25-Aug-10 News -- Existing home sales plunge 27%
** 25-Aug-10 News -- Existing home sales plunge 27%
** http://www.generationaldynamics.com/cgi ... 25#e100825
Contents:
"Existing home sales fall 27%, shocking analysts"
"Additional links"
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25-Aug-10 News -- Existing home sales plunge 27%
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Guest
Re: 25-Aug-10 News -- Existing home sales plunge 27%
The important question is not if we are in a sharp housing downturn, the important question is how much longer it will last? I'm figuring four to ten years, but the population dynamic seems to imply a longer period. John, what's the GD take on how long till housing starts turn up?
Re: 25-Aug-10 News -- Existing home sales plunge 27%
John, if they said that chart where you drew the line was a 20 year chart, they were lying. If you look at the peak on the chart, which was about 2006, you can recognize it as a history of the NAR data they started compiling in 1999. Everything the NAR does revolves around data compiled from the early 1/3 of the bubble onward. It gives the appearance that the bottom is in. I have seen more reliable figures, where existing home sales had never exceeded 4 million prior to 1997. This is the first month this millinium they have fallen under 4 million. What that means is we have been continually looking at bubble activity this entire century and it is finally deflating. They have run out of qualified buyers and speculators. The lowest new home sales were 1981 and 1982 when about 400K were sold. We have been under that. Existing home sales in those years bottomed at 2 millon. This will be a much worse market than that. Remember there was an inflation psychology then and there were a lot of tricks pulled to get people into homes then. Affordabilty went in the crapper then.
To show you how long the housing bubble went on and to validate your theory it started in the mid 1990's, read this. http://www.safehaven.com/article/209/fr ... l-planning
Date was October 19, 2001, but it went back into the massive growth of FNMA and FHLMC in the 1990's. Plus, these outfits provided the cash to have the stock bubble. This is why the current situation is so dire. The bankers need home and real estate equity to produce credit and they burned up the housing equity in the bubble. The bubble doubled prices and doubled debt, the debt being the driver of the price. Debt remains and the equity is now gone.
Here are some excerpts. The lower portion is a transcript of a speech Franklin Raines made as head of FNMA
Fannie Mae saw its net income jump 22% (y-o-y) to $1.38 billion. Total "business volume" (mortgage purchases) increased almost 140% from last year to $159 billion. Year-to-date, Fannie has made purchases of almost $430 billion, more than double last year's pace. Fannie's total book of business increased $67 billion, or at a 20% annualized rate, to surpass $1.5 trillion. Outstanding mortgage-backed securities expanded at a 24% annualized rate, while Fannie's retained portfolio grew at a 14% annualized rate (growing only 5% during September). Total assets expanded at a 15% rate to $767 billion, having increased more than 5-fold in ten years. Fannie purchased 1.7 million of its shares during the quarter. Over the past year, Fannie and Freddie's combined total book of business (retained mortgage portfolios and their guaranteed securities held in the marketplace) has jumped $417 billion, or 19%, to $2.61 trillion. At the same time, combined shareholder's equity has increased less than $3 billion to about $36 billion.
How Mr. Howard (with his company taking full advantage of its unlimited access to the markets) can claim, "Fannie Mae's relationship with the government does not convey a unique advantage" with a straight face is quite a feat. And I wonder if their "disaster scenario" and "capital stress test" incorporates the inability to roll its short-term debt, or a systemic problem in the derivatives market. But I find it just as curious that any mention of hypothetical Federal Reserve ("repo") purchases of U.S. stocks seems to incite a strong emotional response, while the virtual nationalization of the entire U.S. "conventional" mortgage financing market progresses with nary a tepid protest. It is my view that one of the least generally appreciated financial and economic aspects of the post-WTC financial landscape is the marketplace's adoption of absolute federal government backing for the GSEs (as evidenced by collapsing credit spreads!). And while I never expected anything less, I had anticipated that such a resolution would likely come after (or in the midst of) a break in confidence within the agency market (perhaps related to a dollar, derivative, or other systemic dislocation) - that explicit federal government backing would be instigated after an episode of serious systemic crisis. Garnering the government's full backing while the GSE Bubble is very much intact - better yet, in the midst of an unprecedented lending boom - is a much different circumstance with momentous and disturbing ramifications. All indications are that the GSEs have been granted carte blanche, and they have proved without a doubt that they will move aggressively to capitalize. With this in mind, I would like to highlight some of the comments made Monday by Franklin D. Raines, Chairman and CEO of Fannie Mae, at the Mortgage Bankers Association's 88th Annual Convention.
"Bottom line, we project that consumer demand for residential investment could double in this decade, from $11 trillion today, to $21-$25 trillion by the year 2010. This would cause demand for mortgage capital also to more than double, from the current $5.4 trillion to $11-$14 trillion by 2010. The 1990s were a terrific decade for housing. This decade could be even better. Let me walk you through how we derived these optimistic projections. First, in the near term, while the economy is in a downturn right now, the economic stimulus from Washington - the rate cuts, tax cuts, and the boost in spending - will probably make any recession we have short and mild. At the same time, because interest rates are already low and still falling, the impact of a slowdown on the housing market is expected to be less than typical. And the surge in home refinancing is giving a boost to the overall economy. In fact, a New Economic paradigm seems to have taken hold. Traditionally, whenever the economy caught a cold, housing got pneumonia. Now the opposite is occurring - housing tends to do better than the economy. One explanation is that in good times and maybe even more in bad times, owning a home is a powerful draw and a safe, strong investment…"
"The third driver (in addition to population growth and rising homeownership rates) that will boost residential investment in this decade is that we expect continued healthy growth in property values. History is on our side. Since World War II, property values - on a nationwide basis - have grown almost every year, and often faster than inflation. This trend will probably continue…we could see total home price gains of between 5 and 6.5 percent per year over the decade…your average $150,000 home today would be worth over $250,000 in 2010. In total dollars, consumers right now have about $11 trillion invested in residential housing. If that amount grows by 7-8.5 percent a year, by 2010, residential investment will reach a total of $22-$25 trillion. That raises an important question for the mortgage industry. How will homeowners choose to fund this $22-$25 trillion investment?"
"Over the last 50 years, homeowners have steadily increased how much of their home they choose to finance. In the early 1950s, the average debt-to-value ratio in America was just about 20%… By 1980, the average debt-to-value ratio had grown to roughly 30 percent, and by 1990, it was 40%. Now the ratio is 47%. What is driving this trend? There are two major factors. First is the revolution in flexible, low down payment lending, thanks chiefly to automated underwriting and the success of mortgage insurance. Nowhere else in the world is it more possible for the average family, without a vast reservoir of cash reserves, to become a homeowner. Low down payment lending has democratized homeownership in America. Secondly, in the meantime, the average homeowner has become more sophisticated about managing his home equity wealth as it grows, and our housing finance system has been making it far easier to do that. Where it used to take a month or more to refinance your mortgage, for instance, it now takes about a day. This has been great for the economy. And because property values have continued to grow, homeowners can tap their equity wealth without increasing their overall debt burden…
"The trend of increasing debt-to-value ratios is likely to continue as homes continue to appreciate, and our industry offers even better ways to allow homeowners to harness that wealth. And this trend will further boost the demand for mortgage credit. In fact, if you take the projected growth in residential investment, and factor in the projected growth in debt-to-value ratios, the demand for mortgage credit - the demand for what everyone in this room supplies - would grow an average of 8-10 percent per year for the rest of the decade. In other words, our market will grow faster than many of the country's fastest growth industries…At this rate, bottom line, mortgage debt outstanding, our market - which right now totals about $5.4 trillion - would more than double in size and reach $11-$14 trillion by the year 2010. So much for the talk about the decline in housing. Not with 13-15 million more households, a homeownership rate climbing beyond 70%, and home values rising over 65 percent in this decade… In fact, mortgage origination would average $1.6 trillion each year. If that doesn't seem like much after the year we're having, it's 71% higher than the yearly average in the 1990s. This could well be the best decade our industry has ever had. But there is an 'if.' A big 'if' is, we could have the best decade for housing ever IF the supply of mortgage capital can keep up with the demand. As the demand for mortgage capital doubles, we have to make sure that the supply doubles too. All of us will have to step up and do more. And no provider of mortgage capital is more committed than Fannie Mae is… What you get with Fannie Mae is the assurance, in good times or not, that we are there when you need us."
This was all Franklin Raines. Mr. Raines, the former head of HUD under Clinton took over FNMA and stuffed over $100 million in his pockets. He was also the guy who bankrolled Mr. Obama and one of his economic advisors. This is clear as a bell that he fully intended to create a housing bubble in the US. Doug Nolands other entries demonstrate as of 2001 he had already made a good start on it. Look at the last part of the statement, where he is literally calling for the creation of the CDO financing. Raines, Summers and Volker make quite a trio. I blame Volker as much as anyone for this mess as he pumped up debt with his massive interest rates, as money compounds at interest. Older people plowed their funds into the stock market, having been adicted to double digit or high single digit returns. Summers and Raines have no moral compass. At least if Volker made a mistake, I think it was an honest one.
To show you how long the housing bubble went on and to validate your theory it started in the mid 1990's, read this. http://www.safehaven.com/article/209/fr ... l-planning
Date was October 19, 2001, but it went back into the massive growth of FNMA and FHLMC in the 1990's. Plus, these outfits provided the cash to have the stock bubble. This is why the current situation is so dire. The bankers need home and real estate equity to produce credit and they burned up the housing equity in the bubble. The bubble doubled prices and doubled debt, the debt being the driver of the price. Debt remains and the equity is now gone.
Here are some excerpts. The lower portion is a transcript of a speech Franklin Raines made as head of FNMA
Fannie Mae saw its net income jump 22% (y-o-y) to $1.38 billion. Total "business volume" (mortgage purchases) increased almost 140% from last year to $159 billion. Year-to-date, Fannie has made purchases of almost $430 billion, more than double last year's pace. Fannie's total book of business increased $67 billion, or at a 20% annualized rate, to surpass $1.5 trillion. Outstanding mortgage-backed securities expanded at a 24% annualized rate, while Fannie's retained portfolio grew at a 14% annualized rate (growing only 5% during September). Total assets expanded at a 15% rate to $767 billion, having increased more than 5-fold in ten years. Fannie purchased 1.7 million of its shares during the quarter. Over the past year, Fannie and Freddie's combined total book of business (retained mortgage portfolios and their guaranteed securities held in the marketplace) has jumped $417 billion, or 19%, to $2.61 trillion. At the same time, combined shareholder's equity has increased less than $3 billion to about $36 billion.
How Mr. Howard (with his company taking full advantage of its unlimited access to the markets) can claim, "Fannie Mae's relationship with the government does not convey a unique advantage" with a straight face is quite a feat. And I wonder if their "disaster scenario" and "capital stress test" incorporates the inability to roll its short-term debt, or a systemic problem in the derivatives market. But I find it just as curious that any mention of hypothetical Federal Reserve ("repo") purchases of U.S. stocks seems to incite a strong emotional response, while the virtual nationalization of the entire U.S. "conventional" mortgage financing market progresses with nary a tepid protest. It is my view that one of the least generally appreciated financial and economic aspects of the post-WTC financial landscape is the marketplace's adoption of absolute federal government backing for the GSEs (as evidenced by collapsing credit spreads!). And while I never expected anything less, I had anticipated that such a resolution would likely come after (or in the midst of) a break in confidence within the agency market (perhaps related to a dollar, derivative, or other systemic dislocation) - that explicit federal government backing would be instigated after an episode of serious systemic crisis. Garnering the government's full backing while the GSE Bubble is very much intact - better yet, in the midst of an unprecedented lending boom - is a much different circumstance with momentous and disturbing ramifications. All indications are that the GSEs have been granted carte blanche, and they have proved without a doubt that they will move aggressively to capitalize. With this in mind, I would like to highlight some of the comments made Monday by Franklin D. Raines, Chairman and CEO of Fannie Mae, at the Mortgage Bankers Association's 88th Annual Convention.
"Bottom line, we project that consumer demand for residential investment could double in this decade, from $11 trillion today, to $21-$25 trillion by the year 2010. This would cause demand for mortgage capital also to more than double, from the current $5.4 trillion to $11-$14 trillion by 2010. The 1990s were a terrific decade for housing. This decade could be even better. Let me walk you through how we derived these optimistic projections. First, in the near term, while the economy is in a downturn right now, the economic stimulus from Washington - the rate cuts, tax cuts, and the boost in spending - will probably make any recession we have short and mild. At the same time, because interest rates are already low and still falling, the impact of a slowdown on the housing market is expected to be less than typical. And the surge in home refinancing is giving a boost to the overall economy. In fact, a New Economic paradigm seems to have taken hold. Traditionally, whenever the economy caught a cold, housing got pneumonia. Now the opposite is occurring - housing tends to do better than the economy. One explanation is that in good times and maybe even more in bad times, owning a home is a powerful draw and a safe, strong investment…"
"The third driver (in addition to population growth and rising homeownership rates) that will boost residential investment in this decade is that we expect continued healthy growth in property values. History is on our side. Since World War II, property values - on a nationwide basis - have grown almost every year, and often faster than inflation. This trend will probably continue…we could see total home price gains of between 5 and 6.5 percent per year over the decade…your average $150,000 home today would be worth over $250,000 in 2010. In total dollars, consumers right now have about $11 trillion invested in residential housing. If that amount grows by 7-8.5 percent a year, by 2010, residential investment will reach a total of $22-$25 trillion. That raises an important question for the mortgage industry. How will homeowners choose to fund this $22-$25 trillion investment?"
"Over the last 50 years, homeowners have steadily increased how much of their home they choose to finance. In the early 1950s, the average debt-to-value ratio in America was just about 20%… By 1980, the average debt-to-value ratio had grown to roughly 30 percent, and by 1990, it was 40%. Now the ratio is 47%. What is driving this trend? There are two major factors. First is the revolution in flexible, low down payment lending, thanks chiefly to automated underwriting and the success of mortgage insurance. Nowhere else in the world is it more possible for the average family, without a vast reservoir of cash reserves, to become a homeowner. Low down payment lending has democratized homeownership in America. Secondly, in the meantime, the average homeowner has become more sophisticated about managing his home equity wealth as it grows, and our housing finance system has been making it far easier to do that. Where it used to take a month or more to refinance your mortgage, for instance, it now takes about a day. This has been great for the economy. And because property values have continued to grow, homeowners can tap their equity wealth without increasing their overall debt burden…
"The trend of increasing debt-to-value ratios is likely to continue as homes continue to appreciate, and our industry offers even better ways to allow homeowners to harness that wealth. And this trend will further boost the demand for mortgage credit. In fact, if you take the projected growth in residential investment, and factor in the projected growth in debt-to-value ratios, the demand for mortgage credit - the demand for what everyone in this room supplies - would grow an average of 8-10 percent per year for the rest of the decade. In other words, our market will grow faster than many of the country's fastest growth industries…At this rate, bottom line, mortgage debt outstanding, our market - which right now totals about $5.4 trillion - would more than double in size and reach $11-$14 trillion by the year 2010. So much for the talk about the decline in housing. Not with 13-15 million more households, a homeownership rate climbing beyond 70%, and home values rising over 65 percent in this decade… In fact, mortgage origination would average $1.6 trillion each year. If that doesn't seem like much after the year we're having, it's 71% higher than the yearly average in the 1990s. This could well be the best decade our industry has ever had. But there is an 'if.' A big 'if' is, we could have the best decade for housing ever IF the supply of mortgage capital can keep up with the demand. As the demand for mortgage capital doubles, we have to make sure that the supply doubles too. All of us will have to step up and do more. And no provider of mortgage capital is more committed than Fannie Mae is… What you get with Fannie Mae is the assurance, in good times or not, that we are there when you need us."
This was all Franklin Raines. Mr. Raines, the former head of HUD under Clinton took over FNMA and stuffed over $100 million in his pockets. He was also the guy who bankrolled Mr. Obama and one of his economic advisors. This is clear as a bell that he fully intended to create a housing bubble in the US. Doug Nolands other entries demonstrate as of 2001 he had already made a good start on it. Look at the last part of the statement, where he is literally calling for the creation of the CDO financing. Raines, Summers and Volker make quite a trio. I blame Volker as much as anyone for this mess as he pumped up debt with his massive interest rates, as money compounds at interest. Older people plowed their funds into the stock market, having been adicted to double digit or high single digit returns. Summers and Raines have no moral compass. At least if Volker made a mistake, I think it was an honest one.
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