<p>“The vast majority of homeowners–not speculators, bought them well
before 2005 and have not plans of selling now into the slump.” Also
much of the slumping prices are in the fringe suburbs far from the
CBD. Homes in desirable close-in neighborhoods have been far less
impacted–even in towns where prices are down significantly. The gas
prices will make this even more important. So if LA is down 15%
overall, Santa Monica might be off only 5% as they never could
overbuild new homes there. Regional averages are not very good
indicators of housing markets in large cities. The excess inventory
in most cities will be gone in a year or so and then prices will
resume a slow steady climb as we come out of the slowdown loaded with
BO optimism about change."</p>
<p>Real Estate dropped about 50% in the housing bubble burst in the
late 1980s to early 1990s in our area (Northern New England). The
Fed had cranked up interest rates to kill inflation and kill it
they did. It encouraged savings but did an incredible amount of
damage to the housing market. And the memories of that housing
bust is why prices in our area didn’t go up as much as in many
other parts of the country.</p>
<p>A friend of mine is a banker for the wealthy in Southern California.
Lately he’s been posting the Bank Death Watch. You can see today’s
post at [ClearStation</a> : Member Discussion : _COMPX](<a href=“http://clearstation.etrade.com/cgi-bin/bbs?post_id=8700416]ClearStation”>http://clearstation.etrade.com/cgi-bin/bbs?post_id=8700416)
I recall buying a thousand shares of New Century Financial on his
suggestion. They were about $31 at the time with earnings the next
day. I didn’t like the chart action the next morning and dumped it.</p>
<p>After the close, they reported dreadful results and warned. I think
that they were bankrupt in about a month. I think that my friend
took about a 25% haircut. You win a few, you lose a few.</p>
<p>Perhaps you can ask an unemployed Bear Stearns former employer what
he thinks of the houusing market. Or the shareholders of PMI Group
what it feels like to lose 94% of their investment. Or Etrade
Financial that has a great brokerage business but has seen their
stock price go from $28 to $4 in a year because of their mortgage
unit.</p>
<p>From Doug Noland’s Credit Bubble Bulletin:</p>
<p>May 27 - Wall Street Journal (Sudeep Reddy): “Home prices are falling
at an accelerating pace, new data show, while a separate report found
a shrinking share of Americans plan to buy a home anytime soon,
suggesting more price declines in the months to come. The
S&P/Case-Shiller index for the first quarter showed prices for
existing homes nationwide declined 14.1% from a year earlier, compared
with a year-to-year drop of 8.9% in the fourth quarter. A separate S&P
index that tracks 20 major metropolitan areas on a monthly basis
showed home prices dropped 14.4% in March from a year earlier and 2.2%
from February.”</p>
<p>May 27 - Bloomberg (Kathleen M. Howley and Dan Levy): "Housing demand
in California, where one out of every eight U.S. residents lives, is
reviving as bargain hunters buy foreclosed properties… Sales in the
state increased 2.5% in April, following 30 consecutive declines… The
median home price tumbled 32% in April from a year earlier to
$403,870, the biggest drop in at least three decades… About 30,000
foreclosed homes have been auctioned in California so far this year…
Banks holding repossessed properties are so eager to unload them
they’ll give buyers discounts of as much as 40%, said Celia Chen, an
economist at Moody’s…”</p>
<p>May 27 – Bloomberg (Robert Tuttle): “The average pump price of diesel
in California rose above $5 a gallon for the first time… The price
rose 29 cents to $5.027 a gallon…”</p>
<p>May 30 – Bloomberg (Josh P. Hamilton and Bob Ivry): “Newly delinquent
mortgage borrowers outnumbered people who caught up on their overdue
payments by two to one last month… In April, 73,880 homeowners with
privately insured mortgages fell more than 60 days late on payments,
compared with 39,584 who got back on track, a report… from the…
Mortgage Insurance Companies of America said… Foreclosure filings
surged 65% and bank seizures more than doubled in April compared with
a year earlier…”</p>
<p>May 27 – Bloomberg (Lindsey Arent): “In the midst of the worst surge
in mortgage defaults in seven decades, foreclosures in U.S. towns
where soldiers live are increasing at a pace almost four times the
national average, according to data compiled by research firm
RealtyTrac Inc….”</p>
<p>May 29 – Bloomberg (Vivien Lou Chen): “Federal Reserve Bank of Dallas
President Richard Fisher said he expects the central bank would raise
the benchmark U.S. interest rate should the public begin to expect
greater gains in consumer prices. ‘If inflationary developments and,
more important, inflation expectations continue to worsen, I would
expect a change of course in monetary policy to occur sooner rather
than later, even in the face of an anemic’ economy, Fisher said… ‘I
don’t know a single person on the committee that isn’t concerned about
inflation… The question is, ‘what is the right treatment?’ That is
subject to debate.’”</p>
<p>May 27 – Wall Street Journal (Michael R. Crittenden): “Turmoil in the
housing market continued to hurt the U.S. thrift industry during the
first quarter, as institutions set aside a record amount to cover
expected loan losses. The Office of Thrift Supervision said thrifts
lost $617 million during the first three months of 2008, down from net
income of $3.61 billion in the first quarter of 2007 but better than
the record loss of $8.75 billion in the final quarter of 2007. The
agency said thrifts set aside an industry-record $7.6 billion in
loan-loss provisions during the first quarter, up from $5.5 billion in
the previous quarter and $3.5 billion in the third quarter of 2007.”</p>
<p>May 24 – Financial Times (Gillian Tett): “Is something nasty lurking
in the leveraged loan woodshed? That is a question a lot of investors
are asking these days. As summer approaches, there are mounting signs
that banks are slowly working through the subprime horrors. For
example, last week Fitch, the rating agency, suggested that banks
could have written off about 80% of their likely subprime hits. But
now some investors are starting to wonder if the banks could soon be
hit by a new wave of problems, this time from the leveraged loan
world. This sector has also seen a dramatic surge of lending in recent
years, with a commensurate fall in lending standards. Thus, as the
economy slows, the risk is that private equity players could soon
start defaulting, creating more bad debt. Is this a real risk in the
second half of this year?”</p>
<p>“I guess I’m one who actually likes driving a nice newer car and going
on nice vacations, eating at nice restaurants, etc. Money is for
spending and enjoying. So is life.”</p>
<p>I suppose that some prefer cake while times are difficult for others.</p>