Thursday, March 13, 2008

Are We There Yet?

Some of the fall-out from the mess that is the housing markets, in no particular order:

1) $15,000 rebate checks (bribes) given to people if they buy a house.

2) The Fed giving $200 billion dollars to banks in exchange for their "toxic" mortgages that they still have not "marked to market" because they are out of money and know if they mark to market then their bottom lines will collapse.

3) Raising the GSE conforming loan limit to insane levels.

4) The Fed falling all over itself, in full panic mode, with countless short term interest rate drops and no doubt more to come.

5) An ever more worthless U.S. dollar.

6) $1000+/oz. gold.

7) $100+/barrel oil.

8) Increasing inflation.

9) Other bail outs, mortgage debt forgiveness, mortgage interest rate freezes, etc. that are so numerous that I have not been able to keep track of them all but they are all ultimately designed in the end to save failed housing gamblers, speculators, banks, lenders, the real estate industry, Wall Street; all to be paid for by tax payers, including the prudent people who save, who didn't play the housing gambling game, who knew this housing market was a farce, who just want a place to live and raise a family.

10) Whole communities on the verge of bankruptcy.

11) Huge state budget cuts.

12) A massive increase in foreclosures which is far from over (just one of many).

Oh, and let's not forget how:

13) Fannie Mae has changed its mission statement from 'helping low-, moderate, and middle-income familes to buy homes of their own' to "Our job is to help those who house America". Before:
At Fannie Mae, the home symbolizes who we are, too. Our public mission, and our defining goal, is to help more families achieve the American Dream of home ownership.

We do that by providing financial products and services that make it possible for low-, moderate-, and middle-income families to buy homes of their own.
We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market.

Fannie Mae has a federal charter and operates in America’s secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Our job is to help those who house America.
14) The California Association of Realtors (CAR) conveniently redefined what "affordability" means so that our abysmal affordability numbers don't look quite so bad. Unfortunately, I can no longer provide a link to the original announcement of the changed calculation of affordability because the CAR has taken the page down. After going to the Internet Archive Wayback Machine to see if I could find a cached version of the page I get this message:
"We're sorry, access to has been blocked by the site owner via robots.txt."
So the CAR has deliberately blocked access to that particular page (other pages from that period are still available). I wonder why? Perhaps the recent and ongoing massive increase in California foreclosures has unequivocally demonstrated just how ludicrous, self-serving, and flawed their then new-and-improved definition of affordability really is.

But no worries, here is a post from SocketSite where they talked about it back in August, 2007:
Earlier this morning, we referenced the Housing Affordability Index (HAI) which is published by the California Association of Realtors (C.A.R.). According to the last published index (February), the percentage of households that could afford to purchase a median-priced home in the Bay Area was 12% (and only 9% in San Francisco).

Almost right on cue, C.A.R. released a new First-time Buyer Housing Affordability Index (FTB-HAI) this afternoon:

"C.A.R. began producing its Housing Affordability Index (HAI) in 1984. At that time, fixed-rate mortgages were the prevailing form of financing a home purchase, while the calculations used to produce the HAI reflected a 20 percent down payment. The methodology also assumed a monthly payment for principal, interest, taxes and insurance that was no more than 30 percent of a household’s income.

In the more than two decades since the CALIFORNIA ASSOCIATION OF REALTORS® first conceived the HAI, the mortgage finance landscape has changed dramatically. The range of mortgage products available to buyers as well as underwriting criteria has changed.

C.A.R. developed the new index measuring affordability for first-time home buyers to better reflect the realities of today’s real estate market."

According to the new model, the percentage of first-time buyers able to afford a median-priced home in the Bay Area stands at 24% (16% in San Francisco). And while that’s more palatable than 12% and 9% respectively, keep in mind that based on this new model (which takes into account relaxed lending standards and the shift away from long-term, fixed-rate mortgages), affordability in San Francisco is down about 18% from a year ago, down 28% from two years ago, and down 35% from the second quarter of 2003. That's the market reality.
You can also visit's post on this too. (Let this be a lesson to me to always quote the relevant parts of web pages so that if the page is taken down we still have some record of it.)

15) There is an all but official policy in this country to privatize profits and socialize losses.

16) An incestuous collusion among many realtors, appraisers, inspectors, lenders...

All this because we insist that houses should only ever go up in price. Cars and other assets... that's ok if they go down in value. But houses; the things central to our communities and families? No way!

Welcome to the mess we helped to create by agreeing to pay stupid prices for houses, by lending unearned money to "anyone with a pulse", by letting people lie on loan applications, by approving measures that serve to artificially prop up our property values, laws and tax breaks that encourage speculation, or by tacitly supporting it all via our indifference and inaction.

When will the apathy end? How bad does the situation have to get before it trumps personal greed? What I have listed above is just the tip of the iceberg for crissakes! How much more pain must people suffer, how much more corruption must we endure, and how much more of our hard-earned money do we tax payers have to pay before people finally say enough is enough, pull out the metaphorical pitchforks and torches, and out-right rebel?


Blogger Lisa said...

Great post, Marinite!

The Fed pumping $200B in short term loans to banks, using MBS crap as "collateral", ought to have everyone outraged. But I think it shows how on the brink we really are.

I filled up my tank yesterday in San Rafael and paid $3.62/gallon. I think that's a record, even going back to the Katrina aftermath. More and more economists are saying we are in recession. I was in Carmel at the beginning of the week, and I have never seen the town so empty. Stores were empty. People walking around town but very few shopping bags.

BTW, DataQuick reported on February numbers today. Sales in our very special Marin were down 40% versus a year ago and the median declined 6.5%.

Hefty downpayments are again the rule in California. 25% required by WF, 20% by WA and 10% for B of A. We have always said on this blog that once that kicked in, price declines would really start to kick in.

Mar 13, 2008, 6:48:00 PM  
Blogger Grandis said...

Great post. Stand by for another sharp deviation from the mean. This time with numbers going up, not down. I’m talking about the number of people taking the eternal plunge off the Golden Gate Bridge. Okay, maybe that’s a little dramatic, but I think that’s a reality.
And why is nobody using the word “stagflation?” Doesn’t anyone realize that pumping money into the economy and reducing interest rates has zero effect on Main Street? Both situations don’t reduce the cost of oil, or ease depreciation in the real estate market (which I/we wouldn’t want anyway). I see the Feds efforts as just another desperate attempt to keep the media from saying the words “we’re in a recession” until after the election. Bernake knows better. Shame on him.

FYI, paid $4.05 for gas in Foster City.

Mar 14, 2008, 8:41:00 AM  
Blogger marinite2 said...

Bear Stearns is getting a bailout today:

The DOW is down over 200 points; this just two days after the $200 bln "liquidity infusion".

We used to be a nation of laws. It used to be if you gambled and lost, you lost. Now we all know that we can be reckless because the Fed and the government are there to bail us out if we get in trouble.

Mar 14, 2008, 9:45:00 AM  
Blogger marinite2 said...

This comment has been removed by the author.

Mar 14, 2008, 9:58:00 AM  
Blogger marinite2 said...

Yup, Feb YOY in Marin sales down 40% prices down 6.5%. Maybe that upper end is finally cracking. A couple more of these and I say we have a trend.

So should I post on this data or would it seem too opportune?

I guess it would be ok to start posting on the DataQuick numbers again. I did, afterall, make a good case (IMO) for why their data could not be trusted until after January, 2008.

And I wonder what the IJ had to say. Oh, I see. 'Median home price tumbles' but "there is no cause for concern". How typical.

And I love this quote ""In Marin County - without condos and without Novato - 46 percent of the properties that sold in the last 30 days sold at 98 percent of the asking price," Cohn said. "Mostly what's happening is there is a shortage of inventory.""

So Novato and all condos don't count now. They are now no longer part of the "real" Marin.

Mar 14, 2008, 10:05:00 AM  
Blogger marinite2 said...

And I should also add that the remaining 54% sold below well below asking (I know this because of some data a realtor friend of mine sends me every month and which I sometimes post... the one where she lists the number of houses that sell at, and sell above know the one) sold well below asking.

And what about the all those houses that couldn't sell and account for the 40% decline in sales? No doubt they are asking for their peak bubble wishing price and buyers are walking away laughing. So what are they really worth?

This industry really makes me sick.

Mar 14, 2008, 10:09:00 AM  
Blogger sf jack said...

And more news... finally the mass media seem to be "getting it."


* Jim Rogers says abolish the Fed, Bernanke is doing a terrible job (see the CNBC video, a classic: "... throwing gas on a fire...") and "stop socialism for the rich.."

* The Wall Street Journal has noted a significant shift in economists expectations regard a recession (finally: "yes"); "The evidence is now beyond a reasonable doubt..."

* Krugman at the NYT says the Fed could be incapable of handling what "looks increasingly like one of history's great financial crises"

* And finally Feldstein at the NBER (they date recessions) says "The situation is very bad, the situation is getting worse, and the risks are that it could get very bad..."


Jim Rogers: 'Abolish the Fed'

Topics:Interest Rates | Inflation | Ben Bernanke | Employment | Consumers | Federal Reserve | Federal Budget (U.S.) | Economy (Global) | Economy (U.S.)

By | 12 Mar 2008 | 09:54 AM ET

"Federal Reserve Chairman Ben Bernanke should resign and the Fed should be abolished as a way to boost the falling dollar and speed up the recovery of the U.S. economy, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe Wednesday...

The Federal Reserve announced on Wednesday a rescue package that it would put around $200 billion into banks and investment houses and allow them to put up risky home-loan packages as collateral.

Wall Street responded to the news with the biggest rally of the year, but Rogers reminisced of the 1970s, when the Fed printed money to avert a recession, boosting inflation and then forcing interest rates to more than 20 percent to keep a lid on price rises...

'Socialism for the Rich'

The Fed's move to accept risky collateral is not part of the central bank's business, he added.

'What is Bernanke going to do? Get in his helicopter and fly around the world and collect rents? That's absurd,' Rogers said.

A recession may be a good way to clean up the economy, while trying to prevent one may cost more and actually worsen the recession, Rogers said. Also, investment banks should be allowed to fail.

'Listen, investment banks have been going bankrupt since the beginning of time. If people make mistakes -- if you bail out every investment bank that gets in trouble, that's not capitalism, that's socialism for the rich,' he said.

The weakest financial institution is Fannie Mae, in Rogers' opinion, 'but all of them have problems.'"




Most Economists in Survey
Say Recession Is Here
Poll Shows Sharp Drop
In First-Half Forecasts;
Retail Sales Decline


The Wall Street Journal

March 13, 2008; Page A14

"Economists in the latest Wall Street Journal forecasting survey are increasingly certain the U.S. has slid into recession, a view reinforced by new data showing a sharp drop in retail sales last month.

'The evidence is now beyond a reasonable doubt,' said Scott Anderson of Wells Fargo & Co...

The survey marked a precipitous shift toward pessimism from the previous survey, conducted five weeks earlier...

Almost half the economists surveyed said a recession this year could be worse than the 2001 and 1990-91 downturns..."





Betting the Bank

By PAUL KRUGMAN - New York Times
Published: March 14, 2008

"Four years ago, an academic economist named Ben Bernanke co-authored a technical paper that could have been titled 'Things the Federal Reserve Might Try if It’s Desperate' — although that may not have been obvious from its actual title, 'Monetary Policy Alternatives at the Zero Bound: An Empirical Investigation.'

Today, the Fed is indeed desperate...

What if this initiative fails? I'm sure that Mr. Bernanke and his
colleagues are frantically considering other actions that they can
take, but there's only so much the Fed — whose resources are limited,
and whose mandate doesn't extend to rescuing the whole financial
system — can do when faced with what looks increasingly like one of
history's great financial crises."



U.S. faces severe recession: NBER's Feldstein
Friday March 14, 10:55 am ET
By Ros Krasny

"BOCA RATON, Florida (Reuters) - The United States is in a recession that could be 'substantially more severe' than recent ones, National Bureau of Economic Research President Martin Feldstein said on Friday.

'The situation is very bad, the situation is getting worse, and the risks are that it could get very bad,' Feldstein said in a speech at the Futures Industry Association meeting in Boca Raton, Florida.

There's no doubt that this year and next year are going to be very difficult years."


Mar 14, 2008, 12:53:00 PM  
Blogger Holland said...

The Fed is trying to rescue the Wall Street at the expense of the Main street. They don't understand that it is the Main street that carries the Wall Street not the other way around. When people have to pay $5.00 per pound for ground beef, it says something.

Mar 14, 2008, 1:28:00 PM  
Blogger marinite2 said...

Thanks sf_jack!

Mar 14, 2008, 1:31:00 PM  
Blogger marinite2 said...

Apparently Bear is on death row because Alt-A is starting to keel over and needs the money now and not on March 27 or whenever it is that the Fed's latest bailout makes funds available. Hear that Marin? Alt-A.

Here is some info about it all left by a commentor on Ben's blog:

A 75 bp interest rate drop seems certain.

Mar 14, 2008, 2:37:00 PM  
Blogger marinite2 said...

I guess it is also worth noting that the SF Chronicle reports that Marin existing, single-family house prices are down double digits for the first time since...?

Mar 14, 2008, 3:24:00 PM  
Blogger sf jack said...

That Chronicle chart you link to is just amazing.

"What goes up, must come down..."

The other Chronicle chart associated with that article:


... is fantastic also.

Acceleration is a bitch on the downside!

Mar 14, 2008, 4:08:00 PM  
Blogger Lisa said...

The MSM has labeled this as a Subprime Problem from the beginning. So, as AltA starts to crack, expect to hear more of....we're one saw this coming....blah, blah. At that point, this will really hit home. It's not just Subprime in far-flung areas, it's the nice young couple who bought at 6x income in Mill Valley and the Larkspur boomers who couldn't resist that weekend condo in Tahoe, etc.

Just think of all the reporters and analysts who are home owners. No one wants to admit that this will come to their own neighborhood.

Mar 14, 2008, 5:25:00 PM  
Blogger marine_explorer said...

"When will the apathy end? How bad does the situation have to get before it trumps personal greed?"

I tend to think the average consumer has been trained to think self-destructively, because even those in authority lack the fiscal foresight and wisdom to lead this country properly. Since when did the adage "spend more—save America" become a sound economic plan? The same is true for corporations which spent the last decade shuffling around money/overhead to look better on paper and flush executive accounts; they've set us up for a bad fall. People have taken this gross negligence as a cue to run their own lives where financial schemes have become de rigueur to success and wealth.

Real estate is only a small part of this mess. I think we'll see wave after wave of speculative manias until the credit system collapses. Only until the point is driven home in the bluntest fashion will people begin to question their assumptions.

Mar 15, 2008, 1:01:00 PM  

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