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Discussion: (5 comments)

  1. morganovich

    alas, the rest of the S+P showed negative revenue and earnings growth in nominal terms for q3 vs a year ago.

    adjusted for CPI, these drops were around 2.8% in real terms.

    to add to the worry, a great many companies described the quarter as getting considerably worse toward the end.

    it’s not a conclusive indicator by itself, but it sure is consistent with an economy at stall speed or entering recession. next year is going to be pretty rough.

    buckle up.

  2. Mark,

    I have a general question concerning your frequent posts on the strength of the housing market.

    I don’t doubt that the indexes and metrics you report point to strong growth, but I am missing the link between how this recovery is not just a re-inflation of the same housing bubble as before.

    It seems that interest rates are artificially low, causing homebuyers to be willing to take on a larger mortgage, i.e. bidding up housing prices. Do you think that new lending standards (income verification, documentation, etc.) are working and this new crop of homeowners are less likely to default? Are more fixed-rate mortgages being sold so we will avoid mass foreclosure when rates adjust in the future? Have Fannie and Freddie become smaller players in the loan origination market?

    Maybe I missed it in one of the previous posts, but as housing in my area (Denver) recovers, I can’t help but wonder if it is sustainable.

    Thoughts?

    1. 1. On a recent post, I showed how the homeownership rate continues to decline through Q3 2012, and is now at 65.3%, the same as Q1 1996 when the housing and homeownership bubbles started to inflate. That would suggest that the current housing rebound could be sustainable now that homeownership rates are back to historical averages.

      2. We keep hearing about how housing/mortgage credit is tight, preventing some deals from going through, so it would that lending standards have also returned to historical norms, which would also support the idea that the current rebound is sustainable.

      3. Much of what I have been reporting has increases in HOME SALES, not median home prices. Prices have been relatively flat in many areas, suggesting that there is no house price bubble developing. Home sales are strong, and housing sales volume is increasing, with only moderate, if any, upward pressure on home prices. That also supports the notion of a sustainable housing recovery.

  3. morganovich

    well, some of the rebound can be attributed to some very aggressive lending by the FHA.

    it appears that some of those chickens are coming home to roost. most worrying, FHA losses are automatically paid by the treasury. no bailout authority needed. it’s literally a blank check from taxpayers.

    a 25% delinquency rate on 2007-8 vintages is surreally bad.

    “The Federal Housing Administration is expected to report later this week that it could exhaust its reserves because of rising mortgage delinquencies … That could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.

    … The New Deal-era agency, which doesn’t actually make loans but instead insures lenders against losses, has played a critical role stabilizing the housing market by backing mortgages of borrowers who make down payments of as little as 3.5%—loans that most private lenders won’t originate without a government guarantee. … Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from one year ago. That represents around 9.6% of its $1.08 trillion in mortgages guarantees.

    The FHA’s annual audit estimates how much money the agency would need to pay off all claims on projected losses, against how much it has in reserves. Last year, that buffer stood at $1.2 billion …

    The decision over whether the FHA will need money from Treasury won’t be made until next February, when the White House typically releases its annual budget. Because the FHA has what is known as “permanent and indefinite” budget authority, it wouldn’t need to ask Congress for funds; it would automatically receive money from the U.S. Treasury.

    Most of the agency’s losses now stem from loans made as the housing bust deepened. Around 25% of mortgages guaranteed in 2007 and 2008 are seriously delinquent, compared with around 5% of those insured in 2010.”

    “many of the loans that the FHA insured at the peak were so-called Downpayment Assistance Programs (DAPs). These DAPs circumvented the FHA down payment requirements by having the seller funnel the “down payment” to the buyer through a “charity” (for a small fee of course). The FHA attempted to stop this practice – the IRS called it a “scam” – but thanks to Congress, the DAPs led to billions of losses for the FHA.

    Of course, as Timiraos mentioned, the FHA also saw a sharp increase in demand in the 2007 through 2009 period as private lenders disappeared and Fannie and Freddie tightened standards – and those loans have performed poorly. Now the bill is coming due …”

  4. Dr. Perry,
    I, like Steve S, am skeptical of your “sustainable housing recovery” theme these past months. I think the Home Depot stock price has a lot to do with all the great credit card promotional offers I’ve been getting the last year (after a long absence). Additionally, the S&P 500 Homebuilders Index, while up 50% this year, is down 30% from 6 years ago.

    I think the uptick is monetary foolery.

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