They Don't Ring A Bell

Who will be most disappointed by the end of the mortgage crisis? My bet is that it will be the various and sundry doomsday writers who glibly use "median" in their rationales for the 'end of the world as we know it' summaries on real estate. When mortgage lenders choked off the supply of jumbos in August it didn't take a genius to understand that the 'median' price was going to take a hit. The doomboys apparently can't afford the pixels to mention that. Nor do they appear to possess a sufficiency of pixels to note that the increase in average square footage for SFRs from 2000 and 2006 was 9.5%. Could that account for a say, 9.5%, increase in price? If it does, then it accounts for 20% of the total "exorbitant" increase over the time period. Did you know that the "exorbitant" price increase of the last seven years is actually precisely aligned with the annual increase in price over the past forty years? If you do it wasn't from the doomboys because the doomboys will never speculate on that point, no more than they will ever take a moment to examine the fact that "median" household income today has changed in the same manner that the average house has changed. Except that the "median" household has grown poorer due to its composition. The no spouse (NSP) component of the family household has increased by over 7% in seven years which dragged down the overall increase in family median household substantially. The income of the married couple component hasn't increased at the same rate as the cost increase of the median house but that has something to do with the fact that 25% of the married couple component is over 65.

Take another look at the doomboy chart MHA posted a few days ago. In particular, take a look at previous recoveries from the lows. The big home builder stocks jumped 4% today (average of Beazer, Ryland, Toll, Pulte, Lennar, Hovnanian, Horton and Centex).

Ding. Ding. Ding.

Knucklehead

This one's for you.

The Sky Is Falling!!

October 16 Homebuilder Outlook Falls to Record Low

October 17 New Home Construction Plummets Again

October 24 Existing Home Sales Tumble 8 Percent

October 25 New Home Sales Rebound in September

Whoops. What's that doing in there? Don't those buyers understand that the end is nigh?

It will take at least three months of flat or very moderate growth before we'll be seeing any 'the worst is behind us' articles and there is a very good chance that September figures just reflect families wanting to get the kids into new schools. Nevertheless - I'll stick with my call that August marked the absolute bottom for housing nationally. Babies continue to be born at a markedly faster rate than oldsters are dying and that will be true until about 2021. Demand pressure should bring the market back to 2003 construction levels by spring of '09.

Barring a recession, of course.

Now, where's my umbrella?

Dueling Headlines

September foreclosures fall

Foreclosure filings nearly double

Same data, same (poor) source.

I like this one too:Mortgage meltdown: Vulture investors

Buying low makes you a vulture? Is CNN's financial advice predicated upon "Buy high and make someone else happy!"?

As Giuliani mentioned the other evening, "Getcher head up." Hard to do when you're sitting on it but good advice, nevertheless.

Black Knightian Swan Risk Management

The market reacted to the Feds half point cut rather vociferously today. Don't those traders read the horrible news about the foreclosure rates? What kind of irrational exuberance cheers the market when we all know that the record foreclosure rates of August will surely be surpassed in September and October and... well, who knows?

The House rose to the bait with even more alacrity than did Bernanke, tossing in $300 million in low income grants - undoubtedly 'for the children'. I can understand members of the House having difficulty understanding the concept of 'moral hazard'. After all, neither dead girls nor live boys are involved. Bernanke is another matter. 'No pain' bailouts draw additional risky behavior as a light draws moths. The Fed really isn't supposed to be so easily suckered and they might have waited for at least one big lender to go down the tubes before wading in.

I would have to imagine that the clever lads who came up with the concept of the 'no doc' mortgage are already working on another clever scheme. That one will undoubtedly be the 'real' Black Swan.

Or not.

Coming To Your Neighborhood?

How would you like to have purchased a home in this development last year and wake up to this in the morning paper. Hovnanian is a major US builder, certainly in the top ten. This type of 'inventory clearance' is practically unheard of among major builder/developers because of its negative impact on people who have recently purchased. Who in their right mind would ever buy in another new development in which Hovnanian was involved? He's sure creating some less than happy little communities. Most residential real estate downturns involve the bankruptcy of at least one major builder. None have gone under in this downturn to date but I've got a new favorite in the race to Chapter 11.

As an aside - Hovnanian is offering the sleeves from his vest to people biting on the "Deal of a Century". Hard construction cost on that model identified did not exceed $215,000 and the developed lot hard cost was less than $75,000. He's eating soft costs and holding costs and that's it.

It appears that Countrywide has secured another $12 billion before next weeks Fed meeting and mortgage originations are up a few ticks while rates have dropped. We're two weeks into The Great 2007 Walk Away and so far, so good.

'Course, that's what the fella who jumped off a twenty story building said as he passed the tenth floor.

Do You Believe in Regression to the Mean?

Much has been made lately of falling housing prices and their negative effect on the American economy. What isn't mentioned so often is that the areas that are seeing some declines in prices now are typically areas, such as San Diego, which saw 25% rises in prices during several of the last few years. The link takes you to housing price year-over-year changes in twenty US markets. While it is undoubtedly hard on marginal buyers to see interest rates rise, it is probably much harder on them to watch housing prices skyrocket beyond the means of all but the most well-endowed Trustafarians.

The question going forward is whether we have seen the worst or whether there is more bad news to come. I have watched Jim Cramer call the bottom of the housing market at least twice now since last summer. The chart below may help to concentrate your mind, depending on your answer to the title question.