March 21, 2007

What goes boom must go bust - U.S. housing collapse comes as liquidity dries up

There are days when reading the headlines is like reading "Manias, Panics and Crashes". It's all just so damn OBVIOUS. At least to HP'ers...

Like night follows day, credit crunches and panics follow gleeful financial manias. And now we're here.

My question is, now that a credit crunch and contraction of historic proportions is to come, will the Fed start cutting rates?

NEW YORK (MarketWatch)

Official news over the last several weeks that lenders from Countrywide to Freddie Mac would be tightening their lending standards in the subprime sector of mortgage originations positively begs the question: what's changed?

But before we can attempt to limn even the faint outlines of the answer, we need to countenance the conclusion that such question asking as: "Do you have an income?" and "Can I see proof?" has one and only one effect on credit supply and demand: a decrease.

And that means liquidity is drying up in the mortgage market.

Which means someone is stuck with $2,350 per month in maintenance, taxes, insurance, and mortgage costs on an 'investment property.' And $3,775 when the re-set comes in late 2007.

Whomever it was that first came to his/her senses in this credit madness is moot; it's the fact that his/her action -- that mortgage banker, that CDO trader, whoever -- catalyzed the opposite trend toward probity.

Booms turn to busts not because something 'happened.' They turn to bust because there is simply no other path.

It is said that when men go mad they do so all at once. But they gain their sanity slowly and one by one.

That credit supply is being tightened means we've passed the 'one-by-one' stage and we're approaching 'all-at-once.'


Anonymous said...

Just got a primary residence home and no doc stated loan that will be a rental. money is still very easy. I do not see prices coming down in the area's i'm familiar. LA, salt lake, austin , maui hi, seattle bainbridge island. I hope and it seem prices are way to high but people keep getting crazy loan which are prolonging the inevitable. But i don't see the drops.

Anonymous said...

sell your house ASAP!

Anonymous said...

This ain't gonna be pretty...

Anonymous said...

Tuesday, March 20, 2007
Tracking Phoenix/Maricopa & Pinal Counties
Population 2006: 4 million
1/30 Listing per population ratio 1:123
9/30 Listing per population ratio 1:73

01/06: 32,512 (5,260)___01/05: (9,360)
02/06: 36,176 (5,460)___02/05: (7,935)
03/06: 39,852 (7,265)___03/05: (10,035)
04/06: 44,290 (5,980)___04/05: (8,735)
05/06: 47,187 (6,870)___05/05: (10,425)
06/06: 50,974 (5,460)___06/05: (11,545)
07/06: 52,662 (5,545)___07/05: 11,656 (10,200)
08/06: 53,253 (5,685)___08/05: 15,042 (10,700)
09/06: 54,731 (4,875)___09/05: 18,799 (9,815)
10/06: 54,629 (4,985)___10/05: 23,770 (8,420)
11/06: 53,264 (5,040)___11/05: 26,811 (7,195)
12/06: 50,477 (4,620)___12/05: 27,455 (6,480)

Population 2007:
01/01 Listing per population ratio 1:83

01/01: 48,213
01/10: 50,152
01/20: 51,671
01/31: 51,913 (4,520)___01/06: 32,512 (5,260)
02/10: 52,926
02/20: 53,324
02/28: 53,598 (4,280)___02/06: 36,176 (5,460)
03/10: 53,965
03/20: 56,053

Previous Record high inventory: 54,731 homes, Sept 2006.
Previous Record high inventory: 43,000 homes, ~1995.
Arizona Republic 6/10/06

Population 1995: 2.7 million
Listing per population 1995 1:63
Population adjusted record high inventory: 63,492

FlyingMonkeyWarrior said...

They will hold again. Inaction is action. Now we watch and wait.

Peahippo said...

Let's not forget that BuilderBastards™, LenderLice™, RealtWhores™ and particularly PoliticalPukes™ will try all possible avenues of reflating the bubble. Reflation happens every time a bubble collapses, now. The PoliticalPukes™ are the most dangerous of the set, since their actions have far-reaching effects. For example, Senator "Clintoon" wants to hugely extend the delay before a foreclosure happens. 6 months?!?! That will just lead to more of a market push by the RealtWhores™ since they will slyly point out you have greater protections from foreclosure "before prices return to rising at the normal 15% per year". 6 months is also a huge gift to the CreditSquatters™ who never intended to pay off the mortgage in the first place, as well as the far worse MortgageFraudsters™ who can capitalize on each day as a gift to enact further crimes and avoid law enforcement (who are still not that interested in pursuing mortgage fraud, please note!).

From the reality of reflation, we haven't even hit the "false recovery bump" past the peak of the bubble. We're in that tiny down trough between those two local maximums. The MSM is positioning sob story after sob story in order to prepare us for a legislative bailout of some kind. Be prepared for it ... so that prices will recover somewhat, and then the REal downslide starts.

Personally, I can wait. The longer we wait, the more probable we end up with the dead homeless people and long bread/soup lines that America has been putting off for a generation. America is heading inexorably for a new Depression; it's now just a matter of dates. Accept it.

Anonymous said...

Things to remember:

Many loans do not require any documentation for income, assets, even employment. Whether you are unemployed or have no credit at
all, there is usually a loan for everyone.

Everyone Is Different:

From written employment verifications to just 1099's where the client had no credit score and still financed 100% of their purchase price, we can help you.

This is from a mortgage broker's website. Incredible.This is the root of the problem.You know this guy is eating ketchup on bread sandwiches for dinner.Would you want your broker to have a tax lien.LOL!

veritas_faust said...

I suppose it is like the tulip bubble. One day someone just didn't show up to buy their tulip.

It went to Hell from there.

Richard said...

Like night leads to is just so obvious eh Keith?

Like overshoot (look it up) leads to die off...


Veronica Lodge said...

My question is, now that a credit crunch and contraction of historic proportions is to come, will the Fed start cutting rates?

The Fed can cut rates to 0% and it won't make any difference if home debtors can't qualify for new loans. Stated income, interest only, negative amortization and teaser rate will become archaic terminologies.

The funny money will dry up, making it impossible for many debt-box "owners" to refinance. Those able to secure loans will qualify for less money, so equity will once again become an important factor in securing financing.

A tighter money supply will cause home prices to drop substantially.

Stuck in So Pa said...

Ben will do nothing, except sit.

Raise, housing tanks faster than it already is, people loose paper wealth, stop spending, America's consumer driven economy collapses.

Don't raise, housing still tanks but at a slower rate, dollar slides even further against foreign currencies, consumer has money but can't afford to walk thru the doors of Wal Mart, stops spending, America's consumer driven economy collapses.

Poor Ben, proverbial rock and hard place scenario. Sucker!

Nothing Ben can do but DO NOTHING and pray for a miracle.

bozonian said...

Los Angeles will be the grand finale.

This quote from the sinking of the Titanic seems apropos:

"And then with all these there fell on the ear the most appalling noise that human being has ever listened to -- the cries of hundreds of fellow-beings struggling in the icy cold water, crying for help with a cry that could not be answered."

Any questions?

dwr said...

"For example, Senator "Clintoon" wants to hugely extend the delay before a foreclosure happens. 6 months?!?!"

Which would make lenders tighten even more.

GT said...

wow, now they are changing their tune..
"When it comes to real estate, timing is everything. And if you're buying this year, your timing is perfect."

i thought location was everything?

Anonymous said...

"I suppose it is like the tulip bubble. One day someone just didn't show up to buy their tulip."

gotta love this quote from Wikipedia:

"Attempts were made to resolve the situation to the satisfaction of all parties, but these were unsuccessful. Ultimately, individuals were stuck with the bulbs they held at the end of the crash—no court would enforce payment of a contract, since judges regarded the debts as contracted through gambling, and thus not enforceable in law."

hopefully, I won't have to foot the bill!

Anonymous said...

Sell fast or watch any home equity left just go poof!


Anonymous said...

I don't think the Fed will hint at a rate cut this week. The market is so sensitive right now even talk of a rate cut could ripple through the economy and send inflation numbers back up. It's better just to let it simmer for another 60 days then send us a cut in May. What a gift that would be!!

Anonymous said...

Working Drones of america how's debt slavery?

Gooottaaaa of make the DONUTS!

Anonymous said...

Read this MSM story (from San Jose) of how the credit tightening has effected potential buyers:

The scary part though, is to realize that the housecleaner STILL got the loan, only now paying a HIGHER interest rate! Despite all the MSM reports of the sub-prime collapse, lenders and RE agents are STILL adding more fuel to the fire!

No, we haven't even managed to start patching leaks, as long as unscrupulous LO/brokers?agents continue getting THEIRS. The entire system is corrupt, and these types won't stop originating toxic loans until someone pries the computer and cell phone from their hands to lead them off to their jail cell....

PhuckTheFlippers said...





brokersleaveyoubroke said...

dwr said...
"For example, Senator "Clintoon" wants to hugely extend the delay before a foreclosure happens. 6 months?!?!"

Which would make lenders tighten even more.

Exactly. One reason credit cards are so easy to get is that the new, tougher bankruptcy laws make it a lot more difficult to write off those debts. If congress makes it more difficult for banks to collect on a mortgage then the banks will be very careful who they lend money to.

Anonymous said...

In regards to interest rates, thankfully I read up over the years and know the reality rather than the rediculously spewed BS some of you are throwing out.
1. Bernanke and the Fed do NOT control long-term rates. Those are being supported by foreign countries buying our bonds/debt. The Fed raised interest rates a good 4+ % in the last 2-3 years, and mortgage rates have gone up maybe 1% in that time - so you really need to learn to read.
2. I used to be in the boat with you, assuming a 50% crash in prices. Realistically, in a market that is supported by population/jobs/etc, you'll see 10-20%, a traditional correction in stock market terms. Now for areas like Phoenix and Vegas where people were just being stupid...
3. You're going to see record price-stagnation for years after the drops. The actual price-dmg should all be done this year, with stagnation causing real/adjusted-dollars values to drop for years.

Anonymous said...

Its coming

Anonymous said...

Cutting $ rates will lower the value of the dollar. This will lead to an unwinding of the Yen carry trade. This will cause a massive call on those exposed to the yen carry trade causing a huge sell-off of assets (that's why the stock market fell so dramatically a few weeks ago). ALL asset classes will drop: dollar, oil, metals, bonds, stocks. This will initially be very deflationary but will be shortly followed by hyperinflation. Oil will rise fast as we go down the other side of the peak, gold/silver will explode upwards as people pour into these assets as fiat currencies collapse. Mining stocks (HL, GDX etc.) will shoot to the moon. It's going to be a very painful experience for the sheeple watching Seinfeld!

Anonymous said...

A Housekeeper buying a half million dollar home!?!?

I'm in the wrong line of work. I thought I was doing fine as an IT Analyst.

dcydell said...

This cnnmoney story is so funny/scary (The DOW up 159 on lies of omission.):

“Stocks party post-Fed.
Dow up about 100 after central bank holds rates, softens language; no mention of subprime seen as a positive.
March 21 2007: 2:47 PM EDT
NEW YORK ( -- Stocks rallied Wednesday afternoon after the Federal Reserve held interest rates steady, as expected, and downplayed the impact of the fallout in the subprime lending market by not acknowledging it.”

keith said...

cash will be king

Peahippo said...

Firstly, the Fed will try to keep rates even for as long as possible. It's been well explained that the little snakes can't lower or raise the rates since they're really, REALLY screwed regardless. So, they do nothing.

Secondly, although I can well imagine that implementing a 6-month moratorium on foreclosures would give lenders the impetus to tighten up crediting, that's the SENSIBLE thing, and the credit-supply market has been enormously insensible for the last 6 years. So, I just have to disagree. The lenders have been riding along with their marking of profits from the housing bubble, and all of a sudden, they have to present a fall in that revenue to their shareholders? I don't buy it. Hence, I also don't buy that a foreclosure-moratorium will cause credit tightening per se. This is the same skepticism about the so-called current credit tightening in the lender market. Since THEY are the ones who define what a "repayment" is, they can always become more esoteric. We haven't seen them fully delve into exotic (hence, TOXIC) loans. For example, they can further push soft-equity accounts (sorry if I'm making up terms here) that allow a homedebtor to outright write checks against their mortgage balance. Imagine effectively making HELOCs as easy to open and use as a credit card, and then further imagine making soft-equity accounts as widespread as high-LTV loans have become.

The current credit-tightening environment is just a bit of theatre. We haven't reached the point of "false recovery" yet. Once the minor uptick happens, "credit standards" will be for MSM consumption, while behind the scenes in each f*cked-up mortgage, an even more exotic animal will be in motion. Largely, we'll only be able to see the full extent of that once the downside to the false recovery happens, and then there will be another faux uproar in the Congress about it. There may even be ANOTHER false recovery, as a lesser maximum (as the false recovery itself is a lesser maximum to the full peak of the Housing Bubble). Prices don't just collapse on the way down; as they went up in incremental profits absorbed by each seller, so then they will do down, as incremental losses absorbed by each seller.

Peahippo said...

There is so-so article over at the OC Register:

I posted the following as user "Better Renter" ... well, I tried to mostly, since the online posting form at the bottom had an unbelievable number of restrictions; basically, you could only post a-z, A-Z, 0-9, period, comma, question and exclamation marks. It was the most restrictive posting form I've ever used, and it's like the OC Register was using a Commodore64 to handle its input data or something. Obviously, it doesn't want people to interact intelligently on its articles. How very much like the MSM!


Once again, like all the mainstream media, the OC Register cannot be honest about the state of the Great American Housing Bubble, since if they ARE honest about it at any time, all it would take is a few phone calls from a couple of their major realtor advertisers, then somebody gets fired at the OC Register and all the rest of the so called reporters will well know not to ever try THAT again. The RE market is completely corrupted and, simply put, strongly controls what the MSM reports.

Specifically, the OC Register is not being honest when it says

QUOTE Typically, a prime buyer puts up about 20 percent down on a house, has a good credit score and has sufficient income and low enough debt to handle the payment. UNQUOTE

The MSM cannot admit that the subprime mortgage market is only the tip of a terrible iceberg. Toxic loan terms have infected MOST recent mortgages, from subprime to AltA and even to prime. When offered the chance to get the same loan terms but at less money down, more and more people took those terms. So, it is not like we DO NOT have millions of so called prime loans at very high LTVs. Too often, in the prime market, FICO scores were given much more weight than other, sensible factors like incomes and stable payment terms.

The subprime implosion is just a result of the 2005 and 2006 ARM resets. These resets are only going to continue to occur throughout 2007 to 2011. The next mortgage market sector to show MSM noticeable weakness would be AltA, where stated incomes, high LTVs, teaser rates and no documentation were frequent terms. I am sure the OC Register will express the same mollification language at that time, too, as the resets roll onward into the prime market without a pause.

The crash of the Great American Housing Bubble is throwing the nation into an actual Depression. We are going to have dead homeless and soup lines because of this. These terrible things are coming since you simply cannot survive paying off a 450K mortgage on a 50K income while your job is in constant danger of being offshored. No one can honestly say the prime mortgage market is secure, hence no mortgage is secure, hence the entire economy is going to collapse.


Anonymous said...

cash will be king, if there is any left with its measly returns of the last years, that borrowers made hundreds of percents and lenders made low, low single digit returns, below inflations, for short terms and singles for long terms

Anonymous said...

the whole jig is fixed, rigged and now its the homeowners chance to take the nasdaqs route?, or the dows, 50% down and a almost break even seven years later, but not purchace powered patity? maybe?, or commodities
? go sky high, along with the carrying costs, unless you avoid the planned redistributions of wealths, and the profiteers of the economic destructions. ptb

JAFO said...

Someone please show me a lender that has actually tightened thier standards. I keep reading about it. I keep hearing about it. But I ain't seeing it. Still plenty of commercials on radio and print looking to throw money at anyone with a pulse.


Ben Dover said...

Prices don't just collapse on the way down; as they went up in incremental profits absorbed by each seller, so then they will do down, as incremental losses absorbed by each seller.

What if there are no (or few) any price? Are there enough stupid people to keep the boat afloat?

Anonymous said...

JAFO said...
Someone please show me a lender that has actually tightened thier standards. I keep reading about it. I keep hearing about it. But I ain't seeing it. Still plenty of commercials on radio and print looking to throw money at anyone with a pulse.

Those lenders that have gone out of business and/or received cease & desist orders from State/Fed banking authorities to stop making loans.

i.e. only when outside forces compell them to stop are they stopping. The MBS/CDO securitization mechanism has uncoupled origination standards from responsible lending because the originator will not be holding the bag. Until the system is reformed at this pressure point you will still see irresponsible lending because the fee income in the here & now and the potential of huge interest revenue streams from toxic loans (which is purely an illusion because of the non-existant lending standards) stokes too much greed to be stopped on an individual/personal responsiblity level.