Saturday, September 29, 2012

Weekend links

1--61-year-old man shot dead in drug raid on wrong house, ABC News

2--U.S. Troops Deployed in Iraq Again , New American

3-Military Report Shows Afghan Surge Complete Failure; The Taliban insurgency is as strong as ever, Kabul is weak, and overall violence has not subsided, antiwar

4--Shiller Data Questions Housing Revival Power, Bloomberg

5--Bank Cyber Attacks Show Vulnerable Infrastructure, Bloomberg video

6--After Brisk Summer, Pending Home Sales Drop in August, CNBC

7--Deepening global recession, Business Recorder

8--New home sales dip, but prices scale five-year high. Reuters

9--Venezuela: Ex-US ambassador outlines intervention plans, green left

10--Immigrant Detention and the Private Prison Industry, immigration impact

11--Broker Sent Oil Prices to Eight Month High in a Drunken Stupor, oil price

12--Student-Loan Default Rates Rise as Federal Scrutiny Grows, Bloomberg

13--Poor US economic data suggest Q3 GDP may not be better than Q2, prag capitalism

14--Consumer Sentiment Cools During September, WSJ

15--Mortgage-Bond Selling Shows Anxieties Despite Fed Support, WSJ

16-US Envoy: Preparations Made for Attacking Iran, antiwar

17-Irving Fisher on debt deflation, macronomyblogspot

when the debt bubble bursts the following sequence of events occurs:
Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links:
1.Debt liquidation leads to distress selling and to
2.Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
3.A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
4.A still greater fall in the net worths of business, precipitating bankruptcies and
5.A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make
6.A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to
7.pessimism and loss of confidence, which in turn lead to
8.Hoarding and slowing down still more the velocity of circulation.
The above eight changes cause
9.Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest
." - (Fisher 1933)

18--Housing: Less supply does not necessarily mean higher prices, OC Housing News

For as long as records on delinquencies were kept, rarely did the rate exceed 2%. Currently, it is over 10%! To make matters worse, the delinquency rate for commercial banks is not declining as fast as delinquencies overall. Over the last two years, the rate dropped from from a peak of 11.2% to the current 10.2%. If lenders continue at that pace, it will take another 16 years for delinquency rates to get back to historic norms.

Are we really at the bottom?

To me it is a source of some consternation that more than 10% of all residential mortgages held by the banks are delinquent. What is the future of those borrowers and their properties. Isn’t it likely that many, if not most, of these properties will be distressed sales as either short sales or foreclosures? Won’t those sales pressure prices?

I consider loan modifications can-kicking. Few of these borrowers are going to permanently cure their loans and sell with equity. Lenders are merely hoping to delay their losses and hope prices will go up which will minimize the carnage. Unfortunately, the liquidation of these bad loans requires an MLS sale — an additional sale the market would not ordinarily absorb. These sales will serve as a drag on appreciation if not a cause of outright price declines. That isn’t what lenders fantasize about....

With ordinary goods and services, buyers are not limited in their ability to raise their bids. With housing they are. A precipitous drop in supply may prompt those few with the ability to bid higher to do so, but it may also serve to drastically reduce sales volumes, which is what’s happening here in the West. This is an important point because most pundits like this guy fail to understand (perhaps through willful ignorance) that less supply does not automatically mean house prices will go up...
.
There are several reasons to remain skeptical…. Goldman’s economics research team understands that much of the improvement in housing markets can be attributed to a fall in the percentage of distressed transactions, which accounted for 50% of sales in 2009 and has now fallen to 25%. (Read Steve Schaefer‘s piece, Why The U.S. Housing Recovery May Be Due For A Stumble for more on this).

And most of this reduction is entirely due to policy changes at the major banks to comply with the settlement agreement. Lenders simply stopped taking on more REO in hopes they can resolve these bad loans through short sales instead. When banks finally reach their quotas, likely by next spring, they will turn their attention to forcing out the committed squatters....

While the number of distressed sales vis-à-vis regular sales has fallen quite dramatically since March 2009, its decline was more moderate from May 2011 to May 2012, when it went from 31% to 25%. The historical average, though, is far away, at about 5%.

So not just are the bank’s residential loan delinquency rates more than five times historic norms, the share of distressed sales is also five times historic norms. That sounds like a recipe for a housing market bottom, right?

While Goldman expects the percentage of distressed sales to slowly tend toward this average, they understand this could take many years:

In our view, returning to a more normal proportion of distressed sales will take several years, given the large number of borrowers with negative equity, the large current delinquency and foreclosure inventory, and the long current foreclosure timelines.
In other words, the bank’s can-kicking is dragging this out

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