J
jpmorganfunds_IHB
Guest
<a href="http://www.dailynews.com/business/ci_7641554">www.dailynews.com/business/ci_7641554</a>
IrvineRenter_IHB
New member
I hope they are right. I still haven't got my pony.
graphrix_IHB
New member
<em>I still haven't got my pony.
</em>You might want to ask Caycifish if she has an extra one.
</em>You might want to ask Caycifish if she has an extra one.
MalibuRenter_IHB
New member
<p>I find this surprising, but reassuring. I've known various people who have worked on this forecasting project for over 20 years. It is so different from the NAR's type of forecasting that they shouldn't both be called forecasts. Maybe we can get the NAR's method changed to "wishcasting".</p>
<p>The UCLA Forecast's Leamer and Thornberg were two of the persistent and articulate people who kept saying housing prices were unsustainable. They've known this for a long time and built it into their models. </p>
<p>When you run the numbers, it certainly is credible that housing could make people who bought 2004-2006 suffer enormously, without taking the economy into recession. </p>
<p>It's even credible that you can have big participants in subprime like Citi survive without additional capital infusions. There are several keys: 1. No recession. 2. The non-housing parts of the portfolio stay healthy (e.g., credit cards). In prior housing recessions, credit card delinquincies went up massively. It's not happening to nearly the same extent this time. That's partially because there isn't widespread unemployment causing a drop in housing prices. I also speculate that it is partly because people who put very little money down on homes are just letting the homes go, but know they want to try to repair their credit quickly. 3. The spread between banks' cost of capital and the rate at which they lend stays high. The current situation is a goldmine for banks with low delinquincy rates and a high portion of fixed rate loans. That's because banks tend to borrow short and lend long. If you have borrowers who have little or no equity, they can't refi. However, if they have a job and can make payments, existing loans get more and more profitable and the Fed drops rates. </p>
<p>The BIG risk in that scenario is that when prices drop far enough, even really creditworthy borrowers start sending the keys back to the bank, or demanding short sales. I have heard from one of my friends in the mortgage industry that they are getting keys back from people who weren't even 90 days delinquint. Forget eviction. These people either didn't live in the house, or they know what's coming and have already rented a place while their credit is good. </p>
<p>Here is my prediction for the next big Federally-encouraged program. You'll see it around May of 2008. It will be massive removal of lender-owned homes from the for sale market, and putting them up for rent. They might even be renting to the former owners. Why? The Federal Govt will perceive that this reduces the drop in housing prices. </p>
<p>A slight twist will be voluntary conversion of properties to rentals. The current people stay in the house. They pay a number around market rent, which is lower than their mortgage. The property can remain for sale. </p>
<p>Only later, like late 2008, you will get serious proposals to push new construction to almost zero, and to start bulldozing homes. Bulldozing will come in a variety of forms: literal bulldozing of older homes in terrible structural shape; public purchase of incomplete subdivisions for parkland and schools; and conversion to nonresidential uses. Zoning changes from single family residential to something else is going to be much easier in 2009. Live in a new tract in Riverside County and think you can't end up with a convenience store next to you? Think again.</p>
<p> </p>
<p>The UCLA Forecast's Leamer and Thornberg were two of the persistent and articulate people who kept saying housing prices were unsustainable. They've known this for a long time and built it into their models. </p>
<p>When you run the numbers, it certainly is credible that housing could make people who bought 2004-2006 suffer enormously, without taking the economy into recession. </p>
<p>It's even credible that you can have big participants in subprime like Citi survive without additional capital infusions. There are several keys: 1. No recession. 2. The non-housing parts of the portfolio stay healthy (e.g., credit cards). In prior housing recessions, credit card delinquincies went up massively. It's not happening to nearly the same extent this time. That's partially because there isn't widespread unemployment causing a drop in housing prices. I also speculate that it is partly because people who put very little money down on homes are just letting the homes go, but know they want to try to repair their credit quickly. 3. The spread between banks' cost of capital and the rate at which they lend stays high. The current situation is a goldmine for banks with low delinquincy rates and a high portion of fixed rate loans. That's because banks tend to borrow short and lend long. If you have borrowers who have little or no equity, they can't refi. However, if they have a job and can make payments, existing loans get more and more profitable and the Fed drops rates. </p>
<p>The BIG risk in that scenario is that when prices drop far enough, even really creditworthy borrowers start sending the keys back to the bank, or demanding short sales. I have heard from one of my friends in the mortgage industry that they are getting keys back from people who weren't even 90 days delinquint. Forget eviction. These people either didn't live in the house, or they know what's coming and have already rented a place while their credit is good. </p>
<p>Here is my prediction for the next big Federally-encouraged program. You'll see it around May of 2008. It will be massive removal of lender-owned homes from the for sale market, and putting them up for rent. They might even be renting to the former owners. Why? The Federal Govt will perceive that this reduces the drop in housing prices. </p>
<p>A slight twist will be voluntary conversion of properties to rentals. The current people stay in the house. They pay a number around market rent, which is lower than their mortgage. The property can remain for sale. </p>
<p>Only later, like late 2008, you will get serious proposals to push new construction to almost zero, and to start bulldozing homes. Bulldozing will come in a variety of forms: literal bulldozing of older homes in terrible structural shape; public purchase of incomplete subdivisions for parkland and schools; and conversion to nonresidential uses. Zoning changes from single family residential to something else is going to be much easier in 2009. Live in a new tract in Riverside County and think you can't end up with a convenience store next to you? Think again.</p>
<p> </p>
EvaLSeraphim_IHB
New member
IIRC, Thornberg left UCLA to go to another firm because he felt they were not paying enough attention to the housing bubble. Between Chapman and UCLA based on recent past forcasts, I'll take Chapman.
irvine123_IHB
New member
when was the last "correct" forecast by Chapman?
graphrix_IHB
New member
Thornberg left and started his own company, Beacon Economics. He was essentially replaced by Mark Schniepp of the <a href="http://www.californiaforecast.com/profile.html">California Economic Forecast</a>. I know the bears scream that certain economists are paid shills. I agree some are, but some are not. Schniepp is a paid shill. He gives paid lectures for builders to potential buyers to help sell homes. He even ignores the Anderson data, and says it is a good time to buy a home. To me, he is one step above Gary Watts, because at least he has a PhD.
<em>When was the last "correct" forecast by Chapman?
</em>Their predictions were a dead tie with UCLA this last year. The last few years they have been wrong on housing, but they should have been right. Now, that the irrational exuberance has brought home prices to a level worse than 1990, it will just hurt even more. And, you do know that they were wrong on the bullish side in the 90s. Adibi said at the forecast, "I'm sorry OC, I don't want to break your heart, but it is <em>not </em>different here."
<em>When was the last "correct" forecast by Chapman?
</em>Their predictions were a dead tie with UCLA this last year. The last few years they have been wrong on housing, but they should have been right. Now, that the irrational exuberance has brought home prices to a level worse than 1990, it will just hurt even more. And, you do know that they were wrong on the bullish side in the 90s. Adibi said at the forecast, "I'm sorry OC, I don't want to break your heart, but it is <em>not </em>different here."
IrvineRenter_IHB
New member
<em>"In prior housing recessions, credit card delinquincies went up massively. It's not happening to nearly the same extent this time. "</em>
People will tap every available source of credit before losing their homes. Is it realistic to think homeowners who are attached to their property will rationally conclude they should not tap their credit cards to try to hold on until either the market comes back or the government bails them out? I think credit card defaults will set new records over the next few years because there will be so many more people in financial distress because of housing.
People will tap every available source of credit before losing their homes. Is it realistic to think homeowners who are attached to their property will rationally conclude they should not tap their credit cards to try to hold on until either the market comes back or the government bails them out? I think credit card defaults will set new records over the next few years because there will be so many more people in financial distress because of housing.
MalibuRenter_IHB
New member
<p>"People will tap every available source of credit before losing their homes. Is it realistic to think homeowners who are attached to their property will rationally conclude they should not tap their credit cards to try to hold on until either the market comes back or the government bails them out?"</p>
<p>IR, what you say makes sense for people who actually live in their homes. For people who are speculators, it's completely different. The new bankruptcy laws have also had an effect.</p>
<p>"Even as losses have mounted, banks have seen their credit card businesses improve. The amount of money owed on U.S. credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier, according to data compiled by Federal Deposit Insurance Corp. In the same period, the dollar volume of repossessed homes owned by insured banks doubled to $4.2 billion, the agency said. New foreclosures rose to a record level in the second quarter, led by defaults in subprime adjustable-rate mortgages, said the Mortgage Bankers Association in Washington.</p>
<p>People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive of Capital One Financial, the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said. "What we conclude is that people are saying, 'Honey, let the house go,' " but keep the cards, Fairbank said Monday at a conference in New York sponsored by Lehman Brothers." <a href="http://www.iht.com/articles/2007/11/08/bloomberg/bxinvest.php">http://www.iht.com/articles/2007/11/08/bloomberg/bxinvest.php</a></p>
<p>Yeah, it was a surprise to me too.</p>
<p> </p>
<p> </p>
<p>IR, what you say makes sense for people who actually live in their homes. For people who are speculators, it's completely different. The new bankruptcy laws have also had an effect.</p>
<p>"Even as losses have mounted, banks have seen their credit card businesses improve. The amount of money owed on U.S. credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier, according to data compiled by Federal Deposit Insurance Corp. In the same period, the dollar volume of repossessed homes owned by insured banks doubled to $4.2 billion, the agency said. New foreclosures rose to a record level in the second quarter, led by defaults in subprime adjustable-rate mortgages, said the Mortgage Bankers Association in Washington.</p>
<p>People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive of Capital One Financial, the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said. "What we conclude is that people are saying, 'Honey, let the house go,' " but keep the cards, Fairbank said Monday at a conference in New York sponsored by Lehman Brothers." <a href="http://www.iht.com/articles/2007/11/08/bloomberg/bxinvest.php">http://www.iht.com/articles/2007/11/08/bloomberg/bxinvest.php</a></p>
<p>Yeah, it was a surprise to me too.</p>
<p> </p>
<p> </p>
IrvineRenter_IHB
New member
<em>"For people who are speculators, it's completely different."</em>
That is true.
I had not seen the Bloomberg article. If this behavior continues throughout this decline, I would be very surprised. Perhaps everyone is taking Jim Cramer's advice... Or perhaps the hopelessness of the situation is so obvious that people aren't even putting up a fight.
That is true.
I had not seen the Bloomberg article. If this behavior continues throughout this decline, I would be very surprised. Perhaps everyone is taking Jim Cramer's advice... Or perhaps the hopelessness of the situation is so obvious that people aren't even putting up a fight.
lawyerliz_IHB
New member
<p>The losses on one are so much greater than the gains of the other, that there probably isn't much of a cause and effect. But it's amusing, very amusing, that the banks are getting bitten back.</p>
<p>They are so very very stupid. </p>
<p>Think of it as evolution in action.</p>
<p>They are so very very stupid. </p>
<p>Think of it as evolution in action.</p>