will the general public buy it? I'm convinced most people don't want to see the truth. Also, most of the people I know are too busy with their own lives and concerns to see the wider world. But I'm glad Ms. Yellen is sleeping better. Must be tough to have the butler tuck you in after a long day of whatever it is these useless Fed Governors do.


Anonymous said...

you know, anonymous 9:41..if you are going to steal someone else's work let us at least know

the piece you copied and pasted is by Charles Hugh Smith and was posted yesterday at his blog (which is really excellent)


Anonymous said...

No way am I buying bullshit.

I'm buying put options on home lenders!

Anonymous said...

You put the left foot in and you take the left foot out and you do the hokey pokey and you turn it all about, thats whats it all about. So sayeth Bob toll, the king of dancin' on the bottom!!! LOL

ocholdout said...

Everyone on this list has one thing in common -- they are home owners. Its only natural not to want to lose money. But if you are a public servant or have some corporate responsibility you should be telling the truth.

About the 4% -- all prices are determined at the margins. Stock values are determined by buyers and sellers. What percent of GM's stock is in play to change the price? It doesn't take very much volume to make your HELOC based on fraud and speculation look like a very bad idea.

Mark in San Diego said...

I have always assumed that Fed officials, and other "experts" had access to special or early statistics, and could make good predictions. I now realise that most of us on these blogs, have more access to raw statistics (forelcosures, MLS listings, home sales figures) and MOST important, ON THE GROUND information from bloggers all over the country and world. There are some great housing sites out there that track home prices in cities accross the USA, and give anecdotal information to boot. . .WE are the experts these days, not these out of touch Ivy Tower Fed officials - and CERTAINLY NOT the paid shills from those associations that I won't mention.

sk said...
This comment has been removed by a blog administrator.
Paul E. Math said...

Wasn't Yellen the one who, a few months ago, described parts of Arizona as 'ghost towns' due to vacant homes for sale? But now she's sleeping fine?

I think that either Yellen is making her statements purely to influence public opinion or else her statements have been cherry-picked for the same effect.

She's trying to talk tough on inflation to stave off the vicious cycle of inflation expectations. Yet she states a confidence in housing in order to pass that confidence on to prospective homebuyers.

You can't have it both ways. If the Fed is really concerned about inflation then they may have to actually take action and raise rates. Rising interest rates would cause a rise in mortgage rates and this would be the final nail in the coffin of this housing market.

If I were Janet Yellen I would hope to God inflation doesn't require the fed to increase rates. I would hope so hard that it would cut into my sleeping time, I'm pretty sure. But I'd probably say the opposite in public.

Anonymous said...

Here is how it works boys and girls:
Lend, Inflate, Deflate, Repossess.
Couple(few?) more years of deflating
home values and repossessions will
ensue. The good news is, there is
not much you can do, so sit back,
relax and enjoy the show.

tmaioli said...

I'm sure she makes a lot of trips to Canada for drugs.

Anonymous said...

These people define "housing bust" as a massive sudden price reduction. Its largely semantics since they would call YOY prices declines of 10% or more a "soft landing".

Finally, people are stupid. It takes pretty stupid people to enter into these sub-prime mortgages in order to buy a house that any sane person would acknowledge that they can't afford. Status, Greed and believing what you want to believe even in the face of common sense.

Anonymous said...

Turns out, the so called
"common sense" is not so
common after all... :-)))

Anonymous said...

Ms Yellen must not be sleeping well these day.