Posts Tagged ‘Housing Crisis’

Actually, Case-Shiller Shows That The Housing Crash Has Already Resumed

Actually, Case-Shiller Shows That The Housing Crash Has Already Resumed


Courtesy of Henry Blodget at Clusterstock

Whitney Tilson has another take on the August Case-Shiller numbers, which sent housing bulls into spasms of glee a few days ago.

The sequential increase in prices in August was less than the sequential increase in July.  This, Whitney believes, is the start of the seasonal downturn that will take house prices down another 10%-15% by the middle of next year.

Whitney’s chart shows the typical sequential pattern, which has monthly growth peaking in the spring and early summer and then turning down:


You can download Whitney’s (huge and excellent) presentation on the housing market here >.  Check out the top download on the right.


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The FHA Is A Looming Disaster

The FHA Is A Looming Disaster

FHA looming disasterCourtesy of John Carney at Clusterstock

Larry Kudlow asked me to come on the Kudlow Report last night to discuss the looming ruin of the FHA.

  • The FHA has expanded from guaranteeing just 2% of mortgages to over 20% in just a couple of years, dramatically raising its exposure to the still declining US housing market.
  • The FHA still backs toxic, almost-no-money down mortgages. It will currently guarantee mortgages with as low as 3.5% downpayments.
  • The FHA’s mission is political: it is still trying to "expand home ownership."
  • The discredited ideology of home ownership is the most toxic ideology since communism.
  • The number of mortgage companies whose loans are backed from the FHA has grown from around 1,000 to over 3,300 but the FHA hasn’t grown its ability to analyze these companies.
  • A recent audit of FHA applications found only 5% included all the necessary documents.
  • The leadership of the FHA is completely oblivious to its coming ruin.
  • The FHA is in even worse shape than Fannie Mae and Freddie Mac.

Here’s the video:

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Foreclosures Hit All-Time High

Foreclosures Hit All-Time High

Courtesy of Vincent Fernando at Clusterstock

ForeclosuresForeclosures hit another all-time high in Q3 with almost 938,000 homeowners filing, according to Realty Trac.

This rose at a substantial 5% clip since Q2.

If you’re aren’t feeling the pain perhaps you don’t living in one of the six states which accounted for 62% of nationwide foreclosures alone:

  • California – down 1.5%
  • Florida – -0.7%
  • Arizona – +5%
  • Nevada – +9.8%
  • Illinois – +13.7%
  • Michigan – +9.5%

Basically, the pace of activity in the old sand states is finally winding down, but the crisis is spreading to the Midwest, and it’s happenign fast.

Read the official release here.

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Americans Still Delusional About House Prices

Americans Still Delusional About House Prices

home house housing hurricane disaster tornado wreck mess

The recent upturn in house prices from April to July (3.6%) is the sharpest change in direction professor Robert Shiller has ever seen. 

It could signal a v-shaped recovery in house prices.  Or it could be the "mother of all head fakes," as investor Whitney Tilson has described it.

Robert Shiller’s recent survey of attitudes about house prices suggests it’s probably the latter.  The survey also suggests that Americans are still delusional about the long-term trajectory for house prices.

In the survey, Shiller and his partner Karl Case ask Americans what they think home prices will do over the short and long term. 

The expectation for long-term price changes hasn’t changed much since before the bubble (it’s now down to 11% a year appreciation).  This outlook is more reasonable now than it was at the peak of the bubble, but it’s still extraordinarily optimistic.  This suggests that Americans still regard the last couple of years as a freak anomaly--even though house prices are just now hitting the range of "normal" on key price ratios like price-to-rent and price-to-income (see charts below).

The outlook for short-term changes (one year), meanwhile, has changed a lot in the past year.  Specifically, it has gone from negative a year ago to 2% this summer.  Thus, Americans are expecting a near-term housing recovery--in part, perhaps, because of the recovery from April to July.

Shiller thinks this change suggests that buyers are now trying to time the housing market by getting in at the bottom.  This could be contributing to the surge in prices we’ve seen over the last few months.

It’s always possible that Americans are right, that we’ve passed the bottom and are on the way up.  If so, however, this would mean remarkable foresight on the part of the average buyer. 

Around major changes in market direction (the peak of the housing bubble, for example), there is widespread agreement about what future prices will do--and this consensus is usually 100% wrong.  If the consensus is right this time that we’ve just passed the bottom, therefore, it will be because the average American has suddenly gotten a lot smarter that usual about what the future holds.


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Plunging Rents Will Drag House Prices Down With Them

Plunging Rents Will Drag House Prices Down With Them

Courtesy of Henry Blodget at Clusterstock

Plunging rents are great news for renters, but they’re lousy news for homeowners.  Aaron Task and I discussed this issue on TechTicker this morning:

The vacancy rate for rental apartments in the U.S. is now 7.8% and climbing, says the Wall Street Journal.  This is the highest vacancy rate in 23 years.

Worse, the vacancy rate is expected to keep climbing through the winter, ultimately hitting the highest rate on record.

This is good news for renters and bad news for landlords.  It’s also bad news for anyone who owns and would like to sell a house.

Why are rising rental vacancies bad news for homeowners?

Because rising vacancies put pressure on rents, as landlords have to cut prices to woo a smaller pool of tenants.  As rents drop, meanwhile, one of the key measures of house-price value--the price-to-rent ratio--also changes, and not for the good.

All else being equal, when rents drop, the "Housing P/E ratio" — price to rent — increases as rents decrease.  This is the same thing that would happen to the P/E ratio of a stock if the company’s earnings began to shrink.

The more the rent/earnings shrink, the more expensive the house or company is as a multiple of the rent/earnings.

Will people suddenly refuse to pay as much for houses because the price-to-rent ratio rises a bit?  No.  But they may decide to rent instead of buy, which will remove some demand from the housing market.  And, this, in turn, will put pressure on house prices.

The chart below from Calculated Risk illustrates the price-to-rent ratio over the past 15 years.  As you can see, it got way out of whack during the peak bubble years and has now fallen back within the realm of normal.  As rents fall, however, the ratio will start rising again. 

That is, unless house prices fall, too, which is the more likely scenario.


See Also:  HOUSING RECOVERY!  (How’s Your City Doing?)


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Case Shiller Up Again In July

Case Shiller Up Again In July

Courtesy of Joe Weisenthal at Clusterstock

The good news: home prices rose 1.2% from June to July (not seasonally adjusted) according to the just-released Case Shiller data. 18 of the 20 areas covered in the survey grew month-over-month and all 20 cities showed an improvement in the rate of decline.

The bad news: Home prices are still 13.3% below July a year ago, down 33% from the peak, and we’re now heading into a seasonal weak period for housing, when many experts predict the housing market will decline, in part due to the fact that after the summer moving season, foreclosures will take up a larger share of the market.

While the 13.3% annual decline is still huge, the report (below) notes some interesting positives, such as the markets in Denver, Dallas, and Cleveland, which are only down between 1-3%.

Following the release of the report, futures turned from negative to solidly positive.

case shiller july

CSHomePrice Release 092955


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Wells Fargo’s Ticking Time Bomb: Credit Default Swaps On Commercial Mortgages

Wells Fargo’s Ticking Time Bomb: Credit Default Swaps On Commercial Mortgages

WellsFlannelManBIG AP 10 03 08Courtesy of John Carney at Clusterstock

Outside experts hired by Wells Fargo to pour through its books are reportedly shocked at the bank’s exposure to derivatives trades it took on when it acquired Wachovia may trigger huge losses at the bank, Teri Buhl reports at

It appears that Wachovia wrote credit default swaps on the junior tranches of commercial mortgage backed securities it was selling, which means that it is on the hook for losses in the riskiest CMBS tranches it sold. Wells itself might not even know the size of its exposure, Buhl reports.

From Buhl:

According to sources currently working out these loans at Wells Fargo when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer’s risk premium by writing credit default swap contracts against these subordinate bonds. Should the junior tranches eventually default, then the bank is on the hook. Dan Alpert of Westwood Capital says these were practices that he saw going on in the market at large.

Alpert says in reference to how he saw CMBS trades get done, “These guys would say ‘We’ll just take back that silly credit risk you’re worried about.’ Of course that was a nice increase to earnings when they got the security sold. The bank made money at the time.”

Buhl points out that investors might be caught off-guard if Wells has to start paying out on the swaps it sold. Wells, like most banks, almost certainly holds the credit default swap liabilities off balance sheet and most likely does not recognize them as a loss until they actually have to pay, Buhl writes. Wells says it carefully monitors its derivatives exposure. "We have provided extensive transparent disclosures on our derivatives in our 2008 annual report beginning on page 132,” Wells says.

Here’s Wells own calculation of its derivatives exposure as of the day it closed the Wachovia deal.


But it seems fair to wonder if Wells really understood all of the derivatives exposure it took on when it acquired Wachovia. Buhl wonders if Wells really has enough capital set aside to handle the derivatives liability.

…So could Wells really have enough capital to handle the liability of credit

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The Final Demise Of A Speculative Housing Bubble

The Final Demise Of A Speculative Housing Bubble

housing bubbleCourtesy of Charles Hugh Smith Of Two Minds

The speculative mania in housing has been extended by massive Federal Reserve and government intervention; the government now owns or guarantees 2/3 of U.S. mortgages.

While speculative bubbles may pop in terms of sales and valuations, the psychology that underpinned the mania lives on for some time--especially if government extends the speculation with massive interventions.

I sincerely doubt the average American understands the full measure of Federal intervention to prop up the U.S. housing market. The numbers casually dropped (with little context, of course--this is pure MSM "coverage," after all) in the Wall Street Journal report No Easy Exit for Government as Housing Market’s Savior ( are truly mind-boggling:

To keep funds flowing to the housing market, the government bailed out Fannie Mae and Freddie Mac last year and now effectively owns the mortgage finance giants and their combined $5.4 trillion in loan portfolios. To keep mortgage rates low, the Federal Reserve is on track to purchase nearly $1.5 trillion in debt issued or guaranteed by the government’s various mortgage arms and another $300 billion in Treasurys, which set the benchmark for home lending.

What the reporters fail to mention is the value of all U.S. mortgages is about $10 trillion-- meaning the U.S. government now guarantees over half of all mortgages just with Fannie and Freddie.

But wait--it gets worse--much worse:

Since the beginning of the year, the Fed has purchased $836 billion of mortgage backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae, the federal body that securitizes FHA loans. The purchases have helped push down interest rates on mortgages guaranteed by the firms from nearly 6.5% last October to 5.25% today, according to HSH Associates, which tracks the mortgage market.  

The Fed is likely to decide to carry on buying until it reaches the $1.25 trillion target it set in March, and then taper off gradually.

So the Fed is buying $1.2 trillion in toxic, doomed mortgages, fully 12% of the entire mortgage market of the U.S., just this year alone. And why would the Fed print all that nice new money and exchange it for toxic mortgages worth a mere fraction of their original value? To clear the sludge off

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The FHA Responds: We’re Not Broke And We Don’t Need A Fracking Bailout!

Big sigh of relief!

Echoes of Fannie and Freddie heard in the distance.

The FHA Responds: We’re Not Broke And We Don’t Need A Fracking Bailout!

david stevens.jpgCourtesy John Carney at Clusterstock

The head of the U.S. Federal Housing Administration has responded to the Wall Street Journal article raising concerns that the agency might need to be bailed out if its capital reserve ratio fell below the 2 percent demanded by Congress.

"Even if that level falls below 2 percent, FHA continues to hold more than $30 billion in its reserves today, or more than 5 percent of its insurance in force," according to a statement issued by FHA Commissioner David Stevens. "Given this reserve level, FHA will not need a congressional subsidy even if the congressional capital reserve calculation falls below 2 percent."

"FHA’s full faith and credit insurance means that there is no risk to homeowners or bondholders independent of the congressional capital reserve requirement," Stevens said.

You’ll be forgiven for thinking this sounds a lot like the statements issued by the heads of Fannie Mae and Freddie Mac prior to the bailout of those institutions, which happened one year ago today.

(via Reuters)

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FHA Time Bomb Explodes…Bailout Coming Next!

FHA Time Bomb Explodes…Bailout Coming Next!

Courtesy of John Carney at Clusterstock

fiery-explosion.jpgMortgage-related losses may push the reserves at the Federal Housing Administration below the level required by Congress. The Wall Street Journal describes this as “a development that could raise concerns about whether the agency needs a taxpayer bailout.”

The FHA has played a key role in the government’s attempts to stabilize the housing market. In the past two years, it has rapidly expanded its loan guarantee portfolio in an effort to encourage mortgage lending. FHA-backed loans outstanding, which totaled $429 billion in fiscal 2008, are projected to hit $627 billion this year. FHA market share rose from 2.7% in 2006 to 23% last quarter.

The FHA will insure loans with down payments as little as 3.5% of a home’s price, and until last year it guaranteed down payment assistance programs that basically let borrowers buy houses with no money down. Many of those borrowers soon had negative equity in their homes when housing prices dropped. Its programs have helped keep the percent of borrowers who buy with less than 10% down steady, despite many lenders returning to a more traditional 20% down payment requirement. 

The expansion of the FHA’s role in the housing market was supposed to have no cost to taxpayers, according to lawmakers like Barney Frank who backed the expansion. So what went wrong?

It’s a story familiar to anyone who has watched our financial institutions fall apart. Basically, home-price declines have exceeded those used to model their expected losses. It now seems likely that losses will diminish reserves beyond the required 2% level. If that happens, Congress will either have to allow the FHA to operate with thinner reserves, order the FHA to raise fees on homebuyers or bailout the agency with additional taxpayer dollars.

Only the bailout seems likely, despite reassurances from government officials that there is “zero risk” that the drop in reserves will cost taxpayers money. But the alternatives are untenable. A further dropping of the reserves below 2% will mean the agency will be so thinly capitalized that lenders will not be able to rely on the guarantees. Raising fees charged on guarantees will make home loans more expensive, perhaps derailing the hoped for housing recovery.

One alternative may be to have the Treasury or the Fed wrap the FHA guarantee with an…
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Phil's Favorites

Brief Summary of Friday's stock market action


It was a good idea from Paul Krugman on Thursday, but by Friday, hopes for a sane approach to economic matters all but disappeared...

What about calling off the trade war that has been depressing business investment? This seems unlikely, because protectionism is right up there with racism as a core Trump value. And merely postponing tariffs might not help, since it wouldn’t resolve the uncertainty that may be the trade war’s biggest cost.

The truth is that Trump doesn’t have a Plan B, and probably can’t come up with one. On the other hand, he might not have to. Who needs competent policy when you’re the chosen one and the ...

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Zero Hedge

How Negative Interest Rates Screw Up The Economy


By Wolf Richter via, as published at Zero Hedge

Now they’re clamoring for this NIRP absurdity in the US. How will this end?

This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:

Now there is talk everywhere that the United States too will descend into negative interest rates. And there are people on Wall Street and in the media that are hyping this absurd condition where government...

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The Big Pharma Takeover of Medical Cannabis

Reminder: We are available to chat with Members, comments are found below each post.


The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...

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Kimble Charting Solutions

Bearish Divergences Similar To 2000 & 2007 In Play Again!

Courtesy of Chris Kimble

Does history at important junctures ever repeat itself exactly? Nope

Do look-alike patterns take place at important price points? Yup

This chart looks at the S&P 500 over the past 20-years.

In 2000 and 2007 bearish momentum divergences took place months ahead of the actual peak in stocks.

Currently, momentum has created a bearish divergence to the S&P 500 for the past 20-months, as the seems to have stopped on a dime at its 261% Fibonacci extension level of the 2007 highs/2009 lows.

Joe Friday Just The Fact Ma’am; A negative sign for the S&P 500 with the divergence in play, would take place if support b...

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The Technical Traders

Do Good Traders Make Good Gamblers?

Courtesy of Technical Traders

Without breaking the rules, have you ever made a trade that was guaranteed to make you money? A trade that was literally guaranteed to succeed.

If you’re struggling to come up with an answer, we’ll give you a helping hand, the word you’re searching for is likely no. Every financial trade ever made – no matter how sound and well researched using technical analysis – carries with it an element of risk.

Outside factors beyond your control always have the possibility of turning profits into losses and ecstasy into agony. In many ways, trading is similar to gambling. For instance, you may think you know ...

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Insider Scoop

Earnings Scheduled For August 22, 2019

Courtesy of Benzinga

Companies Reporting Before The Bell
  • Hormel Foods Corporation (NYSE: HRL) is estimated to report quarterly earnings at $0.36 per share on revenue of $2.29 billion.
  • BJ's Wholesale Club Holdings, Inc. (NYSE: BJ) is projected to report quarterly earnings at $0.37 per share on revenue of $3.38 billion.
  • DICK'S Sporting Good... more from Insider

Chart School

Gold Gann Angle Update

Courtesy of Read the Ticker

Everything awesome? Gold over $1500. Central banks are printing money to generate fake demand. Germany issues first ever 30 year bond with negative interest rate. Crazy times!

Even Australia and New Zealand and considering negative interest rates and printing money, you know a bunch of lowly populated islands in the South Pacific with no aircraft carriers or nuclear weapons. They will need to do this to suppress their currency as they are export nations, as they need foreign currency to pay for foreign loans. But what is next, maybe Fiji will start printing their dollar. 

Now for a laugh, this Jason Pollock sold for more than $32M in 2012. 

Ok, now call Dan...

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Lee's Free Thinking

Watch Out Bears! Fed POMO Is Back!

Courtesy of Lee Adler

That’s right. The Fed is doing POMO again.  POMO means Permanent Open Market Operations. It’s a fancy way of saying that the Fed is buying Treasuries, pumping money into the financial markets.

Over the past 6 days, the Fed has bought $8.6 billion in T-bills and coupons. These are the first regular Fed POMO Treasury operations since the Fed ended outright QE in 2014.

Who is the Fed buying those Treasuries from?

The Primary Dealers. Who are the Primary Dealers?  I’ll let the New York Fed tell you:

Primary dealers are trading counterparties of the New York Fed in its implementation of monetary policy. They are also expected to make markets for the New York Fed on behalf of its official accountholders as needed, and to bid on a ...

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Digital Currencies

New Zealand Becomes 1st Country To Legalize Payment Of Salaries In Crypto

Courtesy of ZeroHedge View original post here.

Bitcoin and other cryptocurrencies have been on a persistent upswing this year, but they're still pretty volatile. But during a time when even some of the most developed economies in the word are watching their currencies bounce around like the Argentine peso (just take a look at a six-month chart for GBPUSD), New Zealand has decided to take the plunge and become the first country to legalize payment in bitcoin, the FT reports.

The ruling by New Zealand’s tax authority allows salaries and wages to b...

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:


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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...

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Free eBook - "My Top Strategies for 2017"



Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:


·       How 2017 Will Affect Oil, the US Dollar and the European Union


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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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