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Thursday, July 31, 2008

Housing/Subprime/Credit Roundup — July 31, 2008

Items of Interest:

Alan Greenspan the bartender, who got Wall Street drunkCNBC:
Greenspan: Housing, Economy Still Far From Recovery -- Former Federal Reserve Chairman Alan Greenspan said the US is “nowhere near the bottom” of the housing slump and is “right on the brink” of a recession.

In an exclusive interview on CNBC, Greenspan said the US economy is holding up “rather well” considering the “extraordinary pressures from the financial sector.” But he added that a recession appears inevitable.

“I think we’re right on the brink,” he said. “I’d be more surprised if we didn’t than if we did, given the financial state.” . . .

He also warned that "Fannie and Freddie are a major accident waiting to happen."

"I think the ultimate solution is a nationalization of both Fannie and Freddie and I hope a restructuring in that nationalization," he said. "And then split them up into five or ten separate entities and sell them back into the market." ...

"I Said What?!" -- A look back at nine unforgettable statements by bank chief executives who would strike them from the record if they could.
"The mortgage market is going to be a great market in this country for a long time. We've got population growth. We've got people who are always going to want to live in homes that they own. It's going to be a great market."
—Wachovia C.E.O. Ken Thompson on CNBC trying to convince Maria Bartiromo that its $25 billion of Golden West Financial was a smart move, May 15, 2006. Thompson lost his job at Wachovia on June 2, 2008
California's Discount Foreclosure Sales Point to Housing Bottom -- California led the U.S. into the worst housing recession since the 1930s. Now the most populous state may be the first to find the bottom.

In Stockton, the U.S. metro area with the highest foreclosure rate, home sales more than doubled in the second quarter after prices fell by an average 37 percent, said PMZ Real Estate Corp., the area's largest broker. Across the state, sales rose for three consecutive months starting in April after 30 straight months of declines, the California Association of Realtors said. About 40 percent of those transactions were foreclosure sales, DataQuick Information Systems reported.

``California is having a wrenching decline in wealth, but this is a cathartic event that will lay the foundation for a recovery,'' said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, in an interview. ``This signals the beginning of the end.'' ...
Andrew Jeffery / Minyanville.com:
Housing Woosh, Part Deux -- Reports are out this morning opining that Stockton, California represents a new hope for housing recovery. Hoping Stockton will lead the housing recovery is about like saying Alex Smith will lead the niners to the Super Bowl. It lacks a link to reality.

The recent rise in home sales transactions, especially in high foreclosure areas, is primarily attributable to the billions of dollars raised by hedge funds and other distressed investors. They're starting to get pressure to put the money to work. It's not evidence homebuyers are stepping back into the market.

Funds are trying to arbitrage the house, buy it at 60 cents on the dollar from a desperate bank and sell it for 80 on the open market.

The problem is, the marginal home buyer in those areas does not have the 20% down payment it now takes to buy a home, even at 'discounted' prices.

Transactions may rise, but mortgage backed securities don't pay bond holders with realtor sales commissions.

If the bottom is called by the right media outlets, sellers still waiting on the sidelines will flood the market, trying to get out in a market that's not completely frozen.

Woosh, part deux, coming to a housing market near you in early 2009.

Hedge funds investing in delinquent mortgages -- Many claim that they can alter terms of loans much easier than banks

Guess who holds your mortgage now? It's your friendly neighborhood hedge fund.

Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted in value as home values sink and defaults soar...
Will the housing-rescue law help you? -- Legislation aims to help more borrowers avoid foreclosure

Questions and answers about the Hope for Homeowners Act of 2008, signed into law by President Bush Wednesday to try to steer as many as 400,000 struggling homeowners away from foreclosure:

Q: What exactly will the legislation do?

A: It will allow those who qualify to cancel their old mortgage loans and replace them with 30-year fixed-rate loans for up to 90 percent of the home's current value. The FHA will insure a total of $300 billion of the loans over a three-year period...
Bush Housing Law: Cheap Compared to the Alternatives - Rick Newman, Seeking Alpha
Housing Doom blog:
Illegal Population Plummets- Housing Vacancies Will Rise -- This [decrease in illegal-immigrant population] will have an adverse affect on the housing market. This represents a large number of renters, homeowners and consumers who are no longer participating in the U.S. economy. This population outflow can only serve to increase foreclosures, as some homeowners leave the U.S., and landlords have more difficulty renting out their properties.

Whatever your opinion on immigration issues, this can only spell more problems for housing.
NY Times:
Terrible Timing for a Hotel Boom -- A record number of hotels are opening this year, and the timing could not be worse...

Until recently, the industry was in the midst of a major boom, and it was during those good times that the hotel companies made plans to build many of the new rooms...

Nationwide, hotel occupancy levels have been hovering around 65 percent, down about 5 percentage points from last year, according to Smith Travel Research...

The industry now has about 6,000 new hotels, with nearly 800,000 rooms, under development, a 27 percent increase from last year, according to Lodging Econometrics ...
America's Most Overpriced ZIP Codes -- In San Jose, Calif., home to Silicon Valley and some of the highest home values in the country, a bumper sticker reads, "Dear God, one more bubble before I die."

Chances are the car's driver lives in Willow Glen, a neighborhood with a small-town feel, Spanish-style single family homes and a main street with sidewalk cafes and locally owned shops. To live there, residents are paying the city's highest prices relative to what they could pay to rent similar properties in the same area. When you compare mortgage payments to the value of a similar home on the rental market, the price to buy is 26.1 times higher, one of the biggest differences in the country.

Willow Glen is one example of a neighborhood where homeowners are still taking chances on future appreciation--and paying a premium above and beyond their neighbors for that confidence. . .
Seeking Alpha:
Breaking Down the Case-Shiller Index -- "Home prices down a staggering 16%!" and "Property values plummet!" are what the headlines read after the Case Shiller report was posted on Tuesday, July 29. Perhaps, it is the media's obsession with de-moralizing investors, or maybe it is our custom of judging all of our economic reports on a year over year basis, but we urge investors to take the headlines with a grain of salt (they are just trying to get your attention). Homebuilder stocks climbed 7% on average on Tuesday during trading following the report because, believe it or not, it was good news.

The May Case Shiller index, which measures average home prices taken from a sampling of 20 U.S. cities, was down 15.8% from last May, but was only down 0.9% from April. The last time the index saw such a small month to month decline was in September 2007. In today's housing market, falling prices are completely expected, and the fact that the decline decelerated in May is a slightly positive step towards a correction.

A key part of the report is that seven out of the twenty cities sampled showed month to month price increases. Denver, Atlanta, Boston, Minneapolis, Charlotte, Portland, and Dallas showed modest improvements. These results show a regional nature of our nation's housing crisis. It is the areas such as Las Vegas, Miami, and Los Angeles, which were, and continue to be, the hardest hit regions...

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia