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No Cheer For Housing Bulls From Goldman Which Goes Negative On House Prices

Tyler Durden's picture




 

Goldman recently confirmed it has lost the magic touch when it joined the momentum brigade in anticipating a blow out 600,000 NFP number, revising its prior estimate by +100,000 on Thursday, even as the real NFP came out as a miserable dud 24 hours later. Which is why we urge readers to take the following note from Goldman's Sven Jari Stehn, even though conceptually we are in full agreement with its message, with a big grain of salt: "Despite normalization of valuations, we expect excess supply, high delinquencies and the fading boost from housing policies to push down house prices somewhat further in 2010 and 2011." And just like earlier we pointed out the discrepancy between the opinions of two BofA strategists on the EURUSD, and the huge implications from this divergence, so here we observe the inconsistency between Sven's bearish view on the oh so critical to the US economy housing segment, and David Kostin's hope for an S&P at 1,250 by the end of the year (and 1,300 by June 30).

From Goldman US Economics Analyst: 10/22 - House Prices Have Not Bottomed Yet June 4, 2010

US Economics Analyst

  • Following their sharp earlier decline, house prices have stabilized since early 2009 and valuations have returned to “normal” levels. But at the same time, temporary boosts from government housing policies are fading and the housing market remains plagued by excess supply and high—and apparently still rising—mortgage delinquencies.
  • To gauge what these opposing forces might imply for future house prices, we construct a model for a panel of 20 metro areas. Our results show that house price dynamics are explained by (1) price momentum, (2) price/rent valuations, (3) the change in mortgage delinquencies, (4) the mortgage rate, (5) excess supply and (6) temporary factors, including the government housing policies.
  • Given the excess supply in the housing market and rising delinquencies, our model suggests that the composite 20-city Case-Shiller index will fall by 3% over the next year and another 1% over the following year.
  • Our model projects the biggest price declines in Las Vegas, Seattle and Portland, due to high homeowner vacancy rates and/or rising mortgage delinquencies. Conversely, we expect modest house price gains in Cleveland, Minneapolis, San Diego and San Francisco.

House Prices Have Not Bottomed Yet

Following their earlier collapse, house prices appear caught in a cross current. On the one hand, there are indications that prices may have bottomed. While alternative house price indices differ in details, they generally show that house prices have stabilized since early 2009 (Exhibit 1). Second, measures of valuation appear to be back in “normal” territory (Exhibit 2). The Case-Shiller price/rent ratio—which stood nearly 25% above its long-run value in early 2006—is now broadly in line with its historical average. Housing affordability—measured as the percent of income spent on mortgage principal and interest—has also improved noticeably during this period.
 
Other indicators, however, point to further house price declines.  First, much of the stabilization of house prices since early 2009 appears due to government housing policies, including (1) the homebuyer tax credit, (2) the Fed’s purchase of mortgage-backed securities and (3) temporary mortgage modifications through the Obama administration’s Home Affordable Mortgage Program. We have estimated that these housing policies have temporarily boosted house prices by around 5%.  Second, the housing market remains plagued by enormous excess supply (Exhibit 3). Despite recent improvements, both the homeowner vacancy rate and the months’ supply of single-family homes for sale remain well above historical levels. Third, the mortgage market remains troubled. Mortgage delinquencies have continued to rise from their already elevated levels (Exhibit 3).

Given these cross currents, how should we expect house prices to develop over the next one or two years? Our working assumption has been for a renewed 5% drop in the national Case-Shiller index between end-2009 and end-2010, and we already saw a 1.3% decline in the first quarter.  In this comment we present results from a new house price model suggesting that the remaining decline could stretch out over a somewhat longer time period.  Specifically, the model points to declines of 3% over the next year and another 1% over the following year as excess supply and rising mortgage delinquencies take their toll.

Modeling House Prices

Our house price model is constructed as follows. First, we choose to model house prices at the metro area level. Most house price models have focused on forecasting aggregate prices at the national level, as more data with longer time series are available.   However, we believe that the housing market is characterized by sufficient regional variation to warrant a more disaggregated approach. Exhibit 4, for example, shows very different house price developments in the three largest US metropolitan areas.

Second, we decide to focus on the Case-Shiller house price index. Of the three most prominent house price indices, the Federal Housing Finance Agency (FHFA) index is least desirable as it covers only transactions involving agency-backed mortgages and our previous statistical work has shown that the Case-Shiller index is the better index at the regional level, containing more useful information for future house price appreciation.  While the Loan Performance house price index (excluding distressed sales) is desirable in principle, too short a history is available at the metro level to build a panel model.

We therefore construct a quarterly model of the Case-Shiller house price indexes for a panel of the 20 largest US metropolitan areas for the period spanning from 1997Q1 until 2010Q1. Whenever possible we use data at the metro area level; when insufficient data are available we either proxy the metro-area variable with the corresponding state data (for existing home sales and mortgage delinquencies) or use national data when no state-level data are available (for months’ supply of houses for sale and the mortgage rate).

Our model explains current house price appreciation by past price changes and a number of lagged explanatory variables.   Although this approach does not allow for rich quarter-to-quarter dynamics, it permits us to forecast future house prices with current values of the explanatory variables without the need to project data at the metro-area level. We run separate models to project house prices four and eight quarters ahead. To allow for structural differences in house price dynamics across metro areas, we include fixed effects in our panel.

In selecting our specification we aim for a model that describes house prices well both before and after the collapse of the bubble. When estimated for the full sample until 2010, our model does a decent job at capturing the turning point in 2006. However, the model is less successful at predicting the 2006 house price decline when estimated with data through 2005.

Key House Price Determinants

We identify six house price determinants (Exhibit 5):

1. Persistence. Lagged house price appreciation is statistically significant with a sizable coefficient, confirming the existence of short-term momentum in house prices. All else equal, a 1% price decrease over four quarters is typically followed by another ½% fall one year later.

2. Price/rent valuation. We find a strongly negative effect from “overvaluation” on future house prices. All else equal, a 1 percentage point increase in the price/rent ratio lowers house prices by 0.2% after four quarters and by a full percentage point eight quarters later.

3. Excess supply. A one-percentage point increase in the homeowner vacancy rate lowers house prices by 1.8% four quarters later (and 5.4% after eight quarters), while a one-point increase in the months’ supply of homes for sale lowers house prices by 1.4% four quarters later. A higher volume of existing home sales raises prices, as excess supply is reduced.
 
4. Mortgage delinquencies. Rising delinquencies have a negative effect, lowering house prices by 3.2% after four quarters and 5% after eight quarters for a one percentage point increase in the delinquency rate.

5. Mortgage rates. Higher borrowing costs also have significantly negative effects on house prices, lowering prices by 1.7% after four quarters for every 100 basis points of nominal mortgage rate increases.

6. Temporary factors. To control for the effects of the housing components of the fiscal stimulus bill, we include dummy variables for the period from 2009Q2 to 2010Q1, which suggest that housing policies—including the homebuyer tax credit—have provided substantial support to house prices during this period (details not shown).

Prices Have Not Bottomed Yet

Given the excess supply in the housing market and rising delinquencies, our model suggests that the composite 20-city Case-Shiller index will fall by about 3% over the next year and another 1% over the following year. This projection is weaker than the current consensus forecast of a 0.4% drop in the national Case-Shiller index in 2010 followed by a  1.6% increase in 2011.

We predict the largest house price declines for Las Vegas, Seattle and Portland (Exhibit 6).  While high home vacancy rates and steeply rising delinquencies are expected to push down prices in all three areas, some interesting differences emerge. Price declines in Las Vegas are projected to be front loaded, as negative price momentum and excess supply lead to near-term price declines, before valuation undershoots sufficiently to push up prices. For Seattle and Portland, the model projects back-loaded price declines as house prices currently look overvalued.

The model projects the largest house price appreciation in Cleveland, Minneapolis, San Diego and San Francisco. None of these areas suffers from sharply rising delinquency rates or high vacancy rates (except Cleveland). In addition, house prices in Cleveland appear undervalued and San Diego/San Francisco benefit from positive price momentum.

Our conclusion: Despite normalization of valuations, we expect excess supply, high delinquencies and the fading boost from housing policies to push down house prices somewhat further in 2010 and 2011.

 

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Sun, 06/06/2010 - 00:46 | 397530 williambanzai7
williambanzai7's picture

Except in Manhattan...

Sun, 06/06/2010 - 05:44 | 397693 I need more asshats
I need more asshats's picture

Except everywhere. Never before in history has there been a bigger concentration of supply in the hands of so few.

Prices will only fall if all of that supply is put into the marketplace at a pace that exceeds demand for it, and that is not going to happen.

Ask any attorney who practices in the art, banks have stopped foreclosing and not because the delinquencies have made their books whole. Delinquencies get free rent if they promise to make the house look lived in. The sham continues unabated.

Mon, 06/07/2010 - 12:09 | 399763 clotario
clotario's picture

In Manhattan & environs there is an enormous suppltyof homes and condos/co-ops held in wait for prices to return to "normal" (2005 levels). A sign that this isn't going to happen will force the owners to rethink their math and dump the places. This is what should have happened a few years ago, but had been delayed by the govt's actions nand yet further record wall st. bonuses.
As soon as people remember that 20% year-over-year price increases are far from the norm and will not return, prices will plummet.

Sun, 06/06/2010 - 00:48 | 397531 Cheeky Bastard
Cheeky Bastard's picture

Goldman guys are full of shit.

ABX.HE.AAA family and ABX.HE.PENAAA family have been indicating for more than a month now that the problem in housing is anything but over. And, furthermore, the same conclusion which Goldman just derived could have been also derived if one just threw a quick glance and observed the constant rise of deltas on both contract basis and net notional basis for the aforementioned index families.

ABX.HE.AAA has lost [average of families] 20% in just one month, while deltas concerning ABX.HE.PENAAA are closer to those one can see in a sovereign than in an index. But, whatever, they can rely on the macroeconomic analysis; they are months behind the derivatives market. 

Our conclusion: Despite normalization of valuations, we expect excess supply, high delinquencies and the fading boost from housing policies to push down house prices somewhat further in 2010 and 2011.

 

Well, yes, but they fail to mention that the deterioration in RE prices will continue far beyond 2011 since no one is willing to buy [except the FED] the foreclosed shit on BBS [mark-to-model= illiquidity] and that inventory will remain on the market for years, also helping in keeping the prices down.

And if the FED thinks that it can inflate the value by engaging in QE-II it is sadly mistake. The distribution of liquidity will not be high enough for RE prices to rise. Not even close. Plus, there is that little connection between availability of credit for small business and rising RE prices. You cant have rising RE prices without credit lines to small business. The opposite may or may not be true. 

In short, GS presented a far more rosier picture than it is. ABX.HE.AAA witnessed a greater deterioration of its price, in a shorter time period then it did in 07 and 08. That tells you many things; none of which was said in this report.

Sun, 06/06/2010 - 00:55 | 397540 Nihilarian
Nihilarian's picture

All these asinine reports are based on prior week market action and forward week's outlook. I find more insight in fortune cookies and more clarity in the reflection off Jim Cramer's cranium.

Sun, 06/06/2010 - 01:04 | 397549 Cheeky Bastard
Cheeky Bastard's picture

I just love the way they use models [read, predicting stuff using equations that  did not, are not and will not work]. You can not counter-act the market movements by using models, nor can you efficiently trade the market using models. It is impossible. Also there is this little treat in the report:

Specifically, the model points to declines of 3% over the next year and another 1% over the following year as excess supply and rising mortgage delinquencies take their toll.

 

I would bet them right now that those percentages will be higher; but Goldman will not take the other side of that trade since its not a market maker nor does it have an allocated farm of supercomputers on that exchange.

Sun, 06/06/2010 - 01:34 | 397584 Kataphraktos
Kataphraktos's picture

Right on the money there, Cheeky. Imagine this: a homebuyer looks at this report and say, "Meh. 3% ain't so bad. If I find my dream home, I might as well buy it now, waiting a year or two to save 3% isn't worth it, especially since I will spend that time wasting money on rent*." Predicting down 3% and seeing down 10-20% makes you just as wrong as predicting down 3% and seeing up 10-20%.

We all know this fucker's going down double digits each year for the next two years. And Manhattan bulls: There's a bear with a sawed-off lupara in your very near future. The wolves are running out of sheep upon which to feast, and will be eyeing each other in the coming months: politicians and bankers, ECB and the Fed, they'll all be clawing at each other for meat now that the middle class lies in ruins and the underclass sharpens the tines on their pichforks.

I see growing armies of street performers and beggars. I see more empty storefronts. I see stores and restaurants closing within months of launch without having paid a single month's rent.

2010 is the last hurrah for Manhattan.

*Ha! I always love that line.

Sun, 06/06/2010 - 01:41 | 397595 Cheeky Bastard
Cheeky Bastard's picture

Di-fucking-tto.

"But, but ..... my probabilistic distribution model shows that this BBB- tranche of 50 equally weighted components has a probability of default of only 0.0000063%. Why did my trading desk just lose 10 billion holding this bitch."

Something like that, ditto. And also remeber when they said that the housing prices can never go down on a national level.

WRONG BITCHES !!!! 

Their models suck, and if they manage to book a profit using those models, they book it solely by coincidence and nothing else.

Sun, 06/06/2010 - 04:43 | 397681 jeff montanye
jeff montanye's picture

speaking of housing prices going down 3% this year and possibly 1% next, a prime water front hamptons palace (i.e. where gatsby or daisy lived) sold for a nominal $1 million in 1929.  in 1942 it sold for a nominal $25,000.  but it's different this time.

Sun, 06/06/2010 - 13:46 | 398024 Groucho
Groucho's picture

you're right about the models. they are the main source of all current economic problems. ecomomists construct them as an alternative to taking a common sense look at the world. look at all of the risk quant models that said housing would increase forever. impossible, but if the model says it's so...

nassim taleb said that the first thing that should be done is eliminate every university course in econometrics and modeling. you'd do just as well scratching through chicken guts or tea leaves.

Sun, 06/06/2010 - 01:03 | 397547 bob_dabolina
bob_dabolina's picture

"ABX.HE.AAA family and ABX.HE.PENAAA family have been indicating for more than a month now that the problem in housing is anything but over."

Thats just a bunch of fucking letters.

I travel across the country and talk to people of all different classes. They have been telling me the problem in housing has been far from over since 2007.

This isn't some kind of science.

Sun, 06/06/2010 - 01:06 | 397551 Cheeky Bastard
Cheeky Bastard's picture

I agree its not, but since I live 10 000 miles from The Glorious State of USA I cant really go out an talk to people in the aforementioned Glorious State of USA to get the realistic picture of RE market. I need to use representative samples; or in this case "a bunch of fucking letters" indexes.

Sun, 06/06/2010 - 01:16 | 397556 bob_dabolina
bob_dabolina's picture

Since you have enough money to trade in "a bunch of fucking letters" indexes, your time and money might be spent better by taking a vacation over here and talking to the people who are losing their homes.

It'll save you a bunch of time instead of looking at a crock of shit that is way behind the curve.

Sun, 06/06/2010 - 01:18 | 397559 MsCreant
MsCreant's picture

Chill bob, Cheeky's cool. He is on our side. No need to be ugly. 

Sun, 06/06/2010 - 01:25 | 397568 bob_dabolina
bob_dabolina's picture

I wasn't bashin' Cheeky babe.

It irritates me that this upper echelon finance has become so opaque.

Life used to be so much more simple. Why are people gambling with the lively hoods of other peoples lives?

Why should the price of homes in my neighborhood be something people are gambling with across the world?

Sun, 06/06/2010 - 01:31 | 397576 Cheeky Bastard
Cheeky Bastard's picture

I'm not betting on anyone losing their home and I'm not trading those indexes. And even if I did, I would only take a position. I have no influence on whether someone defaults on their mortgage. None whatsoever. If you can exploit the greed, stupidity and ignorance of other people do it; they would do the same to you if the opportunity presents itself to them. 

Sun, 06/06/2010 - 01:32 | 397577 The Merchant of...
The Merchant of Venice's picture

"Why should the price of homes in my neighborhood be something people are gambling with across the world?"

Because the banking system we can see, and somewhat follow, craves debt.  It dies without it.

The real crooks are your elected officials signing contracts they know they won't have the revenue to cover.  They might be your neighbors.  Go pee on their fence and leave a note that they should thank you for not leaving behind a pile of your debt instrument number 2.

Sun, 06/06/2010 - 04:46 | 397682 jeff montanye
jeff montanye's picture

give the man a cigar.

Sun, 06/06/2010 - 01:22 | 397560 Cheeky Bastard
Cheeky Bastard's picture

No thank you. I like it here.

And why the hell would I want to talk to Americans who went over their head into debt and now all of the sudden cant pay for it? Makes no sense. Why dont some of the Yanks hop on the plane and come to Greece or Romania or Ukraine and talk to the people who are losing there jobs there ?

 

Yeah, thats what i thought. Its only the Americans and the USA that matters. Fuck all the rest. Am I right .... Bob? 

 

Sun, 06/06/2010 - 01:27 | 397571 dnarby
dnarby's picture

I'm not happy with the job losses in other countries, but I admit to wanting my neighbors to have jobs more than the good people in Greece, Romania or the Ukraine.

Mainly because I don't live next next door to people in Greece, Romania or the Ukraine.

Sun, 06/06/2010 - 01:28 | 397572 Cheeky Bastard
Cheeky Bastard's picture

Read what bob wrote. I didn't pull this comment out of my ass. It was a response to him.

Sun, 06/06/2010 - 10:41 | 397812 ColonelCooper
ColonelCooper's picture

Not my fight, but +1.

Sun, 06/06/2010 - 01:37 | 397589 bob_dabolina
bob_dabolina's picture

I understand the pain of people domestic and abroad. I understand the problem is not one that is isolated to the United States. However, I happen to be an American and as such I am particular to the pain being felt domestically.

I think finance has been taken to a point where it has become burden on people around the world. There used to be a day when the person who gave you a mortgage had a personal relationship with you. It evolved into a point where my mortgage was sliced and sold to a bank, who sold it to a hedge fund, who sold it to Iceland, who sold it back to a hedge fund.

I think the entire global financial system has become too reckless and it upsets me.

Sun, 06/06/2010 - 09:18 | 397756 Sqworl
Sqworl's picture

 


hope this doesn't pass as this e-mail claims... secondly, i wonder how it affects condos? if true, it will help finance Gore's divorce!


Don't want to be bothered with "Political stuff?"   You'd better read this one. It will come as a huge shock to you if you aren't informed as to what Obama is up to, and it has already passed one hurdle.  It will take very little now to put it into actual law!!  
YOU'D BETTER WAKE UP AMERICA !!!!



So you think you live in a free country. Boy have you got a surprise coming.

A License Required for your HOUSE?

If you own your home you really need to check this out. At the end of this email is the Google link to verify.  If the country thinks the housing market is depressed now, wait until everyone sees this. No one will be buying homes in the future.

We encourage you to read the provisions of the Cap and Trade Bill that has passed the House of Representatives and are being considered by the Senate. We are ready to join the next march on Washington! This Congress and their "experts" are truly out to destroy the middle class of the U.S.A.

A License will be required for your house...no longer just for cars and mobile homes....Thinking about selling your house?  Take a look at H.R. 2454  (Cap and Trade bill).  This is unbelievable!  Home owners take note and tell your friends and relatives who are home owners!

Beginning one year after enactment of the Cap and Trade Act, you won't be able to sell your home unless you retrofit it to comply with the energy and water efficiency standards of this  "Cap & Trade" bill, passed by the House of Representatives. If it is also passed by the Senate, 
it will be the largest tax increase any of us has ever experienced.   The Congressional Budget Office (supposedly non-partisan) estimates that in just a few years the average cost to every family of four will be $6,800 per year. No one is excluded.  However, once the lower classes feel the pinch in their wallets, you can be sure that these voters will get a tax refund (even if they pay no taxes at all) to offset this new cost. Thus, you Mr. And Mrs. Middle Class have to pay even more since additional tax dollars will be needed to bail out everyone else.

But wait. This awful bill (that no one in Congress has actually read) has many more surprises in it. Probably the worst one is this: A year from now you won't be able to sell your house without some bureaucrat's OK. Yes, you read that right.

The caveat (there always is a caveat) is that if you have enough money to make required major upgrades to your home, then you can sell it. But, if not, then forget it. Even pre-fabricated homes ("mobile homes") are included. In effect, this bill prevents you from selling your home without the permission of the EPA administrator.
  To get this permission, you will have to have the energy efficiency of your home measured. Then the government will tell you what your new energy efficiency requirement is and you will be required to make modifications to your home under the retrofit provisions of this Act, to comply with the new energy and water efficiency requirements.   Then you will have to get your home measured again and get a license (called a "label" in the Act) that must be posted on your property to show what your efficiency rating is; sort of like the Energy Star efficiency rating label on your refrigerator or air conditioner. If you don't get a high enough rating, you can't sell.    And, the EPA administrator is authorized to raise the standards every year, even above the automatic energy efficiency increases built into the Act. The EPA administrator, appointed by the President, will run the Cap & Trade program  (AKA the "American Clean Energy and Security Act of 2009") and is authorized to make any future changes to the regulations and standards he/she alone determines to be in the government's best interest. Requirements are set low initially so the bill will pass Congress. Then the Administrator can set new standards every year.
The Act itself contains annual required increases in energy efficiency for private and commercial residences and buildings. However, the EPA administrator can set higher standards at any time. Sect. 202 - Building Retrofit Program mandates a national retrofit program to increase the energy efficiency of all existing homes across America. 
  Beginning one year after enactment of the Act, you won't be able to sell your home unless you retrofit it to comply with its energy and water efficiency standards. You had better sell soon, because the standards will be raised each year and will be really hard (expen$ive) to meet in a few years. Oh, goody!   The Act allows the government to give you a grant of several thousand dollars to comply with the retrofit program requirements IF you meet certain energy efficiency levels. But, wait, the State can set additional requirements on who qualifies to receive the grants. You should expect requirements such as "can't have an income of more than $50K per year", "home selling price can't be more than $125K", or anything else to target the upper middle class (that includes YOU?) and prevent you from qualifying for the grants.    Most of us won't get a dime and will have to pay the entire cost of the retrofit out of our own pockets. More transfer of wealth, more "change you can believe in." Sect. 204 - Building Energy Performance Labeling Program establishes a labeling program that for each individual residence will identify the achieved energy efficiency performance for "at least 90 percent of the residential market within 5 years after the date of the enactment of this Act."

This means that within 5 years 90% of all residential homes in the U.S. must be measured and labeled. The EPA administrator will get $50M each year to enforce the labeling program. The Secretary of the Department of Energy will get an additional $20M each year to help the EPA. Some of this money will, of course, be spent on coming up with tougher standards each year...

Oh, the label will be like a license for your car. You will be required to post the label in a conspicuous location in your home and will not be allowed to sell your home without having this label. And, just like your car license, you will probably be required to get a new label every so often - maybe every year.
  But, the government estimates the cost of measuring the energy efficiency of your home should only cost about $200 each time. Remember what they said about the auto smog inspections when they first started: that in California? It would only cost $15. That was when the program started. Now the cost is about $50 for the inspection and certificate.    Expect the same from the home labeling program. Sect. 304 - Greater Energy Efficiency in Building Codes establishes new energy efficiency guidelines for the National Building Code and mandates at 304(d) that one year after enactment of this Act, all state and local jurisdictions must adopt the National Building Code energy efficiency provisions or must obtain a certification from the federal government that their state and/or local codes have been brought into full compliance with the National Building Code energy efficiency standards.

CHECK OUT a few of the sites; 

Cap and Trade: A License Required for your Home http://www.nachi. org/forum/ f14/cap-and- trade-license- required- your-home- 44750/
HR2454 American Clean Energy & Security Act:   http://www.govtrack .us/congress/ bill.xpd? bill=h111- 2454 Cap & Trade A license required for your home: http://www.prisonplanet.com/cap-and-trade-a-license-required-for-your-home.html Cap and trade is a license to cheat and steal:
http://www.sfexamin er.com/opinion/ columns/oped_ contributors/ Cap-and-trade- is-a-license- to-cheat- and-steal- 45371937. html
Cap and Trade: A License Required for your Home: http://www.freerepublic.com/focus/news/2393940/posts
Thinking about selling you House? Look at HR 2454: http://www.federalobserver.com/2009/10/01/thinking-about-selling-your-house-a-look-at-h-r-2454-cap-and-trade-bill/     www.google.com/ search?hl= en&source=hp&ie=ISO-8859- 1&q=A+License+ required+ for+your+ home-+Cap+ and+Trade&btnG=Google+ Search

Sun, 06/06/2010 - 10:03 | 397784 MsCreant
MsCreant's picture

Stunning. As if we weren't fucked enough...

Sun, 06/06/2010 - 10:07 | 397788 Sqworl
Sqworl's picture

Sheeple: this is for your own good, as you are incapabable of managing your own money!!!  Besides, there nowhere to invest it.  My advise is to take out pay the penalties and run...

Sun, 06/06/2010 - 10:22 | 397800 Sqworl
Sqworl's picture

Wait till they take our 401k's...:-(

Sun, 06/06/2010 - 10:37 | 397809 RF
RF's picture

Urban legend. Hit the last link and scroll to Snopes.

Sun, 06/06/2010 - 10:56 | 397827 long-shorty
long-shorty's picture

"Beginning one year after enactment of the Act, you won't be able to sell your home unless you retrofit it to comply with its energy and water efficiency standards."

Please make a better effort to have some connection to reality, Sqworl. Your hystrionic post caused me to actually read some of the sections you cite in the bill, and, lo and behold, there is no such ridiculous language there. You're either deluded, or are copying and pasting from some deluded blogger.

Now I know that if something you post seems ridiculous, it probably is, so I don't need to waste my time looking it up.

Sun, 06/06/2010 - 11:13 | 397840 Sqworl
Sqworl's picture

Sorry about your divorce Al...I know who's getting the Montecito Mansion!

Sun, 06/06/2010 - 15:18 | 398136 jesus
jesus's picture

stop posting entire fucking articles in the comments. a sentence and a link is enough for people who are interested.

 

Sun, 06/06/2010 - 19:12 | 398454 Currently Smoki...
Currently Smoking Cannabis's picture

Eight-year-olds, Dude.

Sun, 06/06/2010 - 11:34 | 397853 Muir
Muir's picture

Cheeky,

"ABX.HE.AAA has lost [average of families] 20% in just one month, while deltas concerning ABX.HE.PENAAA are closer to those one can see in a sovereign than in an index. But, whatever, they can rely on the macroeconomic analysis; they are months behind the derivatives market."

Is that info publicly available?

 

__

From Markit I do not get that when I look at some series/

Mon, 06/07/2010 - 23:37 | 400869 Cheeky Bastard
Cheeky Bastard's picture

Muir; sorry. I was talking about the May m-t-d data. That might have caused some confusion in my original post. Also, as you can see, I was not looking at sub-indexes but family average [also, sorry, should have formulated the original post better]. I think the monthly low for HE.AAA was something like -20% [value falling from 46 to 38.xx]. Usually I get this data via Markit.com report which i receive after trading closes for the day. Also,as i have mentioned i only took into consideration Mays movements [didnt go longterm].

The deltas are derived from DTCC warehouse data [y-t-d value movements] and only HE.AAA-06 and PENAA-07-1 are relevant to what I was saying. Again sorry for the poor formulation of my initial post and the subsequent confusion it caused.

 

Sun, 06/06/2010 - 00:58 | 397539 bob_dabolina
bob_dabolina's picture

Haha.

This is what a college degree gets you....nothing. Just look at all the non-sense in this ZH article.

It takes this much analysis to figure out that shit is fucked up? They are just figuring this out now?

Bankers must not talk to the middle class very often.

*Exhibit #5 was my fav. R-squared my ass

Sun, 06/06/2010 - 00:59 | 397544 Nihilarian
Nihilarian's picture

It's very simple. All you need is to know slightly more than your audience, and you can just razzle and dazzle them with nonsense. It's the car mechanics' money making methods applied to financial analysis.

Sun, 06/06/2010 - 01:07 | 397552 bob_dabolina
bob_dabolina's picture

The ABRA.CA.DABRA tranche is way overvalued.

Sun, 06/06/2010 - 04:49 | 397683 jeff montanye
jeff montanye's picture

i think he's got it.

Sun, 06/06/2010 - 01:14 | 397555 MsCreant
MsCreant's picture

Academia too.

Sun, 06/06/2010 - 03:08 | 397661 Cheyenne
Cheyenne's picture

It's the car mechanics' money making methods applied to financial analysis.

Ding...

http://www.youtube.com/watch?v=MXW0bx_Ooq4

Sun, 06/06/2010 - 00:55 | 397541 Prof Gulliver
Prof Gulliver's picture

Geez, GS, do you get paid for this analysis? Anyone picking houses at random on Zillow over the past month, since the credit expired, would see prices falling just about every day on every house. You don't need a weatherman to know which way the wind blows.

Sun, 06/06/2010 - 02:23 | 397636 Shrimp Head
Shrimp Head's picture

...look out kid!!

Sun, 06/06/2010 - 04:51 | 397686 jeff montanye
jeff montanye's picture

it's something they did (and they're doing it again).

Sun, 06/06/2010 - 00:55 | 397542 Nolsgrad
Nolsgrad's picture

Housing market in the coming years is gonna be fun to watch.

http://www.youtube.com/watch_popup?v=-qvXbIenivk

Sun, 06/06/2010 - 01:00 | 397545 The Merchant of...
The Merchant of Venice's picture

Surely boomers can get another HELOC before Treasury steals their 401K.

Do it boomers.

Sun, 06/06/2010 - 01:06 | 397550 Brett in Manhattan
Brett in Manhattan's picture

There's a reason the banks have record amounts of excess reserves.

The only people willing to borrow are the same ones who stiffed the banks the first time around.

Sun, 06/06/2010 - 01:13 | 397554 MsCreant
MsCreant's picture

Are you suggesting a double insertion? Same as Merchant above you? This thing is a daisy chain (I didn't know what one of those was until I spent time on this site).

I see you're baaaack.

Sun, 06/06/2010 - 02:03 | 397613 Brett in Manhattan
Brett in Manhattan's picture

I'm saying the banks aren't dumb enough to piss away the mulligan they just got courtesy of the treasury and the fed.

 

Sun, 06/06/2010 - 05:00 | 397688 jeff montanye
jeff montanye's picture

the evidence for your assertion is sparse.  yield levels on junk fell quite low (and spreads narrowed) until recently.  bonus extractions from equity increased substantially.  and the ding dongs fought regulation changes that would actually let them know which of their counterparties were money good and which weren't.  which is why the european contagion and concomitant financial lockup (deja vu fall of '08) is coming soon to a market near you.

Sun, 06/06/2010 - 12:05 | 397886 Brett in Manhattan
Brett in Manhattan's picture

So, then why do the banks have record reserves? Why don't they lent the money out to homebuyers and get a real return?

Because they know they'll get stiffed via non-recourse loans.

Do you think it's as easy to get a loan, now, as it was before the shtf?

 

Sun, 06/06/2010 - 14:06 | 398045 The Merchant of...
The Merchant of Venice's picture

Banks won't lend their capital because they know housing prices are still too high.  Not that they really have any incentive to loan.  The Fed and Treasury are on the hook for all of their losses.

When the boomers start putting their homes on the market prices will plummet.

My great grandparents were fucked by the Banksters in the 30's.  It's time to fuck back.  Hold precious metals and undeveloped agricultural land.  Oh, and be sure and arm yourself with an appropriate resupply of ammunition.

Sun, 06/06/2010 - 01:09 | 397553 MsCreant
MsCreant's picture

Unless they know Ben is getting ready to buy Freddy and Fannie outright, and every other home loan in default in the US, at mark to model prices (throw in CRE, what the hell). In which case GS publishes this to get you to divest so that they can get in cheap and get inflated. Oh yeah!

[Voice over] You are now tuned in to THE INFLATION STATION, where Ben, for his final act, blows us all.

Sun, 06/06/2010 - 01:24 | 397566 dnarby
dnarby's picture

Yet more evidence that QE/Stimulus v2.0 is on the way...

Not to mention that they need to keep the markets pumped until November.

Sun, 06/06/2010 - 01:35 | 397586 The Merchant of...
The Merchant of Venice's picture

November? They have to keep this shit pumped until Aug2011.

The war will take care of the rest.

Sun, 06/06/2010 - 02:52 | 397655 StychoKiller
StychoKiller's picture

Enlighten me please, why Aug 2011?

War between whom?

Sun, 06/06/2010 - 06:40 | 397703 Snidley Whipsnae
Snidley Whipsnae's picture

Without jobs providing incomes that make homes affordable, at any price, home sales/prices will continue to decline.

It is that simple and the fucking banks can model housing six ways from Sunday without changing the wage ratio/home price that has proven sustainable and sound banking practice over time.

For the housing market to improve significantly either home prices must decline or salaries must increase. No amount of computer modeling will change the current situation. Fuck Wall St and their bull shit formulas.

Sun, 06/06/2010 - 01:23 | 397565 Hephasteus
Hephasteus's picture

Turkish markets are closed and nobodies saying anything.

Sun, 06/06/2010 - 01:34 | 397585 Strider
Strider's picture

I still cant believe these guys are the "best and brightest" On the surface it seems to me anyone could do their job.

Yea the cream has risen to the top but those arent their heads and that isnt cream.

Sun, 06/06/2010 - 01:38 | 397590 Shrimp Head
Shrimp Head's picture

ZH f-ing rules!  1100 on a Saturday night and you guys are still all over it.

 

 

Sun, 06/06/2010 - 01:47 | 397600 huckman
huckman's picture

Mortgage rates. Higher borrowing costs also have significantly negative effects on housing prices, lowering prices by 1.7% after four quarters for every 100 basis points of nominal mortgage rate increases.

What a dope.  So to get to 7% interest rates, house prices will be 34% lower than today. Stupid shit doesnt know what a basis point is. Whats his prediction for a gallon of gasoline? i.e. $1.00 

 

Sun, 06/06/2010 - 01:52 | 397607 MsCreant
MsCreant's picture

 

Holy shit! The dollar ought to sprout serious wood out of this...

Iran Selling 45 Billion Euros of Reserves for Dollars 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a4lkmEhesqLc

They will sell less oil for euros. Project this GS!

 

Sun, 06/06/2010 - 02:55 | 397657 StychoKiller
StychoKiller's picture

So, everyone in the World has lost their mind then?

Iran:  "Let's get out of this frying pan -- flame on!"

Sun, 06/06/2010 - 12:46 | 397958 glenlloyd
glenlloyd's picture

Didn't Iran take about 75 billion in reserves and buy gold in '08?

Sun, 06/06/2010 - 01:57 | 397608 bob_dabolina
bob_dabolina's picture

Cheeky -

You said:

"If you can exploit the greed, stupidity and ignorance of other people do it; they would do the same to you if the opportunity presents itself to them."

Your greed will ruin you. It may be your marriage, or relationship with your children, it may even be your money. It will consume you. You may have money but your character is flawed.

God bless you.

Sun, 06/06/2010 - 02:08 | 397619 Cheeky Bastard
Cheeky Bastard's picture

My character is more than just "flawed", but that is beside the point. Neither am I married, nor do I have children [so thats that] and money mean less than nothing. So I have no idea why you attack me, but sure, have a go at me; no problem. It might be because you think I represent everything that is wrong in the World, or everything that is wrong with people in finance [in which I never was to begin with] or whatever. And seriously, this little diatribes in which you point to me my flaws in order for me to recognize them and "save" myself; I just LOL at that. I dont know what your problems are, but Im certainly not the cause of them. 

Sun, 06/06/2010 - 02:14 | 397626 bob_dabolina
bob_dabolina's picture

You go on exploiting the ignorant and stupid.

I mean they would do it to you.

I hope you live a long and fruitful life.

Sun, 06/06/2010 - 02:31 | 397633 Cheeky Bastard
Cheeky Bastard's picture

Thank you for the recommendation and the subtle jab.

I do not know why are you so offended by my comment about the ignorant and stupid. Do you equate those attributes with the Proletariat as a whole, with you personally, with the working class, with the homeless, with the poor, with the non-whites. I dont get it. Why did that offend you. You want something that either is or resembles Truth, yet when one gives it to you; you are offended. What do you think you can win against the Gods in their Ivory Towers if you dont know their language; you can not. If you think that dumbing down is beneficial to your/our goal; it is not. It only serves the purpose of ignorance. 

Screaming comments like "kill, bitches and gold" doesnt help in understanding what is going on around you. Not one goddamn bit. I dont know what you want. You want a series of "For Dummies" books or what. 

Sun, 06/06/2010 - 02:57 | 397656 bob_dabolina
bob_dabolina's picture

non-whites

I'm an unemployed black pregnant woman with 3 children.

Teach me the language of the gods in the ivory towers.

Sun, 06/06/2010 - 03:00 | 397659 Cheeky Bastard
Cheeky Bastard's picture

Look I dont care who you are. 

I am not the cause of your problems, nor am I representative of those who are.

If you dont want to try and understand the "technical terms" dont; but then also dont snap at those around you who use them.

Im not sure what I did to you [except named a few indexes] to make you go "Charles Manson Followers" on me.

Sun, 06/06/2010 - 03:36 | 397671 bob_dabolina
bob_dabolina's picture

All I expect from you is to take advantage of as many people as possible. That will heal the financial system, I am sure of it.

May god bless your miserable soul.

Continue doing good work.

Sun, 06/06/2010 - 03:37 | 397672 Cheeky Bastard
Cheeky Bastard's picture

Keep your religion to yourself because I sure as hell dont need it.

That said. 

If you really are a pregnant unemployed woman with three children; maybe you should have used some form of contraception and made it easier for yourself.

As I said; your life; your choices; your problems.

 

Sun, 06/06/2010 - 04:17 | 397677 bob_dabolina
bob_dabolina's picture

I am actually:

-male

-25 years old

-6'

-chestnut brown hair

-blue eyes

-12 inch biceps

-no religious preference.

 

You would fall in love at first site. You seem pretty...gay

Sun, 06/06/2010 - 06:41 | 397704 Cheeky Bastard
Cheeky Bastard's picture

Are you calling me gay because I offended your God [standard reaction among Christians; tell me do you also prefer creationism instead of evolution] or are you just frustrated because the community in which you live has an extremist view towards gay people and that makes your hunt for male whores so much harder and as a result you are sexually frustrated and your sexual tendencies come out via projecting. [ask CD more about this, he is the ZH psychologist].

Do tell, no one will laugh.

Sun, 06/06/2010 - 10:11 | 397793 Sqworl
Sqworl's picture

Cheeky: Don't bother with this wanker!  Its Master Bater back for more rectal action...x

Sun, 06/06/2010 - 10:14 | 397795 WineSorbet
WineSorbet's picture

Oh Cheeky, you give me hope for humanity!  Please do not stop bringing your eruditic wit to this site!

Sun, 06/06/2010 - 10:49 | 397819 ColonelCooper
ColonelCooper's picture

Cheeky, please stop wasting your time on this Fuckstik.  He didn't understand your first comment that he jumped all over; I'm sure he can't understand your followups.

I would prefer you continue with analysis.  When I don't understand what you said...... I open another tab and look it the fuck up. 

Bob - you're a douche.

Sun, 06/06/2010 - 12:32 | 397931 taraxias
taraxias's picture

I don't think Bob is a douche, I think Bob simply took Cheeky's comments out of context and totally misunderstood his posts. Not everyone has the same financial know how nor the intellect to sift through all the financial analysis and comments, so spats like this one will happen every now and then. We'll just have to accept that.

 

Sun, 06/06/2010 - 17:43 | 398315 ColonelCooper
ColonelCooper's picture

I agree, but here's the skinny:  90% of the content of ZH is WAAAY over my head.  I spent months lurking here, reading posts, and saying, "WTF?"

So I asked questions, looked things up, followed links etc.  Guess what? 85% of the shit is still opaque at best.  I may only have the SLIGHTEST grasp on economics, but I am a pretty good read of people, and here's what I know:

Cheeky's my kind of Dude.  Know why?  Cause he could give a fuck less what I think about him.  He's an "It is what it fucking is" kind of guy.  His analysis may not even be close to what you want to hear, but he calls it the way he sees it.  To jump in and start bashing what he writes simply because it seems "cold" does him a disservice. 

The world is a mean, cold, ruthless fucking place.  There are those who seek to profit off others hardship.  I never pegged Cheeky as one of those people.  But, IF HE WAS, more power to him.  He's the one who lives with himself, and it isn't his problem if I bought a house I couldn't afford, and live in a country full of self centered, ignorant dipshits. 

The whole spat was really none of my business, and I could pretty much care less.  Cheeky sure as shit doesn't need my barely literate ass defending him.  Guess this one just rubbed me the wrong way a little because it was so out of the blue and off base.

 

Sun, 06/06/2010 - 10:59 | 397831 Conrad Murray
Conrad Murray's picture

That dude's just mad because he's poor and got in over his head on a mortgage.  You are spot on in saying one must learn the language of one's enemies.  Immerse into the culture.  Infiltrate and destroy.  And if you can make coin on the way, all the merrier.  Fight Club damnit.

Sun, 06/06/2010 - 12:09 | 397890 aheady
aheady's picture

Mister Dobolina, Mister Bob Dobolina. Fuck off.

Sun, 06/06/2010 - 11:17 | 397844 marc_hanes
marc_hanes's picture

Seems Bob had all the mirrors removed from the house years ago...

Sun, 06/06/2010 - 02:13 | 397628 thegr8whorebabylon
thegr8whorebabylon's picture

marry me cheeky.  (the power just went here on a calm clear night, so what am I to do when the battery goes?)

Sun, 06/06/2010 - 02:29 | 397641 Bolweevil
Bolweevil's picture

With all due respect Bob, it must be therapy night at ZH or people are drinking before they're typing. Dumpster just went off the res (deservedly?) on Leo, but this is misplaced anger dude. Send an email to Sven the fuc%ing rocket scientist that he is instead. GS loves feedback. 

Sun, 06/06/2010 - 02:12 | 397625 huckman
huckman's picture

Your character is what you are, and you're the only one that truly knows that.

John Wooden Interview (page: 3 / 5)

Unfortunately there are many on this site that dont know who John Wooden is/was.  Rest in Peace John.

 

 

Sun, 06/06/2010 - 02:57 | 397658 StychoKiller
StychoKiller's picture

Giving Mr Wooden the Congressional Medal of Freedom is one of the more decent things G.W. Bush did.

Sun, 06/06/2010 - 15:09 | 398127 Reductio ad Absurdum
Reductio ad Absurdum's picture

The idea that people should give a damn about sports is disgusting. Wooden should have done something constructive with his life; he wasn't a bad person, just horribly misguided. In my lifespan I have seen sports go from being a mild amusement that provided a little entertainment for working class people to being a national obsession with outrageously overpaid "athletes" and foolish "fans" that throw away their money at this utter waste of time. The rise of professional sports is a particularly big nail in America's coffin.

Sun, 06/06/2010 - 20:29 | 398549 Fred Hayek
Fred Hayek's picture

I agree that there's too much obsession with sports, not that I'm not also guilty.  My only statement on my behalf is that I try to confine my interest to largely one sport, baseball.

As to their being outrageously overpaid.  Actually, they were outrageously underpaid till free agency hit baseball in the 1970's and other sports in the 1980's.

As an example of how underpaid, back in the offseason after the 1962 season, the Los Angeles Dodgers had to go to court with someone (I forget the identity of the party) in regard to proceeds from parking lots.  In court, the Dodgers admitted to turning a profit, not taking in revenues but turning a profit that year of $5 million.  At the same time, they were fighting Don Drysdale, who'd just won the Cy Young award as the best pitcher in baseball with a 25-9 record (They only gave one award between the two leagues back then.  They give one for each league now), tooth and nail over something like a $10,000 raise to a salary still short of $100,000 per year.

The so called "reserve clause" made baseball players near serfs on the estates of the owners.  Players back then were outrageously underpaid.

Sun, 06/06/2010 - 02:16 | 397632 Mark Beck
Mark Beck's picture

For an economic theory standpoint, a decrease of residential real estate price towards mean wages, is a historic failure for the FED. Because re-inflation in price was the only real plausible argument in economic theory that could muster any concensus in a massive purchasing program to buy MBS.

The MBS buy was, on the surface, a proclaimed battle against deflation in real estate price, and the FED failed. But, like I said before, and many like Stiglitz also remarked, that the magnitude of MBS purchasing when announced was not large enough to accomplish the FED's goals. It was about 3x too small.

Perhaps more plausible, was the MBS purchase size was set to the immediate needs of the large FED member banks to move bad MBS debt from their balance sheets to the public. 

More importantly, you can now officially fire all of the FED economists. They are no longer relavent in terms of skills. The pretence is over. The last remnant of credibility is gone.

----------

The FED's real mission is now clear. It exits to increase bank profits, and manipulate political decisions through the power to print.

Mark Beck

Sun, 06/06/2010 - 12:44 | 397950 taraxias
taraxias's picture

Great post.

Sun, 06/06/2010 - 13:21 | 398022 Brett in Manhattan
Brett in Manhattan's picture

Even the re-inflation argument had zero merit.

Why re-inflate housing prices to levels that were only acheived through easy money and lax lending standards?

The only answer is that banks didn't want to take on massive amounts of inventory viz. defaults.

From the homebuyers standpoint, if you made a mistake and committed to a mortgage you couldn't afford, you should default, rather than be saddled with crushing debt.

Sun, 06/06/2010 - 15:36 | 398151 Blort
Blort's picture

"Perhaps more plausible, was the MBS purchase size was set to the immediate needs of the large FED member banks to move bad MBS debt from their balance sheets to the public."

 

I would add that the Fed's MBS purchase program was probably just about the right amount needed to help the U.S. government fund its sudden massive increase in deficit spending.  A substantial amount of the money that the Fed gave the banks for their garbage MBS surely found its way into U.S. government bonds. 

Sun, 06/06/2010 - 22:47 | 398832 berlinjames02
berlinjames02's picture

+100

It's all about shifting the losses onto the public. Just look at the Fed's balance sheet and what do you see? Maiden Lane I and II crap, and a bunch of MBS. 

I've always wondered how much the Fed paid for the crap we now own. I doubt it was market prices or discounted from par since that would have crippled the banks.

What I hate is the 'spin'. Last fall (November-ish) the Fed reported that they earned a bunch more than they had the previous year despite the pain at the banks. NPR's Marketplace said it was because they were buying at distressed sale prices. What they forgot to mention was the extra $1.8 trillion that the Fed printed and used to buy interest bearing debt. I HOPE you can do better than last year when you have that type of power!

(Apologies for the lack of sources. I was trying to find an article but I lost patience.)

 

Mon, 06/07/2010 - 03:01 | 399116 Mark Beck
Mark Beck's picture

For the past two years I have been looking closely at how the FED operates in terms of accounting, and here is what I found;

Accounting practices at the FED are not the same as a private corporation or even a private bank. It is really Central Bank accounting, which is special unto itself.

If you are an accountant, this is very interesting stuff. But, I must warn you the closer you look, the more you realize that, without a proper audit, the FED can hide "gifts" at magnitudes which are truely depressing (if you are a tax payer).

Most politicians are completely ignorant of the FEDs power in action, how the money gets from point A to point B and in what amounts. When you look at the numbers, it is beyond reality the activities at the FED, and what the average person can see as money, especially if they try to tie it to a wage of some sort. To the FED the American people must look like just so much monetary fodder. By its very actions, the FED does not respect or show any allegence to the American taxpayer. There is only contempt within the FED white marble hallowed halls.

----------

So what to look out for;

The FED is must return Interest income back to the Treasury after it pays its bills (the ones that can be traced), like wages and normal overhead. But what about the Income from maturing Treasuries, what happens with this money. The FED has many options, but they do not disclose how this money is moved around.

Trap:

The FED publicizes that it has returned $X amount of money to the treasury which is ???? larger or smaller than a previous year.

The FED is not a center to generate net revenue. There is no better or worse in terms of performance when it comes to interest sent back to Treasury. All the interest should go back to Treasury. There is no increase in FED "performance" for returning more interest as a percentage of money it created.

Trap:

The FED cares about taking a loss on assets like MBS.

For MBS you may ask yourself, how does the FED actuall recognize a loss in an asset like this?

Well its a reduction in its balance sheet.

However, not a reduction in the money supply. For the FED cannot tighten on an asset which will not return close to PAR (for an equivalent amount of monetary leverage). So, in buying worthless MBS at PAR, it has done two things. Transfered wealth to the banks and reduced its ability to control the money supply. But the MBS loss has no effect on FED solvency. There was no risk taken. The concept of profit and loss does not apply to the FED in the traditional sense.

The FED is never at risk!

Purchasing MBS is clearly beyond its charter. The FED should never deal in hard assets.

Government waste is bad, FED waste is monumental.

Mark Beck

Mon, 06/07/2010 - 22:59 | 400891 MsCreant
MsCreant's picture

I may have had my mind blown. I'll need to come back and read this again.

Sun, 06/06/2010 - 02:22 | 397635 thegr8whorebabylon
thegr8whorebabylon's picture

(the pc battery that is.)

Sun, 06/06/2010 - 02:25 | 397640 huckman
huckman's picture

Second liens (1$trillion) at 80% in default; 25% of 1st mortgages in default. 

Sun, 06/06/2010 - 09:01 | 397746 Monkey Craig
Monkey Craig's picture

Great comment. Actually, the second liens are only this strong when interest rates are at historic lows. I was speaking to my aunt, and her ARM is at 3.8% (will reprice in about 10 months).

 

I am bearish on the big banks partly because of their second lien exposure. At least Fannie and Freddie are dealing with first mortgages!

Sun, 06/06/2010 - 13:03 | 397988 Rainman
Rainman's picture

The headline homeownership rate versus the effective home ownership rate. Quite a disconnect. The effective rate pulls out the homeowners with negative equity ( really just illiquid renters ). San Francisco is a real eye opener.

Doctor Bubble has a great chart.

 

                       www.doctorhousingbubble.com

 

Sun, 06/06/2010 - 02:59 | 397643 Bolweevil
Bolweevil's picture

Sven, I got two words for you, fore-closure. Not once do you even use the word (did I miss it somewhere?).

"Rising delinquencies have a negative effect."

He's gotta be related to somebody high up at GS.

Sun, 06/06/2010 - 03:27 | 397668 Kimo
Kimo's picture

Goldman must be going long on housing...all of a sudden, I'm worried.

Sun, 06/06/2010 - 08:53 | 397742 Implicit simplicit
Implicit simplicit's picture

Don't worry. They will continue to short after they tell their clients to cover.

Sun, 06/06/2010 - 09:06 | 397748 spanish inquisition
spanish inquisition's picture

Think in terms what Goldman is and does, are they long anything? They are laying the groundwork for a short term trade based on the impression that things will be getting better. They can always change their outlook next week when the trade is complete.

I do not have a crystal ball, but would expect a Fed market ramp with no regard for transparency. We need a QE2 to ramp the market before any war is started.

I have modified my stance on why stimulus wars (tm hehe) occur during depressions, they are very inefficient per some earlier posts on the subject. First, it's easier for politicians rather than raising taxes and cutting expenses. Secondly, the Fed needs to get everyone to forget how they wound up their in the first place. So we need a big run up to take the pressure off the Fed and then the war to complete the misdirect.

Sun, 06/06/2010 - 12:55 | 397975 taraxias
taraxias's picture

What war???

We are in three wars now (Iraq, Afghanistan & Pakistan) and they have proven to be a great economic drain, how is ANOTHER war going to boost economic growth?

Unless of course you are envisioning a war that manages to wipe out half of humanity and "re-sets" the system. Do the money cartel members come out unscathed out of this scenario? I personally doubt it.

Sun, 06/06/2010 - 03:28 | 397669 litoralkey
litoralkey's picture

So GS anaylst is using Case Chiller 20 city index.  OK, I prefer that series also.

However, compared to the analysis of the Case Shiller 20 put out by the Zillow.com corporate blog, this GS report is incredibly weak.

 

Mortgage rates. Higher borrowing costs also have significantly negative effects on housing prices, lowering prices by 1.7% after four quarters for every 100 basis points of nominal mortgage rate increases.

Top this off as an amazingly bad piece of analysis.  a 100bp increase in mortgage rates DURING HISTORICAL EXPANSIONARY PHASES OF THE CASE SHILLER 20 CITY INDEX  would see a 1.7% drop in home prices.  We are now looking at a prolonged recession that is more severe than anything in the timeframe of the Case Shiller 20 index being used by this GS analyst.  This GS analyst Sven has to know this, so it's obvious he's bullshitting his customers.

Pre-Base and Post-Base Index Estimation11
The base period of the tradable S&P/Case-Shiller Home Price Indices is January 2000, where the index point is set equal to 100.0. All index points prior to the base period are estimated simultaneously using the weighted regression model described above. The estimation is simultaneous because all of the estimated index points (or ˆ−tβ^-1 ) are conditional on the estimates of all other index points.

 

 And here in lies the problem.  It can best be described by the term "presentist bias",  for much of the country, and many areas in the CS20, the RRE bubble started back in the early 1980's as mortgage rates stabilized after the Volcker shocks.  Case Shiller 20 is using a point within the prior bubble as a reference point.

 

THe Case Shiller is based on total housing stock, aggregate value of housing stock and will be affected greatly by the slowdown in the creation of new households in the USA.

I postulate that the Case Shiller index is at this point worthless until it is synthesized with a coherent index based on U6 unemployment and the BLS/Census household creation statistics.

 

These guys are calling for a increase in home prices in San Francisco MSA when the city of Oakland is in a depression.  Oakland is 3rd largest city in the San Fran MSA for CS20. The City of Oakland's unemployment rate for April 2010 was 17.3%  The GS report is incoherent on the lower end of the housing market.

 

Sun, 06/06/2010 - 05:05 | 397691 Akrunner907
Akrunner907's picture

Hey, I am looking at buying some strip malls......I expect Commercial Real Estate to tank over the next 9-18 months.  Residential in some areas will probably suffer another 20-50 percent decrease in price.  Especially in California where the new wave of taxes will further depress incomes for living expenses.

Sun, 06/06/2010 - 05:37 | 397692 doomandbloom
doomandbloom's picture

but Leo said that the economy is recovering....

Sun, 06/06/2010 - 06:51 | 397706 Ted K
Ted K's picture

Should we be surprised that when a firm us up on criminal charges for an orchestrated screwing of their customers to benefit their own account, all of the sudden, out of the blue, their analysts' opinions start magically diverging where as a few months ago they were in lockstep????  Just what in the hell is so surprising here????

Sun, 06/06/2010 - 07:59 | 397728 ZackAttack
ZackAttack's picture

Anyone who asks my opinion, I'm telling them they're batshit nuts to buy a house before 2012.

 

- Ruthless default is being recognized as sensible personal finance.

- There's a ton of shadow inventory overhang, both from REO being held on the books and people who've simply stopped paying and have been living there free for, sometimes, 2 years or more.

- Pay Option ARM recasts this year the same amplitude as subprime in 2008.

- The guys who bought with the 8K gubmint credit are weak hands who will fold at the first sign of trouble.

- Most important, after the 2010 congressional elections, 'bailout' and 'stimulus' become 4-letter words.

Sun, 06/06/2010 - 08:46 | 397740 Implicit simplicit
Implicit simplicit's picture

The pay option arm recasts you mention were not discussed as a contributing factor to default; they will need to be considered as they accentuate the foreclosure downside rate of change, and contribute more to faling prices.

Sun, 06/06/2010 - 10:45 | 397814 ZackAttack
ZackAttack's picture

From a macro perspective, I'm wondering if real estate is, generally speaking, the final bubble and it's actually a symptom of a secular demographic shift more than anything.  

Japan - our most recent data point - never recovered from its CRE crash after 20 years.

The US is demographically, just about 10 years behind Japan. Japan isn't replacing its population now. US demographics won't be favorable for a 68% home ownership rate for a long, long time to come. There is literally zero chance of returning to the 2005 status quo ante.

Sun, 06/06/2010 - 11:07 | 397834 Conrad Murray
Conrad Murray's picture

"I'm wondering if real estate is, generally speaking, the final bubble"

 

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. - Ludwig von Mises

Sun, 06/06/2010 - 15:35 | 398154 Implicit simplicit
Implicit simplicit's picture

I think your right. The macro demographics are not good for housing as the baby boomers enter retirement.

In addition, the banks not marking their mortgage vehicles to market will start to unwind with foreclosures. This will only make the situation worse. Their overl-levered positions will become huge balance sheet losses that they will not be able to hide.

Sun, 06/06/2010 - 21:16 | 398649 Fred Hayek
Fred Hayek's picture

But what will be the catalyst, what will be the tipping point?  They're already doing nothing about people living in homes for which they haven't made mortgage payments for 2 years!

What makes them change? 

 

Sun, 06/06/2010 - 08:10 | 397730 SDRII
SDRII's picture

All clear, more troops to South Korea....meanwhile China conitnues to ignore pressing US demands that NK be punished for their actions... 

The US defence secretary said Washington would conduct more joint military exercises with South Korea, adding: “At the same time, we are assessing additional options to hold North Korea accountable.”

He declined a request for more information, saying: “I would prefer just to tease you.”

However, the US is understood to be considering a range of possible political and military responses, including the possible movement of extra American troops to South Korea on either a temporary or permanent basis, and the supply of additonal high technology military equipment such as specialist anti-submarine warfare vessels.

There could also be fresh attempts to hamper North Korean financial flows, such as a renewed drive against overseas banks that provide services to the regime. In 2005, the US cut financial links with Banco Delta Asia, a small Macao bank, after accusing it of holding $24m of North Korean funds. The bank denied any wrongdoing and the money was eventually returned to North Korea"

http://www.ft.com/cms/s/0/7238f548-7089-11df-96ab-00144feabdc0.html

Sun, 06/06/2010 - 08:57 | 397744 10044
10044's picture

Once a market pops, it takes YEARS to recover. These are the same nut jobs (along with greenspan/bernanke/summers shiesters) who back in 01 said "nasdaq" is making a come back... 2020 'may' be the turnaround for housing, until then GOLD BITCHEZ

Sun, 06/06/2010 - 09:17 | 397755 Me XMan
Me XMan's picture

Incredible. WTF!

Sun, 06/06/2010 - 10:40 | 397811 What_Me_Worry
What_Me_Worry's picture

QE v2 should actually be Bernanke dropping $100 bills from a helicopter on a nationwide tour.  At least we would get to have fun for a little while before that stimulus didn't work either.  I thought about him dropping gold coins instead, but A) they don't have any and B) people might die.

or..

The government could make its own "The Price is Right" and instead of guessing how much an item costs, one would have to guess how much the item will be in when peak hyperinflation hits.  Prizes could include actual fake gold bars from Fort Knox.

------------------

I have two random theories with another QE/stimulus package.  One, common sense says it needs to just be a state bailout package.  That version of QE will probably not be called a stimulus and will be downplayed as much as possible.  This would be of no benefit to the Dems trying to get re-elected/gain even an ounce of credibility.  This is the bailout that needs to happen (relatively soon) to avoid our Greece moment.

But, I think the Dems want a stimulus package that helps them get a chance at re-election.  The only way to do this is to help people outright/directly.  They need a stimulus that puts actual benefit right into the hands of voters.  I don't know how they pull that off, though.  Paying everyone's mortgage on their primary for x amount of months might be an idea.  Seems like a nightmare to pull off, though.  Maybe kick in x months of free rent for renters.  Cash outright?  I just can't imagine this happening.  Although, they may realize another stim package could be death to any incumbent. 

In the end, I'm going with stealth QE by the Fed.  They don't need to prop treasuries ATM.  The mortgage market appears to be okay without their direct intervention.  More CRE, then?  Possibly buying more dead assets off the banks books so that the banks can go back to buy, buy buy equities?  Maybe they start mass buying munis to keep the states afloat?

I can't imagine they all just sit back and let reality run its course.

Sun, 06/06/2010 - 11:38 | 397861 I need more asshats
I need more asshats's picture

"QE v2 should actually be Bernanke dropping $100 bills from a helicopter on a nationwide tour. "

I think Barack will have his ex-crack dealer friend jayz do the honors. Beonce will shake her booty in the opened helicopter door and jayz will make it rain ya'll, or whatever they say. Gotta give props to the parade of ghetto trash that the whitehouse endorses.

Sun, 06/06/2010 - 11:45 | 397864 MsCreant
Sun, 06/06/2010 - 12:03 | 397884 I need more asshats
I need more asshats's picture

I was quietly disagreeing with Cheeky earlier in this thread but if you are American and asking that question......

This country is doomed and the sheeple deserve every type of pollution that they relish and consume daily.

Sun, 06/06/2010 - 10:45 | 397816 Dreamwalker420
Dreamwalker420's picture

My mom always said, "Follow the money."

College campuses are rife with graduates every year who are seeking "professional" positions with corporations.  These corporations are always looking for someone new to be the spokesperson for their BS.  Take someone with a student loan debt that can't be mitgated by bankruptcy court and add a spiralling inflationary environment in which prices make all assets unattainable and you have your schills.

Generation upon generation of MBA's that are more than happy to spout company mantra for a dollar to pay their own debts.  Easily manipulated into fleecing their families and friends in a never-ending cycle of generational theft, all courtesy of the academia provided by the banking industries "economic studies."

I started a business with a gentleman in 2003.  He graduated with honors in economics.  What I soon discovered was that he knew nothing about making money.  He understood the appearance of making money ... that is to say, to bury oneself in debt.  His debt binges were like poker bets, and his losses were always someone else's fault.  When he ran out of options ... the reality demanded recognition of the debt situation or stealing to fill the void.

I sold my portion of the business to him, and walked away debt free.  Phew.  Glad I got out when I did.

..............................

The analysis of investment bankers is always reflective of their own trading books.  Flawed and misleading, and at worst deliberate fraud.  We all "talk up" our own book.  Sven is talking his.

It is always better to listen to market opinions that come from peers within your particular financial conditions, and especially when you haven't paid for the advice.

Sun, 06/06/2010 - 10:46 | 397817 anony
anony's picture

I sometimes wonder if the good men and women who write for this blog consider what they write.

Why would Lord Blankfein tell anyone what they, goldman,  really thinks about anything?

To have any confidence that Blankfein is doing or saying anything (for public consumption) that isn't at least disingenous, or more accurately outright lies, is to believe you can go to Kansas  and climb mountains.

 

 

Sun, 06/06/2010 - 12:14 | 397900 I need more asshats
I need more asshats's picture

Yes, it makes one wonder if there is a closer relationship between the shitcocks at 85 Broad and these hungry receptacles from 'Sweden'. I mean closer than the pump and dump that they both enjoy so much....

Sun, 06/06/2010 - 11:11 | 397836 ozziindaus
ozziindaus's picture

IMO, housing won't bottom until we have lost complete interest in buying homes. So long as it appears in headlines, Op. Ed's, GS forecasts or ZH articles, it has the effect of creating an artificial prop regardless of what the news is. 

In regards of home prices, no news is bad news. Again IMO, bad news is better than no news. 

Sun, 06/06/2010 - 11:56 | 397880 Muir
Muir's picture

I bought a house last December.

Oh, by the way, I had shorted my own dwelling.

I sold in 05 and rented!

Last December I coverered my short.

 

 

Sun, 06/06/2010 - 12:08 | 397889 onlooker
onlooker's picture

----- Cheeky Bastard------- “And if the FED thinks that it can inflate the value by engaging in QE-II it is sadly mistake. The distribution of liquidity will not be high enough for RE prices to rise. Not even close. Plus, there is that little connection between availability of credit for small business and rising RE prices. You cant have rising RE prices without credit lines to small business. The opposite may or may not be true. “-----------------  As always, I enjoyed the read. Looks like your numbers and letters match up with what I see on the ground in California, Florida, Arizona and Texas. This is far from over. The lack of money for small business chokes off the employers who use the most number of workers in the Nation.  As you have stated, we needs jobs and that starts with the guy that hires 2, 3, or 10 people.

Sun, 06/06/2010 - 13:14 | 398010 Thunder Dome
Thunder Dome's picture

QE goes to TBTF and banking subsidy via ZIRP but when it comes time for the small businessperson to get a loan the banks charge 400-600 bps over the discount rate.  Gotta love being an entrepreneur.  And then when the loan is up for renewal the terms become even more stringent.  Lots of incentive to borrow right now (sarcasm).    

Sun, 06/06/2010 - 12:44 | 397952 trillion_dollar...
trillion_dollar_deficit's picture

Once again shows how stupid the Democrats were in ending the tax credit. Political suicide.

ZIRP4EVA

Sun, 06/06/2010 - 12:44 | 397953 All_Is_Well
All_Is_Well's picture

A very smart person on ZH once said homes are nothing more than consumer items...

Sun, 06/06/2010 - 14:46 | 398098 johngaltfla
johngaltfla's picture

"Despite normalization of valuations, we expect excess supply, high delinquencies and the fading boost from housing policies to push down house prices somewhat further in 2010 and 2011."

 

 

Thank you Captain Obvious!

Sun, 06/06/2010 - 17:44 | 398316 jp
jp's picture

This is all part of the CON GAME the Banksters are playing. Jack up the credit score requirement to buy at the same time they run credit card debt to 28% for missing one payment on time.

Guess what happens to credit scores. Why you ASK?

To take back investment property all over the country. One big giant scam.

Sun, 06/06/2010 - 18:54 | 398432 Waterfallsparkles
Waterfallsparkles's picture

Give Me A Break.  So Goldman thinks they can control Housing prices.  They are truly out of their league and Market.

Unless they can control every Home in the United States they have No Control  on Housing prices.  Just because they can control the Stock Market does not mean that they can control Housing prices throught the United States.  What huberis.

Sun, 06/06/2010 - 20:37 | 398520 BeerGoggles
BeerGoggles's picture

Anyone have a view on the Canadian housing market?

The talk is that the banks are healthier but hidden away is that they are subject to the same subprime as it has just been shifted/packaged up into the housing agency's accounts.

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