Wilt the Silt
My theory is that housing prices will continue to wilt as long as large levels of foreclosures and new home inventories run high. These are not traditional homeowners, and are motivated to slash prices, thus continuing to depress prices. It is glaring obvious that we are in the free fall phase now, with no all clears until these relationships normalize. Even non-Bubble areas like the Midwest are running surprisingly high foreclosure rates, with foreclosures in the West nearly reaching sales.
Those foreclosures, of course, represent dislocation for the homeowners being forced out of their homes and losses for the lenders. But they also represent an alternative supply of homes for buyers, providing competition for other sellers.That can be particularly true because sales of homes that have been foreclosed, or are about to be foreclosed if they cannot be sold quickly, are made by sellers who are in no position to wait for better prices. Those sales can help to push prices lower for everyone. For new-home builders, one result has been growing inventories of completed homes without buyers. The number of such houses across the country hit a record 197,000 in December, and slipped only to 195,000 in January, the Census Bureau reported this week. Moreover, the median age of such houses is up to 6.7 months, nearly twice the age of such houses when the housing market was peaking in the fall of 2006.
Quite frequently now-a-days one sees comments that seem to come from the truly delusional at best, and carnival barkers at worst. You decide, but I couldn’t help but pass this jewel along from Robert Toll of homebuilder Toll Bros.:
Chief Executive Officer Robert Toll said on a Feb. 27 conference call. “This drumbeat (about recession), coupled with concerns over mortgages, the direction of home prices, and foreclosures, has kept pent-up demand on the sidelines.’‘ “
Not surprisingly finance in western states is in collapse. For January Arizona reported a 7.5% drop in sales tax, and individual taxes were off 11.9%. On the topic of state and local government here is what the guy who supposedly is there to rescue muni insurance has to say about it.
Mr. Buffett also had harsh words for state and local governments. “Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement — sometimes to those in their low 40s — and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep.”
You heard it here first, and muni yields are blowing out. Again this is not a “liquidity” issue, it is credit quality related, see above.
Months of turmoil in the municipal-bond market, long a placid haven for individual investors, reached a boiling point Friday — as hedge funds were forced to unwind complicated bets and in the process dump billions of dollars of the securities. As a result of that surprising forced selling, yields on debt from municipalities and other tax-exempt issuers jumped to their highest levels in history, when compared with safe debt issued by the U.S. government. The average AAA-rated, 30-year municipal bond yielded 5.14% Friday afternoon, compared with 4.42% on a U.S. Treasury 30-year bond.
You heard this first here as well. Incidentally even with foreign central banks adding another $25.9 billion to agency holdings in the last three weeks, rates still went up.
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.24% for the week ending Feb. 28, up from 6.04% last week. The mortgage is now higher than it was a year ago; the 30-year averaged 6.18% at this time last year. Just three weeks ago the benchmark loan averaged 5.67%, meaning it has jumped more than half a percentage point since then.
There was also a dramatic change of fortune for the Hail Mary Suck in Aunt Millie rally as another of the “saviors” of the monoline insurers suddenly shifted gears and funded a competitor.
Furthermore, in a move that is sure to rattle the markets when they reopen on Monday, Ambac, the struggling bond insurer, announced late last night that it would become the first securities underwriter to cut its dividend, from 7 cents to 1 cent, and would cease writing new business for six months, as it sought to conserve cash. Ambac’s announcement came only hours after it emerged that a key attempt to rescue Ambac, in which Mr Ross had considered investing, could be far from being finalised and may fall through altogether.
Mr Ross, the billionaire investor, yesterday agreed to inject up to $1 billion in Assured Guaranty, one of only two bond insurers that has not only kept its key AAA credit rating from all three mainstream ratings agencies, but also not even had that rating questioned. The other is Financial Security.
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