Tuesday, February 16, 2010

5 threats to housing this year

Credit Suisse predicts a strong housing market this year, but warns of five threats to it:
  1. Tax credit expires.
  2. Mortgage rates rise.
  3. Foreclosures continue.
  4. FHA tightens lending.
  5. Jobs. There’s risk from a slow rebound in employment.
Personally, I expect four of the five to be issues this year. The exception is #4. The FHA is losing money hand over fist, but is unlikely to tighten lending because as a government institution it has little incentive to act rationally.

Also, the threat of item #2 is inversely related to the threat of item #5.

38 comments:

  1. I wqas thinking about why you said 2 is inversely related to 5? Low job creation indicates low inflation and generally lower interest rates. But aren't mortgage rates driven additional factors than say treasury bond rates? Couldn't high unemployment rates increase default risk in the mortgage market and thus mortgage rates? Anyway, I didn't know the answer and did some quick research.

    http://politicalcalculations.blogspot.com/2009/06/new-correlation-between-unemployment.html

    Apparently, in the past there had not been a correlation between unemployment and higher default rates. But today there does seem to be a correlation. This may be due to the lower lending standards that have been used. So what does this mean for mortgage rates if unemployments stayes high or goes higher? Maybe that rates will go down for the highest quality buyers, but for everyone one else default risk will drive rates up. Or maybe not. I dunno.

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  2. James, I share kahner's puzzlement about the purported inverse relationship between #2 and # 5.

    Are you thinking that mortgage rates will not rise until unemployment is low enough for the Fed to step off the gas?

    I suspect that there will be an event that forces (or should force) the Fed's hand before unemployment begins to fall significantly. There can be no doubt that the Fed is NOT in control of this recession, as it has been of every other post-1930 recession.

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  3. Also agree with Kahner's assessment that increased default risk might affect mortgage rates notwithstanding treasury bond or LIBOR rates.

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  4. What a prognosis! I predict a strong U.S. economy in 2010 but warn that there are five threats to it.

    1. enormous public debt
    2. high unemployment
    3. unavailable of credit
    4. consumer debt
    5. higher interest rates

    Please don't post such ridiculous articles.

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  5. Ajax - wow, my Immundria house dropped 1.2% in value. Its now valued at a mere 0.6% higher than it was back in 2006 when the doomers here told me to sell now or risk losing everything.

    Im devastated. I dont know how I will ever recover...

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  6. "Ajax - wow, my Immundria house dropped 1.2% in value."

    You must be one lucky chap! Because the house in the link below is located in one of the nicest sections of Immundria and it was purchased in 2005 for $926,000 and Zillow now values it at $770,000. That's almost a 20% haircut!!! I guess that house was excluded from the numbers or your house is much more desirable.

    http://www.zillow.com/homedetails/2408-Ridge-Road-Dr-Alexandria-VA-22302/12031932_zpid/

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  7. What's the track record of Credit Suisse for making such predictions? It is better than Roy Buffoon's (fictional character)? I've seen dozens of "authority" figures in the last few years make all sorts of predictions which seemed designed to lose middle class wealth, intentionally. Why quote them or give them attention?

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  8. take all of it with a grain of salt and a eye on the sources agenda. but no reason to totally ignore it. If nothing else, you can view suspect sources statements as anti-indicators if you feel that's appropriate.

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  9. "I guess that house was excluded from the numbers or your house is much more desirable."

    Yep, guess so.

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  10. I would disregard the values of homes after 2004. If the home is valued at a price indicative of a value beyond 2004, ignore it. The fundamentals do not support such a value. The real estate market is in the process of resetting. Once the Fed stops buying the mortgage-backed securities and the tax credit elapses, we will get closer to true market conditions. Until then, buy at your own risk!

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  11. Anonymous said...
    I would disregard the values of homes after 2004. If the home is valued at a price indicative of a value beyond 2004, ignore it. The fundamentals do not support such a value.


    Depends where doesnt it? In the US, where household income rose roughly 20% in the last decade fundamentals do seem dubious.

    In DC where household income rose roughly 30% over the last decade, less so.

    In the Immunozone where household income rose roughly 50%+ over the last decade, even less...

    http://www.census.gov/acs/www/

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  12. Fundamentals dubious? Sounds like a person in a bubble. And you are wrong Mr. Amateur!

    You need to check the Census Bureau’s annual report on income. Median household fell to $50,303 in 2008, from $52,163 in 2007. In 1998, median income was $51,295. All these numbers are adjusted for inflation.

    In the four decades that the Census Bureau has been tracking household income, there has never before been a full decade in which median income failed to rise. (The previous record was seven years, ending in 1985.) Other Census data suggest that it also never happened between the late 1940s and the late 1960s. So your claim is WRONG!

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  13. You need to check the Census Bureau’s annual report on income.

    Uhh thats what he did retard.

    http://www.census.gov/acs/www/

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  14. He gave a general web address...moron. Here's the data in the link below. Now you take the next month to digest it because you are a moron who will need a day to read each page.


    http://www.census.gov/prod/2009pubs/p60-236.pdf

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  15. First anon here - wow - you must be pretty moronic dude. Here is the link for the USA as a whole:

    http://factfinder.census.gov/servlet/ACSSAFFFacts?_event=&geo_id=01000US&_geoContext=01000US&_street=&_county=&_cityTown=&_state=&_zip=&_lang=en&_sse=on&ActiveGeoDiv=&_useEV=&pctxt=fph&pgsl=010&_submenuId=factsheet_1&ds_name=DEC_2000_SAFF&_ci_nbr=null&qr_name=null&reg=null%3Anull&_keyword=&_industry=

    For starters, I am using nominal values here - the types of dollars you use to pay for homes with. That said, as you can see, even with the decrease in income (2007-2008) the median household income from 2000-2008 was

    2000 $41,994
    2008 $52,175
    Diff +24.2%

    Now, see that little box up top where you can type in a city/town or zip. If you say type in Arlington (aka Immunington) VA, you would see:

    2000 $63,001
    2008 $96,390
    Diff +52.9%

    So as I noted before, using the same source as you (the US Census data) it depends very much upon where you are talking about. In the vast unwashed of the USA where incomes are rising moderately (or not at all versus inflation) or in the core immunozone where incomes are exploding (and didnt fall between 2007-2008 like the rest of the US by the way).

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  16. Just curious ... if the mediun household income in Arlington in 2008 was roughly $96,000, then what should be the mediun house price there, for a sustainable real estate market?

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  17. Anon @12:51 Nice smackdown reply at 2:14!

    Anon @1:22 PM - oh how embarassing for you!!! You give a blistering response to Anon @12:51 calling him "Mr. Amateur", yelling in all caps "you are WRONG" so as to embarass and belittle him.

    Yet, as it turns out, anon @12:51 was right. He points out how your reading of the data does not in any way tell you whats going on in the Immunozone, and he proves his point to a T.

    You probably sat there in stunned silence, trying to come up with a witty comeuppance. Yet you cannot. I feel for you. You fell victim to the worst sort of exchange in the blogosphere - call out your opponent, belittle him, only to find out that YOU were mistaken and he was right. Honestly there is no recovery from such an embarassing exchange. Best result is to slink away quietly as I assume you did.

    Better luck next time - BWAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!

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  18. Better luck next time - BWAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!

    I decided to withdraw from the amateur exchange once the amateur said he was using "nominal" dollars. A copout response from an amateur. The amateur must be a fan of Greenspan.

    Even using nominal incomes, housing prices increased much faster than household incomes during the bubble. Some houses doubled or even tripled in value during the bubble. Did your income double or triple during the bubble? Did it moron? You see where I am going or do I need to spell out for you????

    You are an AMATEUR! I am not educating you anymore. You should be paying me a fee! But for this time, I will write it off as charity...

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  19. I never heard of anyone buying a house in nominal dollars. I am a little confused. I thought they used U.S. dollars. Are they the same? If you get paid 30% more than you did 7 years ago, but your expenses have increased 40%, do you have more money today versus 7 years ago? I'm new at this blogging so if anyone can chime in please do.

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  20. "In the US, where household income rose roughly 20% in the last decade fundamentals do seem dubious."

    This is the kind of thinking that got us in this financial mess.

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  21. "I decided to withdraw from the amateur exchange once the amateur said he was using "nominal" dollars. A copout response from an amateur."

    Lol - Oh yeah well the jerk store called, there running out of you!!!

    Dude, just admit you got poned and move on. Theres no shame in it- happens to all of us one time or another. Plus were all anon here - no one will ever know it was you...

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  22. "If you get paid 30% more than you did 7 years ago, but your expenses have increased 40%, do you have more money today versus 7 years ago?"

    In many cases, yes.

    Say in 2000 you made 100K but had 80K. In this case you would have 20K left over to spend on whatever you want.

    If incomes rose to 30% to 130K (100 X 1.3) and expenses rose 40% to 112K (80 X 1.4), you now have 28K left over to spend on whatever you want.

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  23. Anon @ 5:47 nice smackdown of 5:05PM.

    I can see we are dealing with a formidable intellect here - I wonder if 5:05 is also 1:22, is also the same dummy who once thought Montgomery County consisted of only 4 cities?

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  24. OK now I am confused, how many anons are here in this conversation? I am guessing 3 (including me)?

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  25. Anon 8:56 AM:

    "Im devastated. I dont know how I will ever recover..."

    I'm suffering with you... My mortgage company says my escrow is inadequate and they need another $1,019/year for Immundria taxes, something about the value of my place.

    What will I do?

    I know, when the weather is warmer, I'll go to Del Ray for a treat, rib eye steak dinner, or drinks?

    ... I feel better already.

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  26. "Say in 2000 you made 100K but had 80K. In this case you would have 20K left over to spend on whatever you want.

    If incomes rose to 30% to 130K (100 X 1.3) and expenses rose 40% to 112K (80 X 1.4), you now have 28K left over to spend on whatever you want.

    February 17, 2010 5:47 PM"

    I see we have a math scholar at 5:47. Let's look at his brillant calculations. He asserts that you have 28k left over if you made 100k and had 80k in expenses if your income rises 30% and expenses rise 40%. Absolutely brilliant! No wonder people are overpaying for houses. Listen fool, do the math again. You actually have 18k left over not 28k. Go back to 5th grade because that's the level of your math!

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  27. You should be paying me a fee! But for this time, I will write it off as charity.
    antalya homes

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  28. It's nice not owning a shack in Arlandria. A friend of mine bought a place there for 500k. He asked me to come over and check it out. It was an absolute dump. I couldn't understand what he saw in this World War II home. It was very small and the size of the kitchen was that of an apartment. It certainly was not much of a step up. It would be one thing if he was caught in the frenzy of the housing boom and felt that presssure to buy now or forever rent. But he bought this place months ago. Everything is old in it. It's like stepping back into a Brady Bunch episode. I just don't understand. But maybe it was the pride of putting on a Delray bumper sticker that spiked his desire.

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  29. Hey - where is Mo Co only has 4 cities anon???

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  30. "Listen fool, do the math again. You actually have 18k left over not 28k. Go back to 5th grade because that's the level of your math!"

    Math challenged anon here. Let me state this, plainly and clearly, once and all for the record. I WAS WRONG AND YOU WERE RIGHT.

    There, see how easy that was! No skin off my nose - I made a math error, no biggie, im human.

    That said. Take my earlier example and change it from 80% to 70% and the point still holds.

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  31. Good enough. You admitted your error. I raise my glass of Highland Park to you.

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  32. Anon at 7:41 PM

    "It's nice not owning a shack in Arlandria."

    Well said. Everyone gets so caught up in the "value" of the home. Guess what, you still have to live in that WWII piece-of-s*** box that you paid $500K for. Sure it's a short walk to the Metro stop but how do the ramen noodles taste in your circa-1954 kitchenette? And you can always "pop the top" and add a bedroom. I really love the looks of those renovated houses - a sort of "jack in the box" meets "Legoland" design. It's amazing what group think can make people rationalize.

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  33. Regarding using the Credit Suisse analysis as a contrarian indicator... again, what's the track record for suggesting using it that way? Posting information that someone else compiles is the same as acting as their PR puppet, if you don't also include their track record at the same time. If you don't know their track record, please don't post their stuff just because they have a familiar brand name. That's like playing Russian roulette with your readers. Thanks for contemplating this.

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  34. "It's nice not owning a shack in Arlandria."

    Don't know if you're talking to yourself but judgmental envy is not pretty.

    It is not your house. It wasn't your money or decision. Perhaps a 5 minute commute to a Chrystal City job compared to 3 or 4 hours a day from Manassas has value to that person.

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  35. "I see we have a math scholar at 5:47. Let's look at his brillant calculations. He asserts that you have 28k left over if you made 100k and had 80k in expenses if your income rises 30% and expenses rise 40%. Absolutely brilliant! No wonder people are overpaying for houses. Listen fool, do the math again. You actually have 18k left over not 28k. Go back to 5th grade because that's the level of your math!"

    *****

    Not only that, but when you factor in the 40% COL increase, the $18k you have left over at the end of 2007 will only buy $10.8k worth of stuff in 2000 dollars. So your expendable income has dropped by almost 50%.

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  36. Anonymous 1:57, I think you're asking a bit much from a blog. If I want more background on credit suisse's track record, I'll look it up myself. Its not Jame's job to be our personal financial assistant. He saw something on wsj he found interesting and posted a bit on his blog. the end. If you want to look up their track record, good for you. I'd love you to post your findings here. For myself at least, the point of reading blog comments is for people discuss ideas and present some information of their own. Otherwise its just a bunch of anon's complaining, calling each other morons and trying to score "smackdowns". And "That's like playing Russian roulette with your readers."? Don't you think that's a bit dramatic and overwrought?

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  37. oh, and kanishk ? Really? there wasn't anything else available that would be a little less confusing.

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