Nothing 'new' here, other than the question of "is *this* really all priced in?"
I think on the surface the idea that "home sales are weak" is priced in, but its a matter of degree. Is the market truly understanding the depths of the situation? That without exotic mortgages than can no longer can be securitized and packaged to "innocent" hedge funds that homes are just PLAIN unaffordable to most of the populace in most parts of the northeast, west, and parts of the south? Or is "ALL THAT" already priced in?
People keep focusing on the wrong issue - the main issue is and continues to be affordability. With a standard 30 year fixed mortgage home prices at these levels do not allow an influx of buyers. They just cannot afford it. Period. Now thankfully inflation is defeated so their real wages are rising astronomically so maybe in a few months this all goes away (sarcasm dripping).... also remember Hovnanian CEO told us the bottom is here... a mantra he has repeated quarterly for a year now.
The bottom line is the home BUILDERS are seeing the reality - they cannot move homes without severe price cuts - but existing home owners do not see the reality and in some cases cannot afford the reality to be true (see Chicago Tribune Story - "Here's a New One: Being Too Broke to Sell") Folks, people are so leveraged they cannot afford the costs involved in SELLING their home - this is what the era of 0% down brought us. People don't save, they pull whatever equity out of their homes or go into homes (the past 3-4 years) with nothing down (heck the closing costs are rolled into the mortgage) - so now they cannot even find the money to pay the fees/costs that come with selling homes. It's bad. But this is "all priced" into the market.
- WASHINGTON (AP) -- An index that forecasts near-term home sales fell in August to a record low as would-be homebuyers had difficulty getting mortgages. Economists said the housing market's woes show no sign of improving soon.
- The National Association of Realtors said Tuesday its seasonally adjusted index of pending sales for existing homes fell 6.5 percent from July and 21.5 percent from a year ago.
- Shapiro and other analysts expect prices to fall further before home sales rebound. Developers are already making big price cuts to move unsold new homes, but existing homeowners are more reluctant to do so.
- The problems, experts say, were seen especially in expensive areas where borrowers need to take out "jumbo" home loans above $417,000 that can't be sold to government-sponsored mortgage companies Fannie Mae and Freddie Mac
- In late August, the gap in mortgage rates between jumbo loans and "conforming" loans below the $417,000 limit widened to 0.93 percentage points, up from a typical level of 0.2 percentage points, according to financial publisher HSH Associates. That difference makes it harder for prospective buyers -- particularly in the pricey Northeast and West Coast markets -- to afford more expensive homes.
- In some areas, up to 30 percent of signed contracts fell through in August, said Lawrence Yun, senior economist at the real estate trade group.
- While the real estate trade group has forecast a recovery in home sales by next year, some investors see a long, deep housing market decline and a recession ahead. "The housing bubble has burst," said Peter Schiff, president of Euro Pacific Capital in Darien, Conn. "Prices are going to collapse and sales are going to fall through the floor."
Oh you pessimist you, Mr Schiff. The market has told us this is all taken care of. Helicopter Ben to the rescue. What's that? Pimco Bond uber god saying Fed has to cut rates to 3.75% - woo hoo! (read Bill's latest missive here) Remember, bad news is good news. Party on Garth!
2 comments:
Interesting article on CNNMoney about whether the market rallying the way it has after the rate cuts (in expectation of more rate cuts) might actually negate the possibility for another rate cut.
"By moving so quickly to soothe the worries of investors, the Fed may also have raised the expectation that it will keep cutting rates. And it may be this expectation of further rate cuts, and not the actual rate cuts themselves, that are fueling the market's recent rally."
""Investors have built in expectations for another rate cut in October and future moves beyond that. But that's totally inconsistent with the substantial improvements in the market. Much of the basis for the Fed's move was to restore some of the order within the markets"" - Keith Hembre, chief economist with First American Funds
"With the market firming up, I can see the Fed backing way from a rate cut. With Citigroup and UBS taking big write-offs, everyone is giddy, thinking that the worst is over." - Ted Parrish, co-manager of the Henssler Equity fund
"To cut rates again, Parrish said, the Fed will probably need to see another disappointing jobs report."
""On a global basis, the pressure is for higher interest rates. The more the dollar continues to decline, the higher inflation you have. By lowering interest rates, the Fed has actually created an inflation problem for themselves and will eventually have to raise rates again."" - SMH Capital's Cummer
I am convinced it will not. In fact with the bailouts going on behind the scenes I am thinking 50 basis points next meeting too. Bill Miller says 3.75% within 6-12 months. 6 months is only 3-4 meetings away. Thats still a full 1% point down.
It looks like to me, 1 year of ultra low rates, sub 4% and then the Fed will have to reverse itself for this massive inflation bubble they inflated to bail out the rich. Its not helping people in housing - 30 year fixed rates have gone UP since they cut. It will allow people to get into 2 year ARMs if he cuts to 4% or below. Wait... didn't we just go through that? ;)
84% chance now per futures of Fed cut in October. Boo. Don't use logic. Look at whats going on behind the equity markets - bailouts. Canada central bank just did $1 billion overnight - the entire western world has this stuff going on. Amazing.
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