Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktFYI, I do one of these on my other blog. It is easy enough to just copy it over here. Let me know if you find this worthwhile or not. Sold2u.
Vital Statistics: S&P futures -4, Eurostoxx – 1.5%, 10 year bond yield 2.18%, US dollar +21bp, Oil down 1.10 to 84.48, EURIBOR / OIS + 1.7bp.
JP Morgan reported earnings this morning. EPS and revenues were better than estimates, but the stock is down slightly based on earnings quality issues. They expect the Durbin rule to reduce consumer banking net by $600MM. They are very cautious about 2012 investment banking revenue, and headcount continues to fall. Euro exposure is about $15 billion, of which 65% is sovereigns. Tier 1 (Basel III) was 9.9%. Mortgage origination was $37B. Refis will drive business for the near future.
Harrisburg, PA filed for bankruptcy yesterday, mainly due to an ill-advised incinerator project that dwarfs the city’s budget. Harrisburg’s munis have been in the doghouse for a while, and this is not a surprise. Most are insured at any rate. The state will probably end up taking over the city’s finances. While the downturn has caused fiscal issues for many localities, we have not seen the mass bankruptcies / muni bloodbath that Meredith Whitney has been predicting.
Martin Feldstein has an editorial in today’s NYT link: How to Stop the Drop in Home Values discussing yet another plan to halt the decline in house prices by intervening in the market. This one involves reducing principal to 110% of the value of the house, and making the new mortgage full recourse – in other words, the bank can go after the other assets of the homeowner. The government and the banks would split the costs of the principal reduction. Washington seems fixated on this idea that foreclosures are reason why house prices are falling, and if we just stop the foreclosures, prices will stop falling. As I have argued in another post Robert Samuelson: The only thing we have to fear is fear itself this is premised on the idea that house prices are too low at the moment. Which is nonsense. If anything prices are sort of back in their historical relationship with incomes, but since incomes are falling, so should housing.
The magical thinking is on full display here: “
Without a program to stop mortgage defaults, there is no way to know how much further house prices might fall. Although house prices in some areas are already very low, potential buyers continue to wait because they anticipate even lower prices in the future.
Before the housing bubble burst in 2006, the level of house prices had risen nearly 60 percent above the long-term price path. So there is no knowing how far prices may fall below the long-term path before they begin to recover.”
Martin’s underlying assumption is that buyers are stupid. They aren’t. They won’t believe the government has the ability to support the housing market. And they aren’t going to start paying up for “fairly priced” property. For that matter, underwater homeowners need buyers to bid property back into “overvalued” territory. Anyone who has spent any time in the financial markets as a professional understands that markets don’t work that way, especially ones where underwater sellers dominate.
The low lending standards of the bubble years allowed first time homebuyers to purchase property without a downpayment. Essentially, the housing market “borrowed” first time homebuyers form the future. The only buyers left in this market are pros and the very young first time homebuyer. The very young first time homebuyer is lucky to have a job and is saddled with student loan debt. They are years away from amassing the downpayment that is needed in this tight credit environment. That leaves the pros. And they aren’t going to pay up for a fairly priced (at best) asset. Though some are moving into the MBS market, they are more or less front-running the Fed.
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All Things in Moderation 
Thanks Brent, you could do a post like this everyday AFAIC. And have you heard anything about Citi beginning to come around on Mortgage cramdowns in bankruptcy, with heavy strings attached of course. I've been reading bits and pieces and also heard that the House may be considering some sort of bill in this regard. Do you think that would speed the process of at least a bottom?
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I'm not feeling the same optimism from this report that I was feeling from your comments yesterday. This sounds like the home mortgage market is going to suck for years and years to come. Am I reading that right?
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Kevin, my husband is a big real estate watcher and reads just about everything in print regarding the market. Of course we're in CA, where we pretty much dove off the cliff into shallow water, but he thinks minimum 5 years and possibly as much as 10. Part of that is because the people who are on the verge of being underwater or already slightly under will be spending that amount of time turning that around.
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@lms. I haven't heard anything along those lines. My view on a bottom in housing is that removing sellers from the market isn't going to do anything to attract buyers, and buyers aren't going to get interested until prices fall far enough that they can't be ignored or incomes increase enough to support current prices. kevin, my "optimism" on the economy is basically that we aren't headed for a depression-like / depression-lite scenario. I don't foresee mid single digit GDP growth, either, though lower energy prices will do a lot to help in the future. But in the immediate future, we have Europe and the housing market as headwinds. Each year will be a little better than the one before, but recovery will take longer than normal because we are recovering from an asset bubble.
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@lms, if you look at the OTC property derivatives, the market is forecasting another 5% drop this year, and then a slow 1% rise per year thereafter. Granted, the market for these derivatives is illiquid, so take it with a grain of salt.
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It was probably just a rumor re Citi based on their earlier semi-support of cramdowns. I don't think there's any will now for that in reality. It looks like it's just a big waiting game for everyone to keep paying off debt to me. I read last week that the average American household managed to pay down 10% of their debt in the last year, so we keep our head down and keep paying.
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I'll do a post regarding household debt with some charts. interesting stuff, actually.
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Thanks, I'd like to see that. Was what I read wrong or just simplistic? Sometimes it seems that for every economic report I read there are 100 different interpretations. As someone with zero background in finance/economics I'm always playing catch up. I'd like to understand the large picture but it's pretty tough.
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Can we have a link or url to Brent's blog?If it isn't in the sites list, it should be. Cross-pollinate afaiac.I might someday shed my own anonymity when I launch a law blog. Maybe.
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Brent, I agree with you that market intervention that amounts to rebubbling is foolish.I also think that the actual housing markets are local issues, especially in Lost Wages, Phoenix, FL, and parts of CA. I could imagine some local initiatives that work – there were some that worked during the S&L disaster.In Austin we now have a unique residential market, at least historically. People move here for jobs. They have no equity from their former homes. They cannot pay down. They have good jobs and can pay rent. The rent to price relationship is skewed so badly here that anyone with cash can buy real estate and become a profitable landlord, and that will continue to be the case, we think, for at least 18 months.People who want to sell here cannot find buyers but they can find lessees. I am guessing our new Austinites are either still carrying mortgages in CA or lost their homes to foreclosure or sold at no profit.What do you think would have been the effect if TARP had been devoted solely to guaranteeing subprime mortgages? Wouldn't that have been both cheaper for the taxpayers and sufficient to calm the secondary markets? We were going to have moral hazard, no matter what TARP spent on. If the guarantees were called, an RTC type agency could have taken ownership of the properties and held them, for years, if necessary.
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qb:I might someday shed my own anonymity when I launch a law blog.I now what to start a blog called The Lorax.
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Scott,Maybe I should start one called The Little Red Hen.
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Heh
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Here is the link to my blog.http://nationalassetdirect.blogspot.com/Busy at the moment, will post later
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scott and qb, I have an idea, why don't you join forces and just call it "The Mutual Admiration Society"…………………lol. Come on that was funny. Are you ready for my Liz Warren post yet? I'll try to keep it civil if you will.
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Related topic: Slovakia's rejection of Greece bailout brought down the government and today Slovakia approves the Franco-German plan.
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Sold2u–I took the liberty of adding you to the sidebar. Good stuff! Thanks!!
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lms–do the Liz Warren post and I'll try to backstop you. Got time to comment today.And I love, love, love ashot's idea about the rapid fire commentary on the next debate. Did you read the site he linked to? I'm not a huge baseball fan and it was hilarious!Go Tigers!!
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michiI have to save for a little while, I'm trying to get some work done and don't like to post and disappear. Maybe this afternoon. Or if you want it's ready, go for it. Did you read the Vanity Fair piece on her yet? It's linked in my post.
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I'll go read the VF piece now. Got to get my ducks in a row if we're going to take on the Big Boys! Hee, hee, hee!!!
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Finally posted my tort reform post. Michi- Glad you like my idea, can't you see one of our republican posters typing something like: I can't believe I may have to vote for Herman Cain. I'd rather spend a weak in Vietnam with Cao…no wait, I take that back. Herman Cain for President!
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BTW, I nominate ashot and KW to do the rapid fire commentary on the next debate. . .
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@michigoose, thanks.nice to see things looking up for detroit sports. fwiw, when my son was born years ago, i painted his room Honolulu Blue and he has a large stuffed lion on his bed with a Lions jersey on it.
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