R C's Blog

Those of you who know me are aware that I've been in this business for a while.  I've seen the 'disintermediation' of the 70's that hit the S & L industry hard; I've lived through the high-rate days of the mid-late 70's that saw rates on construction loans at 21% and mortgages at 14% (saw lots of grown men cry as they tossed me the keys of unsold inventory); lived through the late 80's/early 90's when the S & L's crashed and the RTC was born; and now subprime and capital markets issues.

Close to 200 mortgage banking firms have closed down in the past year; many bankrupt and some just painfully aware that the risks were too high to continue.  The last estimate I saw was more than 100,000 mortgage employees now out of work.  I'm not going to re-hash the "why" of where we're at in this post; but rather why this one feels different than those of the past.

What's different is how the press is reporting what's going on.  We know ad-nauseum that "good news is no news".  So we're not expecting to read that our local market is holding its own and that average sales prices are actually 1.45% higher than a year ago.  But I likewise am not expecting to read that the entire nation is in the midst of a housing crisis the likes we haven't seen since the Great Depression.  Yet that's the impression the press keeps drumming into our heads . . . and what's dangerous about it is that perception will become reality.

Our housing crash markets are well-defined by the statistics:  Florida, upper-midwest, Nevada, California, and certain markets in Arizona.  These were the "bubble markets" (except the upper Mid-West) defined by double digit annual price increases.  Colorado and most of the rest of the nation was not and is not in that category - yet the average Joe doesn't know that . . . all he sees and hears and reads is that the sky really is falling when it comes to housing.  Ask him if he wants to buy a house today and he's likely to tell you "I'm not stupid.  I'm not buying until this mess is over" . . . can you blame him?

OK, so the kid walks in to the convenience store and says "this is a stick-up.  Give me the money."  He'll likely get 20 years hard time.  The press creates a "phony economy" that costs you the sale of your house, and maybe leads to foreclosure because you can't afford it anymore and you can't sell it . . . and they give each other awards for "cutting edge journalism".  Hmmmmmm.

Is it just me? or is this maybe even more criminal than the convenience store kid?

OK, I'm all better now.

Stay warm out there.  RC 

2007-12-26 — cnn.com

``Home prices fell 6.7 percent in October, compared with a year ago, according to the S&P/Case-Shiller 10-city home-price index, a record drop as housing markets continued to deteriorate. It was the largest drop in more than 16 years and marked the 10th consecutive month of price depreciation and 23 months of decelerating returns.''

OK, here's the local reality . . . and it took some digging to find it:

Denver market (the Case-Shiller study quoted above) year over year, Oct '07 - Oct '06 down 1.8%.

Colorado Springs market (different study - NAR median sales price) Oct '07 - Oct '06 up 1.45%.

Hope your Christmas was great - rc

The posting below is from a gentleman who makes his living following the mortgage markets and advising what's likely to happen and why.  With all the seeming consensus of another upcoming Fed rate cut, Larry's insight as to the risks still alive in the money markets bears some consideration.  This posting is done with Larry's permission and consent, btw.

Larry's closing comments about the "rate freeze" about to be announced by the White House and the Capital Markets' comments are also interesting.

By Larry Baer, Market Alert - Thu, 12/06Commentary: Mortgage investors gave this morning's release of the Labor Department's initial jobless claims report for the week ended December 1^st little more than a passing glance. The data showed claims for unemployment benefits fell by 15,000 units last week. The four week moving average of jobless claims edged a touch higher. Overall, the jobless claims data hints at some loosening in the labor sector -- but not enough to suggest an escalating threat of recession is looming right around the corner.

It appears that most of the "tweaking" of risk management positions in front of tomorrow morning's 8:30 a.m. ET release of the much anticipated November nonfarm payroll report is done. Investors have placed their bets -- with the majority continuing to expect a headline payroll number less than 80,000 and a national jobless rate of at least 4.8% (up from the current level of 4.7%). This camp firmly believes the Fed will be compelled to cut short-term interest rates by 50 basis-points when they meet next Tuesday if tomorrow's news from the labor sector is weak. Should this forecast prove accurate, we will likely see some modest improvement in rate sheet prices as investors make mortgage friendly adjustments for the portion of the Fed's projected 50 basis-point rate cut that has yet to be reflected in the market place.

A minority of traders believe the November nonfarm payroll report will show more than 110,000 jobs were created last month while the national jobless rate remained glued to the 4.7% level. Should this forecast prove accurate -- look for mortgage investor prices to wither and note rates to rise as recognition that the Fed will almost certainly only cut short-term rates by 25 basis-points sweeps through the market - creating a major "Maalox moment" for all of those traders suddenly caught leaning in the wrong direction.

In other news of the day President Bush is expected to discuss the general details of a subprime foreclosure plan during a televised appearance scheduled for 1:40 p.m. ET this afternoon. In general, the government together with a coalition of mortgage-related companies and private alliances have largely agreed to extend the lower introductory rate on home loans for certain borrowers. The plan is aimed at owner-occupied homes only. Subprime borrowers who took out loans from January 1, 2005 through the end of July 2007 would be offered a five-year "rate freeze" if they are facing a reset over the coming 2 ½ years. Homeowners who have shown they are a reasonable credit risk, but who could not afford their homes with higher rates may qualify for "fast-track" loans modifications.

Expect the plan to be much more difficult to implement than it is to talk about. Many believe that the announcement today reeks of pure unadulterated politics - doing nothing substantive to solve the problem - just postponing the issue until the electorate has cast their ballots. As Mark Kiesel, a portfolio manager for Pacific Investment Management Company points out, "The entire capital markets system revolves around contracts and the ability to have a legal claim to assets. If that fundamental premise is challenged, it is only going to make the cost of capital to go up in the future."

This story has many more chapters yet to be told - I'll keep you posted as each new twist develops.

Be patient, be disciplined - and play it by the price movement numbers -- not the economic forecast.