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« Doug Kass on Housing Predictions: An Update | Main | "Sticky Sentiment": Part Two »

April 17, 2008



Called on account of rain? Or extra innings? Slumps eventually end.

"Win, or Die Trying" is the baseball equivalent of making ten figures or having a 100% draw down.


From my hood in Sacramento... Bidding war on the house next door, sells for $30K above asking. Inventory drops from 50 homes for sale to 14 for sale. The real estate agent across the street told me he's sold more homes the past month then he did all of last year. He says multiple bidding wars on houses.

Just one neighborhood in the contiguous 48.

gaius marius

i should add, too, as i did not single this out in the above:

The government-sponsored enterprise expects to finance between $10 billion and $15 billion in new jumbo mortgages in 2008.

what is $15bn in this market? even if we presume a minimal average jumbo loan size ($500k), this is 30,000 mortgages in a national home sales market that will, even in the worst slump in memory, probably top 5 million transactions. this is not assistance so much as public relations, i fear.

gaius marius

fine contra opinion, mr miller, but i would take issue on a couple of points.

first, surveys are probably a bad way to estimate who has what for a mortgage. as the psychology of events has progressed, terms such as "adjustable-rate" are developing a stigma that will encourage underreporting. it's not to deny your point that the composition of mortgage debt is a moving target, but i think we'd be better off examining at the loan books of major mortage players.

second, i think the fannie/freddie news is, in some ways, being made too much of at this juncture -- particularly as relates to future house prices and mortgages yet to be made.

let's look beyond the fact that these are capital-constrained entities which are, after all, run for profit, highly geared and probably more risk averse than they once were (along with most everyone else) -- and then also look beyond the fact that even they are simply not big enough to replace the entire private mortgage securitization industry which truly fueled the boom and has wilted on the vine in the last year.

the GSEs are talking about buying existing mortgages from capital-constrained banks, not making new mortgages. the odds that these banks then take that precious cash and dive right back into california mortgages on the old terms are, i think, nearly nil. fannie/freddie might be to some extent the policy instruments which relieve immediate balance sheet pressure from the banks involved, but i do not think they can rightly be viewed as supporting housing prices going forward in this environment by doing so. chastised banks are likely to be very much more frugal in home lending for the foreseeable future -- and THAT more than anything is what likely ordains lower prices in housing, as the prices of 2007 were the product of the near-evaporation of credit underwriting standards.

so perhaps it depends on what we mean by "the housing problem". if we mean banks in trouble, then yes -- i think this move will at least incrementally help the banks to recapitalize. if, however, we mean the direction of house prices, then i think almost certainly not. house prices are reverting to their historical mean vis-a-vis household income as credit underwriting standards also revert, and even recapitalized and healthy banks will not be making loans on the terms that supported prices in 2007 again in the foreseeable future.

thanks as always for a provocative discussion!

Tim Plaehn

Since we have been reading and hearing about the recession longer than the average one lasts I hearby declare it over and may we all profit!

Bill aka NO DooDahs!

Hussman says "Evidently, the idea is that the recession that these analysts didn't forecast is already over"

Rempel says "Evidently, Johnny boy wants the recession that he predicted for three years to last as long as Hussman had to wait to finally see it - assuming it ever eventually 'officially' gets here."

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