Thursday, October 23, 2008


From a surprizing source we have this interesting article about homeownership in a deflationary asset environment. From CNBC of all places:
About 12 million U.S. homeowners owe more than their homes are worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006, said Mark Zandi, chief economist at Moody's

"At the root it's 'the' problem," said Zandi. "If you're going to put your finger on the one thing that's gotten us into this fiasco, it's the fact that millions of homeowners are under water on their homes."

Money quote:
Nationwide, for those who purchased U.S. homes since the beginning of 2003, nearly one in three now have negative equity.

Nearly half of buyers who purchased in 2006 are under water.

Despite tighter credit and underwriting for home loans this year, Steve Berg, a managing director at research firm LPS Applied Analytics, said mortgages originated in 2008 were on par or trending worse than those originated last year or in 2006.
[emphasis added]
Got that? We are not working through the bad loan crisis we are still ramping up to a higher peak.


Aaron said...

I was underwater..this am swimming. first too!

Aaron said...

yes but Rob the guberment and the banks are going to work with homeowners and all will be well.

Ask the NAR. they always know best!

Rob Dawg said...

IMO we are coming dangerously close to cascade failure. If municipalities try to use taxes to backfill their budgets, particularly property taxes, they are likely to lower revenue. We'll have advance notice with HOAs and whether they can do the same thing; overcharge the remaining residents.

Aaron said...

I agree Rob and I don't think it's just in Cali. Here county workers are getting 'extra' time off around the holidays. Of course it's the unpaid kind. It saves some money but not nearly enough. Let's see w/ housing in the tank for a few more years. Either budgets are going to have to shrink, taxes increase or a combination of the 2. Probably the latter. We're not talking Vegas. This is Fairfax County, VA where we are insulated by the government somewhat.

OT but any bets on how many million barrels OPEC announces as a cut back tomorrow. not that that will have much of an effect unless they announce something insane such as 5 million. Iran is sweating it since they have budgeted for in excess of $100 a barrel for next year. Venezuela too although I think it's $90 for them. We move back up to that and the recession will be even nastier.

Jean ValJean said...

Off Topic:

Now KC can have a house AND be mobile:

He can have his own version of Baba Yaga's house on chicken legs.

Rob Dawg said...

2.5 million barrels with an admission that they'll actually get 1-1.5 decline. Price won't move on the news. There's a lot of busted bets out there. I hear rumors of tankers full off shore full of $125 oil and no one will even pay market. Demand destruction triple whammy hits spot delivery. As painful and irrational $147 was it taught lessons. There is no end user demand for $125 oil. And recall my thesis, $100 oil forces long term shifts away from oil. Venezuela is toast. They burned bridges with the companies that could help them survive with $85 oil.

Aaron said...

Interesting point about Venezuela Rob. I had not thought about the repercussions of their oil grab. Who would invest no matter what the conditions seeing as they can just seize the assets again. This of course will keep constraint on the oil market once this current economic crisis is over in a few years. Hopefully by then we are less dependent on oil. Let's hope that the fact it has come down so much does not lead us to think we don't need to look into alternatives, drill more here, etc.

Jean ValJean said...

Also keep in mind that Venezuelan crude is a lot "dirtier" crude than Saudi crude, so it takes Venezuela a lot more money to generate one barrel of oil.

Peripheral Visionary said...

Venezuela and Iran are in serious trouble. They both have "sour" crude which relies on high prices to be viable. However, both governments also rely on a lot of government handouts to stay in power. Their revenue is dropping like a stone at the same time their costs are as high as ever, and the borrowing rates for a developing nation--especially one with a history of expropriation of private capital--are sky-high, if anybody will lend to them in the first place (doubtful, with Argentina heading toward default.) End result, either a change of government or Zimbambwe is going to have company at the bottom of the economic barrel.

H Simpson said...

I heard not to expect major cuts.
In times of economic uncertainty, the boy in the middle east are smart enough to open the spigot to get folks using their energy.

But what I am hearing is consumers are saying screw it. It is expensive and besides, I may not have a job next week.

Demand is being blown up faster then the dealers can give out free crack. Seems like every greedy b@stard is being blown up.