CNBC housing discussion

No more housing ATM

From yesterday's Wall Street Journal:

Many ... Americans have been forced to accept that they'll be living in their current place for a long while, even if they'd planned to flip or trade up. While sales of low-cost housing are picking up, for many, a house is back to what it traditionally was: a long-term financial commitment, a sturdy shelter and a place to hang your hat.

Happy anniversary!

It feels like it's been much more than just one year.

Whitney: Home prices to fall another 25%

Star bank analyst Meredith Whitney predicts home prices will fall by a quarter from current levels:

Home prices in the US could fall by another 25 percent because of high unemployment and another leg down will come for stocks, banking analyst Meredith Whitney told CNBC Thursday.

"No bank underwrote a loan with 10 percent unemployment on the horizon," Whitney said. "I think there is no doubt that home prices will go down dramatically from here, it's just a question of when."

Local governments and states are chronically under-funded and "most states are under water," adding to the problem of low private consumption, she said.

"If you look at the drivers for unemployment I don't see that reversing very soon," Whitney said.

More homeowners cutting their asking prices

More people are cutting their asking prices when trying to sell their home:

More than one in four U.S. homes for sale on Sept. 1 had their prices cut at least once since landing on the market, up slightly from a month earlier, a study showed on Friday. ...

Driving the increase was the pending expiration of the government's $8,000 tax credit for first-time home buyers — part of the stimulus bill — and summer months which are the peak sales period, according to data compiled by Trulia.com.

The average discount was 10 percent from the original price, unchanged from August. On average, sellers dropped their price by $39,378, Trulia said. ...

Home sellers looking to sell their property before the tax credit expires in November will continue to cut prices in hopes of attracting home buyers in search of discounts, [Trulia co-founder and CEO Pete Flint] said.

The Google Real Estate Index

Here is a graph of Google searches for real estate–related terms since the beginning of 2004, a sign of interest in the topic:


Google's description of the data being measured:

The Google Real Estate Index tracks queries related to "real estate, mortgage, rent, apartments". ... The index is set to 1.0 on January 1, 2004 and is calculated and displayed below as a 7-day moving average.

Recession perhaps not over

Last month, as the unemployment rate took a reprieve from its upward spike, I speculated that the recession might be over. Friday's release of the August unemployment rate showed a resumption of the upward spike, suggesting that the end of the recession may be yet to come.

Here's a graph of the official unemployment rate over the past ten years. Gray bars indicate recessions:


Here's a graph of the official monthly job loss numbers during this recession:


For conspiracy theorists who don't trust the government, here are the job loss numbers from the private ADP Employment Report. Notice that ADP measures job losses in August as being roughly 50% higher than the BLS numbers:

End of housing crisis is a "mirage"

Fortune says the housing recovery won't last:

Earlier this year, as many as half of all transactions nationally were resales of foreclosed properties, largely at low prices. Since then, so-called organic sales (those not involving distressed properties) have risen while foreclosure sales have remained stable. This improved mix — together with cheap financing and a couple of popular tax incentives — helped to revive prices in some hard-hit areas. ... But with schools opening up again and the summer home-selling season winding down, sales by nondistressed sellers are likely to fall in coming months...

Adding to the pressure on prices, the end is in sight (or already here) for some popular housing subsidies. An $8,000 federal tax credit for first-time home buyers is due to sunset in December. A $10,000 California tax credit for buyers of newly constructed houses expired last month.

Another concern is that the housing woes appear to be spreading well beyond the questionable borrowers who were at the center of the first stage of the financial crisis. ... Prime fixed-rate mortgages now account for about a third of foreclosure starts, according to the Mortgage Bankers Association. ...

The pace of foreclosures could soon accelerate as mortgage servicers catch up on foreclosures they have delayed while grappling with new mortgage modification guidelines.

Here's a self-serving, tax-dollar wasting idea I wouldn't complain too much about, because it would increase the housing supply, thus pushing equilibrium prices down further:

[Toll Brothers CEO Robert] Toll argued that a four-month program that offered people $15,000 vouchers for new home construction could "put twice as many people to work, twice as fast as what's being done with the auto industry."

New mortgage crisis coming?

WSJ: Commercial real estate could knock out the recovering economy:

Federal Reserve and Treasury officials are scrambling to prevent the commercial-real-estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat.

Their efforts could be undermined by a surge in foreclosures of commercial property carrying mortgages that were packaged and sold by Wall Street as bonds. ... The $700 billion of commercial-mortgage-backed securities outstanding are being tested for the first time by a massive downturn, and the outcome so far hasn't been pretty.

The CMBS sector is suffering two kinds of pain.... In the era of looser credit, Wall Street's CMBS machine lent owners money on the assumption that occupancy and rents of their office buildings, hotels, stores or other commercial property would keep rising. In fact, the opposite has happened. The result is that a growing number of properties aren't generating enough cash to make principal and interest payments.

The other kind of hurt is coming from the inability of property owners to refinance loans bundled into CMBS when these loans mature. By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won't be able to extend existing mortgages or replace them with new debt. ...

CMBS, of course, aren't the only kind of commercial-real-estate debt suffering higher defaults. Banks hold $1.7 trillion of commercial mortgages and construction loans, and delinquencies on this debt already have played a role in the increase in bank failures this year. But banks' losses from commercial mortgages have the potential to mount sharply, and the high foreclosure rate in the CMBS market could play a role in this. ...

Mounting foreclosures in the CMBS sector would likely depress values even further as property is dumped on the market.

More Robert Shiller!

Here's an excellent article by Robert Shiller, but not about housing.

Note: Prof. Shiller plugs his book, Animal Spirits, which also happens to be on Harvard professor Greg Mankiw's econ reading list.