Why would anyone buy a home today?

From MarketWatch:

Home buyers advised to look before they leap

Fox-Pitt Kelton home-builder analyst Robert Stevenson said Wednesday he thinks this year will turn out to be “a bad time to buy a home” as the U.S. economy loses more jobs, especially if buyers don’t plan on staying in the house for at least several years.

“While some suggest that now is great time to buy a home given low mortgage rates and falling home prices, we believe that for most homebuyers, the opposite is true,” Stevenson said in a report to clients.

“Buyers who lose their jobs or who stay in their homes for less than seven years stand to incur substantial losses as home prices decline further in 2009 and the U.S. experiences more moderate home-price appreciation going forward,” Fox-Pitt said. “We believe too few buyers do the simple break-even math before sinking their life savings into a house.”

With average rates on 30-year mortgages falling to around 5% and the government pumping liquidity into the mortgage market, many homeowners are rushing to refinance. But while the lower rates make homes more affordable, the days of buying homes with little or no down payment and shaky credit scores are long gone.

For buyers, the big fear is purchasing a house that will be worth less a year later, or even longer. Homeowners who bought at the peak of the housing bubble are underwater on their mortgages, meaning they owe more on the loan than the house is worth — and some are simply walking away.

National home prices were down 23% from their July 2006 peak through October, and Stevenson at Fox-Pitt predicted an incremental 20% drop in prices before bottoming, a peak-to-trough decline of roughly 40%.

“While a drop of 40% seems absurdly high … it would only put home prices back to where they were at the beginning of 2002,” Stevenson said.

The analyst’s bearish outlook is based largely on escalating unemployment, and jobs are the lifeblood of the housing market.

“As if 2008 weren’t bad enough for housing — given the mounting foreclosures, falling home prices, and a tightening credit market — millions more Americans are now in danger of losing their jobs,” said Stevenson at Fox-Pitt. “As unemployment heads towards 8%, we expect foreclosures to spike, taking home prices down materially.”

“If unemployment can be held under 8%, we believe the housing market will start a slow recovery beginning in 2010,” Stevenson said. “However, if the bears are correct and the U.S. experiences 9% [or higher] unemployment in [the second half of 2009] or 2010, we believe the housing market could experience a meltdown even more severe than the one we’ve experienced in the past few years.”

On the supply side of housing, there remains a sizable overhang of unsold homes on the market. The supply of both new and existing homes is massive by historical standards, and a surge in foreclosures would only add to the glut if the government can’t find a solution to the foreclosure problem.

Buyers who do jump into the housing market should consider the possibility that they may need to stay in the home for many years in order to come out ahead, assuming home prices fall substantially further.

“Given the likelihood of a meaningful decline in home values in 2009, we continue to wonder why anyone would buy a home today,” said Stevenson, the home-builder analyst, in a loud and clear warning to buyers.

This entry was posted in Economics, Housing Bubble, National Real Estate. Bookmark the permalink.

137 Responses to Why would anyone buy a home today?

  1. Sean says:

    first!

  2. lena says:

    second!

  3. John says:

    third

  4. grim says:

    From HousingWire:

    Regulators Anticipate Prolonged Recession, Warn of Deflation in 2009

    The year-old recession will continue “well into 2009″ before beginning a slow recovery in 2010, according to a budget and economic outlook published Wednesday by the Congressional Budget Office (CBO). Among other bleak forecasts was a marked contraction in 2009 with real gross domestic product declining 2.2 percent and gaining back only 1.5 percent in 2010. The CBO also said it expects inflation to decline to only 0.1 percent in 2009 and for unemployment to exceed 9 percent early in 2010. “[It] is too early to determine whether the government’s actions to date have been sufficient to put the system on a path to recovery,” the report’s author wrote.

    The slow financial recovery was forecast for a variety of reasons. The CBO warned that financial institutions will need time to recover from losses incurred from loan defaults. “As a result, borrowers will continue to find the terms and availability of credit tight, which will increase the cost of capital and hold back the growth of investment and consumption, dampening economic activity for several years,” the report read.

  5. alia says:

    thank you, kettle! i appreciate your thoughts.

    i guess i am like the sheep in that i see a V shape, just not in the recovery. but since i don’t understand the macroeconomics (or the PTB or Mr Market or whatever magical force has power at the moment), i have no idea how to time my entry into the market (at the moment, “not yet” is working well for me).

    i’m looking for signs and portents, and the quality of intestines are just not what they used to be.

  6. scribe says:

    commander bob

    The Courier News database shows only one transaction on that street address back in 1995 for $181,000.

    http://www.mycentraljersey.com/apps/pbcs.dll/section?category=datauniverse06

  7. Shore Guy says:

    ” Fox-Pitt predicted an incremental 20% drop in prices before bottoming, a peak-to-trough decline of roughly 40%”

    Hummmmm, where have I heard projections like this before. Could it be right here?

  8. Clotpoll says:

    Shore (7)-

    Fox-Pitt’s call is too conservative.

    I say 50%+ drop before it’s over.

  9. bairen vulture says:

    From CNN

    millionaires have lost roughly 1/3 of their assets so far during this bust.

    http://money.cnn.com/2009/01/06/news/economy/millionaires/index.htm?postversion=2009010614

  10. BC Bob says:

    “While a drop of 40% seems absurdly high”

    Actually the bubble created gains were absurd. A 40% drop is rational.

  11. grim says:

    Going back and forth with my web techs this afternoon to try and troubleshoot the performance issues I’ve been seeing.

    A handful of folks have emailed me telling me performance has been sluggish or that they’ve gotten web errors trying to access the site.

    Turns out that my server is again hitting up against CPU and RAM limits, and I’m going to need to upgrade the server.

    More $$ out of pocket! I could cry.

  12. BC Bob says:

    “More $$ out of pocket! I could cry.”

    JB,

    Monthly subscription charge and/or banner ads.

  13. skep-tic says:

    well, NYC-area prices are down roughly 10% from the peak (mid 2006). It does not seem to be the case that prices here completely collapsed under their own weight as they did in the most bubbly areas of the country. Job losses are the key in this area which is why I think this year prices will be down 10-15%. But if the national number is supposed to be down 50% when all is said and done, I wouldn’t be surprised if the NYC-area only ended up down half that much

  14. still_looking says:

    I am a Sunday NYTimes subscriber, but I am always an inch away from cancelling.

    Skep,

    OMIGOD, that is so me!!

    Everyday. the latest straw was the pic of the Israel-Gaza headline a few days ago…

    hmmm I guess Israelis and their kids don’t die (well, for sure they don’t make it to the nyt cover.)

    F the times…. thank you for the motivation. I’m calling in the morning to cancel.

    sl

  15. skep-tic says:

    “I’m calling in the morning to cancel.”

    final nail in the coffin?

  16. Mike NJ says:

    Grim,

    I bet a large part of you load are folks continually refreshing the link to the comment site. There are several web technologies that allow for real time streaming of updated comments and posts once a user has reached the page. This would really cut down the on the server’s need to continually refresh the entire comment thread.

    Just a thought.

  17. Victorian says:

    For the NYT haters –

    Which newspaper do you think offers the most balanced views/newsreports?

  18. Frank says:

    With the 500B MBS purchases the government is putting bunch of Wall St. mortgage traders out of work.
    Look at this: FH1J1828 price: 103-05 4.24% yield

  19. Stu says:

    I only buy the Sunday Star Ledger from the local bodega. Unlike the Times, it covers the local sports, comics and the many coupons make it pay for itself. I am pretty liberal, but even the times takes it too far too often. Kind of like the Post does in the opposite direction.

  20. Frank says:

    #17,
    WSJ.

  21. Stu says:

    Victorian,

    I’ve always been impressed by the Financial Times for balanced reporting. There’s always the 1st grade level USA Today ;)

  22. bairen vulture says:

    #17
    Pravda

  23. Stu says:

    WSJ has a bit of an upper crusty conservative tilt, but more central than the Times and the Post.

  24. skep-tic says:

    I think WSJ is pretty middle of the road in their political reporting. WashPo has a liberal slant but there is at least some curiousity about how they will spin a story. It is almost unnecessary to even read the Times political coverage at this point, it is so predictable

  25. Stu says:

    The Big Picture:
    Laffer-able

    http://www.ritholtz.com/blog/2009/01/laffer-able/

    “I suppose I should start this by saying that it’s hard not to like Art Laffer. He’s affable and sincere.
    His extreme supply-side ideas are kind of quaint and even entertaining. Last night he was on Fast Money, but his comments weren’t so funny anymore…”

  26. JBJB says:

    I used enjoy the San Diego Union Tribune and The Cleveland Plain Dealer when I lived in those cities. At the time, they were both pretty straight down the middle. Not sure about now though.

    There are at least two papers worse than the NYT – the Boston Globe and LA Times (worst of all).

  27. skep-tic says:

    case in point is the massive front page story a couple of Sundays back trying to blame the entire mortgage mess on Bush, but leaving out responsibilty of notable democrats like Dodd and Frank (who blocked numerous Bush attempts to reform the GSEs)

  28. skep-tic says:

    yes, Boston Globe is at least as bad as NYTimes. Then again, they share ownership, so big surprise

  29. grim says:

    Ok, we were able to bump up the available ram on my server as a temporary step.

    Let me know if performance improves this afternoon.

  30. john m says:

    can anyone give me the address and history on mls# 2832899 thanks

  31. grim says:

    34 Bannehr Street, Oakland

    Purchased: 1/13/2005
    Purchase Price: $370,000

    MLS 2832899
    Listed 8/1/2008
    List Price: $389,000
    Reduced: $369,900
    Reduced: $349,900
    Reduced: $339,900

    Listed as a short sale, subject to bank approval and commission cuts. It’s in A* status, changed on 12/29.

  32. kettle1 says:

    Alia 5

    i guess i am like the sheep in that i see a V shape, just not in the recovery

    not sure what you mean by V….

    The market will eventually recover from all this mess. The question is what the time frame will be. It very well could be 15- 20 years just to break even.

    Please remember that i am in no way a finance professional or any sort of finance guy. I am about as qualified as a highschool janitor to advise anyone on finance issues….

    That said, my personal opinion is that anyone who isnt confident in navigating the current market, which is 99.99% of people, would be better off holding cash, short term treasuries or similar. That is what the majority of my meager holdings are in. The only money of mine that touches the market right now is money that i might other wise use on hookers and blow ( better then burning it, right?)….

    cheers

  33. grim says:

    From CNBC:

    Early Warnings Signaling An Ugly Earnings Season

    If the plotline for 2009 was to start the year with an optimistic bang, corporate America doesn’t seem to be following the script.

    Before anyone had the chance to soak in the early-year rally, a slew of big companies have come along with earnings warnings to temper the enthusiasm.

    The warnings-from giants Alcoa, Intel and Time Warner were a big factor in the selloff in stocks on Wednesday.

    Moreover, these early warnings are expected to be just the first few rumbles in an avalanche of dour outlooks to come.

    “It’s going to be ugly,” said Tom Higgins, chief economist at Payden & Rygel in Los Angeles. “We’re certainly not through the thick of it…I think you’re going to see a horrible earnings season.”

  34. Nicholas says:

    I’m pretty good with setting up machines Grim.

    If you need some advice or free help let me know. I have built all my machines from components and it has worked out in my financial favor.

  35. sas says:

    blokes!
    quit filling my email box. I’m no superstar.

    remember
    you can make money on the pump
    and can make money on the dump

    be careful what you read and who you read it from.

    SAS

  36. PGC says:

    #29 grim

    Are you paying extra for the T feed from the server to the three letter agencies.

    Mike has a good point. There are different interfaces (vBullien) you can try. The post a story and get 500 comments will chew up memory. allowing the forum to spread out into different topics may spread the load.

  37. Yikes says:

    market absolutely cratering

  38. Frank says:

    you cant make this stuff up..

    Hustler’s Larry Flynt and Girls Gone Wild CEO Joe Francis Ask
    2009-01-07 17:40:43.492 GMT

    Hustler’s Larry Flynt and Girls Gone Wild CEO Joe Francis Ask for Government Bailout of the Adult Entertainment Industry

    The $13 Billion Industry Is In No Fear Of Collapse, But Why Take Chances?

    PR Newswire

    LOS ANGELES, Jan. 7

    LOS ANGELES, Jan. 7 /PRNewswire/ — As the 2009 AVN Adult Expo opens in
    Las Vegas this week, Girls Gone Wild CEO Joe Francis and HUSTLER magazine
    publisher Larry Flynt are petitioning the newly convened 111th Congress to
    provide a financial bailout for the adult entertainment industry along the
    lines of what is being sought by the Big Three automakers, a spokesperson
    for Francis announced today.

  39. grim says:

    From DealBreaker:

    Layoffs Watch ’09: BAC

    Regarding the aforementioned cuts at Bank of Amerillwide, we’re told that sales was “hit hard across all levels from analyst to MD” and that “2/3 of the BofA commodities desk” was relieved of it’s obligation to come back after lunch.

  40. Yikes says:

    Clotpoll says:
    January 7, 2009 at 11:11 am

    DL (128)-

    In about 4-6 months, those won’t be teabags in those people’s hands.

    Expect “tax revolt” to be one of Google’s biggest searches this year.

    and molotov cocktail, dont forget that one

  41. Shore Guy says:

    “Victorian says:
    January 7, 2009 at 2:02 pm
    For the NYT haters –
    Which newspaper do you think offers the most balanced views/newsreports?

    Frank says:
    January 7, 2”

    WSJ and Times (of London).

  42. Victorian says:

    “market absolutely cratering”

    – Must be because I covered some of my shorts yesterday.

  43. grim says:

    Mike,

    Agree, rapid refresh used to cause big issues. Was able to implement page caching and DB caching that resulted in server load coming down dramatically.

    Nicholas,

    Appreciate the offer, but hardware cost is only a piece of the pie. I’ve worked with colocated hardware before and agree that it is very cost effective in comparison. My problem is that I need that 24/7 proactive tech support.

    PGC,

    We tried vB a few years back, caused a massive uprising. When I saw the torches and pickaxes marching towards my front door we went back to WordPress.

  44. Yikes says:

    grim, 40 in mod

  45. kettle1 says:

    Grim

    Are you paying extra for the T feed from the server to the three letter agencies.

    file a claim for TARP money!!!!!! you can claim that you need the money to support goverment efforts (the various 3 letter agencies that monitor this blog for dissidents)

  46. Mitchell says:

    State’s Unemployment System Buckles Under Surging Demand

    Swamped by a post-holiday surge of claims from laid-off workers, New York State’s computerized unemployment insurance system shut down briefly Monday afternoon and then again for several hours on Tuesday, according to the state Department of Labor.

    The system, which serves as the gateway to unemployment benefits for New York residents, could not handle the volume of calls and online inquiries it was receiving, said Leo Rosales, a spokesman for the department. As many as 10,000 people an hour tried to log into the system to file new unemployment claims or to check on existing claims, Mr. Rosales said.

    “It is really unprecedented, the number of calls we’re getting per hour,” Mr. Rosales said. He attributed the unusually heavy volume to the confluence of “the high unemployment rate, the time of the week, the time of the year and the high number of new claims.”

    In the week that ended Dec. 26, 30,161 people filed new applications for unemployment benefits, an increase of more than 32 percent over the same week in 2007. The number of first-time claims has averaged more than 30,000 per week for the last few weeks.

    Though it remains lower than the nation’s, the state’s unemployment rate rose to 6.1 percent in November from 5.7 percent in October. New York City’s unemployment rate rose to 6.3 percent in November, from 5.7 percent in October. Economists expect unemployment to continue rising, possibly at an accelerated rate, in early 2009.

    “I think a lot of employers tried to keep people on the payrolls through the end of the year, but the sense was that there was going to be a surge in layoffs come the first of the year,” said James A. Parrott, chief economist for the Fiscal Policy Institute, a research group that advocates on behalf of low-wage workers. “That’s probably what’s hitting the claims system right now.”

    The demands on the state-administered unemployment insurance program have been building for several weeks and increased after an emergency extension of benefits in November as more people called to inquire about their eligibility, Mr. Rosales said. That seven-week extension followed a 13-week extension earlier in the year. All told, workers who were eligible for both extensions could collect unemployment checks for a maximum of 46 weeks.

    In early December, the state Labor Department doubled its staff of representatives who field calls about unemployment benefits and extended their working hours in response to growing wait times on the phone lines, Mr. Rosales said.

    “We’ve been experiencing high call volumes for several months,” Mr. Rosales said. “There was a long wait time for callers. We had a lot of complaints. People were upset.”

    Mr. Rosales said that the system was repaired around midday on Tuesday, and that anyone seeking to file a claim for benefits has until Sunday to apply in time to receive a check next week.

    Unemployed New Yorkers must apply for benefits either online or over the phone, but some frustrated claimants have been showing up at employment offices, whose purpose is to provide guidance on finding work. The state began phasing out unemployment offices several years ago and has not allowed in-person applications since 2005.

    Several people interviewed at an employment center on in Harlem reported that the system has had technical problems for some time. Joe Ruiz said he went to the Workforce1 Career Center on West 125th Street to use a computer to apply for benefits online after he was dismissed from a job in a restaurant kitchen last month. But after the machine crashed repeatedly, he said, he went to a friend’s apartment and eventually got through on the telephone.

    On Tuesday afternoon, in his third week of collecting benefits, Mr. Ruiz, 40, was back at the employment office to talk with a counselor.

    “I’m applying for a lot of jobs, so hopefully I won’t need benefits for too long,” Mr. Ruiz said. “It’s not a lot of money, but it helps.”

    http://www.nytimes.com/2009/01/07/nyregion/07unemployment.html?_r=1

  47. pricedOut says:

    Grim-
    You can count on this lurker for a month’s hosting fees in ’09. So far, I’m still employed ;-)
    pricedOut

  48. Nicholas says:

    Is your site funded out of pocket or through donations?

  49. Jersey Jim says:

    Victorian says:
    January 7, 2009 at 2:02 pm
    For the NYT haters –

    Which newspaper do you think offers the most balanced views/newsreports?

    —————————————
    I go with Fox News- Fair & Balanced

    As far as newspapers I try and avoid them due to the far left tilt.

  50. pricedOut says:

    Nicholas-
    See the Donate button on njrereport.com
    ;-)

  51. Stu says:

    The AA layoffs announced last night, when their earnings report is just next Tuesday was the real kicker. Can’t imagine why they didn’t wait unless the numbers are so bad that they hope to stem the panic selling by pricing in some of the losses through the announcement yesterday.

    Currently I see the market as being on a seesaw with the ‘Hope Slope’ on one side and economic reality on the other. The million dollar question is will the horrible earnings counter the euphoria around the chosen one. I think it will, but what do I know. I’m just some idiot on the web whom hasn’t left Lodi since 77. Wait…that’s not true, but I did play a lot of roller hockey there last decade.

  52. Nicholas says:

    Thanks PricedOut I noticed it right after I posted.

    I don’t donate through PayPal though…

  53. John says:

    wouldn’t the newly unemployed folk plant mustard seeds by having the newly found time to visit their favorite restaurants and bars and planning vacations with their large severance payments, sure they may cut back by buying a CPO BMW and taking the train to their broadway shows instead of limos, but I am sure our great country can deal with the sacrifices.

  54. Nicholas says:

    I think that the “Hope Slope” is fictional and doesn’t exist. You cannot hope yourself full from an empty belly.

    O can do nothing more but inspire but the true economic recovery will come from everyone. Get off your duff and start being more productive. Become more productive, work longer hours, and invest in your own education.

    If O can inspire you to do those things then yes he will drive recovery but it hinges on you.

  55. pricedOut says:

    re. PayPal donations: you don’t need a PayPal account. You can use mastecard and visa credit cards. (I think amex too)

  56. Victorian says:

    WSJ as centrist? – Here are the leading opinion pieces of today.

    Waiting for Dodd
    Where are those Countrywide papers?

    A Charter Setback in Florida
    Charlie Crist takes a school-reform powder.

    Militant Islam Threatens Us All
    By Benjamin Netanyahu

    Boost Private Investment to Boost the Economy
    By Hal Varian

    The GOP Should Fight Health-Care Rationing
    By Tom Price

    ‘#############

    I agree that the NYT is a primarily liberal rag, but the people who are offended by it are primarily conservatives. So, you want to see news as you would want it to be.

    There is no single US source of unbiased reporting out there. (maybe the BBC?).

  57. John says:

    Crude ends down 12%, its biggest one-day percentage loss since September 2001

    BIG TIME MUSTARDS SEEDS FOR GM SUV SALES> DIE TOYOTA DIE!!!!!!!!!!!!!

  58. make money says:

    57 John,

    I bought the Dip.

  59. skep-tic says:

    #56

    Vic– talking about the news coverage, not opinion page.

  60. Clotpoll says:

    sl (14)-

    NYT= gang of self-loathing Jews.

    How convenient of them to ignore the fact that Hamas was- and still is- lobbing 20-50 rockets a day into random spots in a population grid of over a million people.

  61. Nicholas says:

    I was thinking about an article that I heard on NPR today.

    They said that the amount of postal mail sent with the US Postal Service was a leading indicator of economic distress/recession and that they saw a stark drop off in mail in 2007.

    I would like to add this to my list of data that I watch for economic recovery but I can’t seem to get at the raw data.

    Can someone suggest where to obtain this data from?

  62. John says:

    I find it mildly amusing their mortal enemy is named HAM-as.

  63. JBJB says:

    A tax revolt unlikely?

    http://www.realclearmarkets.com/articles/2009/01/are_tax_revolts_a_thing_of_the.html

    NJ gets a nice shout out in this piece.

  64. tbw says:

    Speaking of tough economic times, will Meadowlands Xanadu ever open? I heard a rumor that Cabela’s is trying to get out of their agreement to open a store there. That would leave LegoLand, an indoor ski slope, BenniHannas, and Muvico Theaters. Wow.

  65. John says:

    I am also buying on the oil dip, full tank of gas tommorrow, two vehicles!

  66. tbw says:

    They will need a bunch more stores to fill that 4,500,000 square feet monstrosity.

  67. Victorian says:

    Skep –

    Wasn’t the example you cited of the NYT being biased a pseudo opinion piece as well?

    WSJ likes to blame the GSEs and the CRA which had minimal impact on the subprime mess. The GSEs imploded for other reasons than subprime.

  68. bairen vulture says:

    #58 make money says:

    I bought the Dip.

    make, you bought re101?

  69. sas says:

    good interview going on right now about NY state economics.
    wbai
    99.5FM

    SAS

  70. sas says:

    can get it on the web too

    http://www.wbai.org

  71. JBJB says:

    Vic

    I agree that the CRA for example had little impact on the subprime mess from a numbers standpoint, but it did contribute significantly to the attitude in Washington that getting as many people as possible into home ownership is somehow good public policy. It also helped shape the idea that phony financial engineering is the means to this bad public policy end. Dems supported it as it was a handout to their constituency, Repubs were fine with it as they for some reason think that home ownership will convince you to start voting R. The CRA itself did not cause the mess, but the idea of pushing people who cant afford homes into home ownership as a form of public policy has its roots in the CRA.

  72. kettle1 says:

    No V-Shaped Recovery

    This weekend, Barron’s declared the existence of a Treasury bubble, encouraging its readers to consider high yield municipal and corporate bonds as an alternative. Everywhere I turn, I find another market pundit suggesting the equity market has bottomed, or the commodity bust is over. And — for a short-term trade — I don’t necessarily disagree. But for one to believe we have truly bottomed at this point, you have to believe in a V-shaped recovery. Put simply, I don’t. In fact, I am somewhere between a U- and an L-shaped recovery – certainly nowhere near a “V.” But rather than beat old drums,, let me offer a new thought. The following is a list of the world’s 25 largest financial institutions as of the end of 2007:

    http://www.minyanville.com/articles/CS-C-db-jpm-aig-HBC/index/a/20522

    ——————

    and

    Taiwan’s Exports Drop By Record 41.9% on Global Slump

    (ouch)

  73. Sean says:

    4% Mortgages? Cumon Klink make up your mind already, is it 4% or 4.5%?

    Barney Frank’s panties must be in an uproar over this, wonder if Geitner is going to follow these recommendations?

    Paulson Recommends Nixing Freddie and Fannie

    By Zachary A. Goldfarb
    Washington Post Staff Writer
    Wednesday, January 7, 2009; 2:12 PM

    Treasury Secretary Henry M. Paulson Jr. today called for abolishing Fannie Mae and Freddie Mac and replacing them with highly-regulated utilities that would play a more narrow role in supporting the U.S. housing finance system.

    In what the Treasury Department billed as his last speech as secretary, Paulson addressed the future of Fannie and Freddie, which together own or stand behind about half the nation’s home loans.

    Under Paulson’s planning, the two companies were seized by the government in September as the nation’s economic crisis entered a critical phase.

    Paulson said today the two companies should be replaced by private entities that would purchase and bundle mortgages that, in exchange for a fee, would carry U.S. backing in the case of default.

    The companies guarantee mortgages against default today, but until being taken over by the government last fall, the bundled loans, known as mortgage backed securities, carried no official U.S. backing.

    Paulson said, however, the new entities would not hold investment portfolios. Fannie and Freddie own about $1.5 trillion in mortgages today, holding and trading them just as a mutual fund would hold and trade stocks.

    The companies were hit by billions of dollars in losses both in their investment portfolios and in their guarantee businesses as the housing and mortgage downturn worsened.

    Paulson compared the new entities to public utilities. He said they would be funded by private capital, but a commission would be created to establish a maximum rate of return, thereby limiting the profit-seeking behavior of private companies.

    The commission would ensure that only credit-worthy mortgages are guaranteed.

    Paulson said this proposal was geared toward a long-term fix for Fannie and Freddie.

    In the short term, he favors the government using Fannie and Freddie to bring down mortgage rates, potentially even strengthening U.S. government backing for the firms.

    He said the new administration could consider steps to bring mortgages as low as 4 percent.

  74. kettle1 says:

    Decoupling my a$$…

    We will see chinese stability threatened before this mess is over too few remebi for to many poor souls

    China faces unrest this year: Report

    China faces surging protests and riots in 2009 as rising unemployment stokes discontent, a state-run magazine said in a blunt warning of the hazards to Communist Party control from a sharp economic downturn. The unusually stark report in this week’s Outlook (Liaowang) Magazine, issued by the official Xinhua news agency, said faltering growth could spark anger among millions of migrant workers and university graduates left jobless. “Without doubt, now we’re entering a peak period for mass incidents,” a senior Xinhua reporter, Huang Huo, told the magazine, using the official euphemism for riots and protests. “In 2009, Chinese society may face even more conflicts and clashes that will test even more the governing abilities of all levels of the Party and government.”
    http://tinyurl.com/75aps5

  75. chicagofinance says:

    BC Bob says:
    January 7, 2009 at 1:52 pm
    “More $$ out of pocket! I could cry.”
    JB, Monthly subscription charge and/or banner ads.

    Bost: per post charge?

  76. kettle1 says:

    more:

    The biggest threats to China’s social fabric will come from graduating university students, facing a shrinking job market and diminished incomes, and from a tide of migrant labourers who have lost their jobs as export-driven factories have shut. Factory closures, sackings and difficulties paying social security had already unleashed a surge of protests, the report said. Officials in provinces that have provided tens of millions of low-paid workers for coastal factories have reported a leap in the number returning to their farm homes without work. State statistical authorities estimated that close to 10 million rural migrant workers had lost their jobs, the magazine said, without specifying when the sackings happened.

    Including students who graduated in 2008 and had not found work, there would be more than 7 million university and college graduates hunting for jobs this year, Huang calculated. The government’s goal of annual GDP growth for 2009 of 8 percent would generate only 8 million new jobs for the whole country, he added. In 1989, discontented students formed the core of the pro-democracy protests. “If in 2009 there is a large number of unemployed rural migrant labourers who cannot find work for half a year or longer, milling around in cities with no income, the problem will be even more serious,” said Huang.

  77. chicagofinance says:

    Victorian says:
    January 7, 2009 at 2:02 pm
    For the NYT haters – Which newspaper do you think offers the most balanced views/newsreports?

    Vic: WSJ

  78. chicagofinance says:

    But I trust bloomberg.com & radio the most

  79. kettle1 says:

    ChiFi,

    To repeat Stu’s earlier question: how would you see bernanke pulling the freshly printed cash out of the market once deflation ends?

  80. John says:

    Good Luck Mercedes and BMW selling auto bonds in 2009!!!! Looks like dividends and jobs are bye bye to pay off debt rather than issue new bonds at 10%

    Issuer Total Debt Maturing in 2009
    Name (in dollars)
    ===============================================================

    1 Daimler AG $12.9 billion
    2 Bayerische Motoren Werke AG $8.36 billion
    3 Procter & Gamble $7.7 billion
    4 AT&T Inc. $6.93 billion
    5 Deutsche Telekom AG $6.03 billion
    6 Telecom Italia SpA $5.16 billion
    7 Vodafone Group Plc $4.68 billion
    8 Tokyo Electric Power Co. $4.47 billion
    9 Wal-Mart Stores Inc. $4 billion
    10 France Telecom SA $3.75 billion

  81. veto says:

    Got a pdf of the new new deal… Sorry i dont know which website it came from, i got on email.
    I see:
    – a 10% universal mortgage tax credit relief (to homeowners who dont itemize) providing an average of $500 to 10 million homeowners, (the majority of which earn less than $50k per year).
    – Treasury and HUD to aggressively modify mortgage terms but only for those homeowners who “played by the rules” (whatever that means).
    – $25 Billion state property tax relief
    – Backstop for muni bonds, similar to the previous commercial paper program.
    – Trade: Amend n a f t a, stand firm against c a f t a

    Its about ten pages and i only listed about 5% of the plans on there. Interesting to note that i see nothing about giving first time buyers a financial incentive or tax credit to buy. Looks like the new administration wants to see housing prices adjust back down to affordability, what a concept.

  82. serenity now says:

    Grim-
    Sent a donation to help the cause.
    Keep up the excellant work!!

  83. chicagofinance says:

    Victorian says:
    January 7, 2009 at 2:56 pm
    WSJ as centrist? – Here are the leading opinion pieces of today.
    There is no single US source of unbiased reporting out there. (maybe the BBC?).

    Vic: so don’t read the last 3 pages of section A…the rest of the paper is fine….at least the Editorials and Opinions are clearly marked. It is all you could ever ask……..

  84. John says:

    I love the muni bond idea. I love CAFTA. Backstoping rich GM and Muni bondholders from loss is keeping it real, peace out brother.

  85. sas says:

    State of the State Address 2009
    David A. Paterson, Governor

    “Let me come straight to the point – the state of our state is perilous.

    New York faces an historic economic challenge, the gravest in nearly a century. For several months, events have shaken us to the core. Bank closures, job losses and stock market meltdowns have destabilized the foundations of our economy. Since January 2008, two million Americans have lost their jobs. During this recession, an estimated 225,000 New Yorkers will be laid off. Many others have lost their homes. The pillars of Wall Street have crumbled. The global economy is reeling. Trillions of dollars of wealth have vanished.

    We still do not know the extent of the economic chaos that awaits us. We do know that this may be the worst economic contraction since the Great Depression. New York entered recession in August. Wall Street was hit the hardest. At least 60,000 jobs will be lost in the financial services sector, which is devastating to our state budget. Financial services provide 20% of state government revenues, so this year’s budget will be exceptionally difficult”
    http://tinyurl.com/935hpl

  86. chicagofinance says:

    kettle1 says:
    January 7, 2009 at 3:26 pm
    ChiFi,To repeat Stu’s earlier question: how would you see bernanke pulling the freshly printed cash out of the market once deflation ends?

    Force anyone with access to the Fed window to buy marketable securities from them / raise reserve requirements…..

  87. kettle1 says:

    wow, spain has about 7 years of backlogged housing supply at the current demand level

    there are more than 1.6 million unsold homes in Spain, while annual demand for housing fell to 220,000 units in 2008 from a peak of 590,000 in 2004.

    http://tinyurl.com/2ezw7z

  88. John says:

    Bring back Fed Fridays!!!

  89. sas says:

    “wow, spain has about 7 years of backlogged housing supply”

    great time to buy:)

    i had a friend in spain, san sebastian.
    fun place.

    SAS

  90. RentinginNJ says:

    Jb,

    Have you ever thought about reconsidering the advertising ban? With the traffic this site brings in and the high class demographic, you could probably do quite well (of course I have no idea what one gets for a banner ad).

  91. sas says:

    “How long would a job-market recovery take?”
    http://tinyurl.com/979knc

  92. zieba says:

    For what its worth, I second post #90.

    You could do really well with the right targeted ads. I wouldn’t mind some ads on the right or left. Just please, no underlined word pop-up ad boxes, those are the worst…

  93. Stu says:

    ChiFi:

    “Force anyone with access to the Fed window to buy marketable securities from them / raise reserve requirements…..”

    The forced aspect of it is what troubles me and keeps the opportunity for hyperinflation alive. The only thing I have ever witnessed the FED force was for banks to take money that they didn’t want/need. It doesn’t take much arm twisting to force someone to accept billions of dollars. The reserve rates, sure…but how much money can actually be taken out of the market through reserves? Is the FED going to require reserves that are 1:1 to assets? About the forced purchase of marketable securities? I’ll believe it when I see it. Is the FED going to ask the same banks that they forced TARP money upon to buy these securities? How will this force be achieved? Threaten to remove FDIC/SIPC backing? Could you imagine the turmoil?

    I’m feeling more and more comfortable about my strategy as every day goes buy. Bring on AA and the rest of the crappy earnings. I can’t wait.

  94. #69 – sas 99.5FM

    I have an uncle who is one the air there. BAI is world unto itself.

  95. RemainCalmAllisWell says:

    To be truly unbiased is to be a zombie. It is impossible to write anything without filtering it through a mind; beliefs, thoughts, reason or logic. Anyone who tells you otherwise will probably sell you a bridge or perhaps works at Fox News.

  96. sas says:

    “Have you ever thought about reconsidering the advertising ban?”

    this is a double edge sword. sounds good, but opens doors.
    perhaps, you may end up opening a door you don’t want (i.e. not everyone whom runs RE are nice people, i don’t think i need say more).

    my advice:
    keep it blogger sponsored.

    SAS

  97. sas says:

    “I have an uncle who is one the air there. BAI is world unto itself”

    i’ve been a big fan of wbai since the whole George Carlin thing.

    man, that was a great time!!

    SAS

  98. Zack says:

    San sebastian spain reminds me of the 4PM tapas. Great place..

  99. Nurburgringer says:

    Grim – your tale of PC woes guilted me into throwing a sawbuck your way.
    domo!

    Victorian says:
    January 7, 2009 at 2:02 pm
    For the NYT haters – Which newspaper do you think offers the most balanced views/newsreports?

    Even though I visit nytimes.com a few times a day, theonion.com is much more balanced IMO

  100. #97 – NY, and late night radio, would be a less interesting place if it ever went away.

  101. kettle1 says:

    One of the reasons i keep coming back.

    Re101, you always brighten my day with a chuckle! thanks

    ——————–
    #
    reinvestor101 says:
    January 7, 2009 at 1:38 pm

    Guess what? Your mask is totally off and you’re nothing but a lowdown Marxist-Leninist commie. What do you want? State control of everything? Just be quiet and stop this sort of critism of democratic economic institutions. There’s absolutely nothing wrong with capitalism except for the free reign given to commies like you to undermine the system by making these sorts of comments.

    You are looking at one of the “flaws” of capitalism. Systems can become too efficient. Once people have their basic basic needs met and all have new PC’s and plasma’s then how do you maintain economic growth? Either through massive population growth, by getting people to stop saving money and start buying unnecessary goods, or a combination of the 2. The global capitalistic production regime has become so efficient that it has exceeded the demand for “needed” goods of the world market

  102. kettle1 says:

    RE101,

    the flaw is not just in capitalism, it is in any economic model that professes constant growth. such a thing is for all practical purposes impossible in a semi-closed system such as the planet earth and usually has a messy ending

  103. sas says:

    kettle,

    A parasitoid = an organism that spends a significant portion of its life history attached to or within a single host organism which it ultimately kills (and often consumes) in the process.

    SAS

  104. sas says:

    that why i pushed for decentralization.

    SAS

  105. RentinginNJ says:

    A tax revolt unlikely?

    http://www.realclearmarkets.com/articles/2009/01/are_tax_revolts_a_thing_of_the.html

    NJ gets a nice shout out in this piece.

    Interesting conclusion. NJ’s public sector unions are so powerful and well organized that they would crush any attempted tax revolt.

    Of course, they define tax revolt as a “legal” tax revolt that occurs through the legislative process (i.e. passing a hard cap on property taxes). I agree that this is unlikely in NJ. Too many people on the public dole & the unions would launch a campain of “fear\it’s about the children” to get enough voters to reject reform.

  106. Ben says:

    “Interesting conclusion. NJ’s public sector unions are so powerful and well organized that they would crush any attempted tax revolt.

    Of course, they define tax revolt as a “legal” tax revolt that occurs through the legislative process (i.e. passing a hard cap on property taxes). I agree that this is unlikely in NJ. Too many people on the public dole & the unions would launch a campain of “fear\it’s about the children” to get enough voters to reject reform.”

    the state can tax all it want. That doesn’t mean it’s residents can afford it. They’ll be late or delinquent on their taxes and the state will be in a pickle and begging for a bailout.

    The best solution for this state is for the residents of Trenton to burn down the city like they did 40 years ago.

  107. ricky_nu says:

    anyone know of a good online source to look up how much money was borrowed for a given property (I think this is public info)

    ie 123 ABC street has a 200k mortgage on it

    thanks!

  108. pricedOut says:

    Since the demographics (posted yesterday) indicate that this blog is mostly visited by a bunch of white rich guys, why do we all pony up a month’s hosting?
    I’m in. And I ain’t rich.
    pricedOut

  109. kettle1 says:

    that why i pushed for decentralization.

    SAS

    I agree, but you will never have the efficiency or gains in a decentralized system that you will have with a highly optimized central system. hence such a system is unlikely to be chosen as it takes very long term planning (decades) to see the advantages.

    highly optimized, efficient system are great until you disturb them. They react very poorly to change and are prone to collapse one disturbed.

  110. kettle1 says:

    dotn worry, this is not significant

    Investors shun German bond auction

    Investors shunned one of the most liquid and safest assets in the world on Wednesday as a German bond auction failed in a warning for governments seeking to raise record amounts of debt to stimulate their slowing economies. It is the first eurozone bond auction of the year and an ominous sign of potential trouble ahead for governments around the world, with an estimated $3,000bn expected to be issued in sovereign debt this year – three times more than in 2008. The auction of 10-year bonds failed to attract enough bids to reach the €6bn the government wanted to raise. Although a number of German bond auctions failed last year, it was almost unheard of before the credit crisis.

    http://www.ft.com/cms/s/0/16c7ceba-dcbe-11dd-a2a9-000077b07658.html

  111. r says:

    RE101,

    “the flaw is not just in capitalism, it is in any economic model that professes constant growth. such a thing is for all practical purposes impossible in a semi-closed system such as the planet earth and usually has a messy ending”

    The Earth is as “semi-closed” a system as Europe was in 1492. If there is money to be made from leaving a certain geography for a new one, people will leave.

  112. Essex says:

    I’m in for twenty on payday….who else?

  113. kettle1 says:

    renting

    re Nj taxes:

    As someone said earlier today, some people see the high property taxes as a badge of honor. I have friends that live in (mendham a very wealthy town) and the think the taxes are great. They always say it in a nice way, but they basically say that it keeps the riffraff and “average” people out. It seems that a large portion of the state has drank the “high taxes give me prestige” coolaide

  114. kettle1 says:

    111 r

    leaving earth:

    True, but the last 20 years have bene co-opted by TPTB and effort was directed at consumerism instead of expansion and exploration.

    people complained about nasa getting 1 billion a year. now we are handing out 5 trillion like its peanuts.

    how long will it take for use to build a functional asteroid mining operation? 20 years if we start now?

    heck such an operation was estimated by nasa to cost 10 – 40 billion including R&D. can we get that project on TARP?

  115. Essex says:

    113….The Morris County towns that I have spent time in….including one that I lived in for 4 years…(renter on 2 acres in a cape)….was so deadly dull…that I think they suck completely. Dull! Dull! Dull!

  116. kettle1 says:

    r

    dont forget we could mine the moon for helium-3 to run fusion reactors and solve the oil crisis!!!!

  117. Firestormik says:

    Some people are still using their houses as a cash cow.
    The guy did cash-out refinance and bought an Infinity.
    CRAZY

    http://www.hyundai-forums.com/t32698-done-deal.htm
    So yesterday i spent most of my time at Infinity.I still have my sonata but it is parked and most likely i have a couple buyers already .I Found out that i wasnt upside down on my house and i got a really nice chunk of money back so this is MY Infinity i am the legal owner and registerd owner.Its the greatest feeling knowing that i do not have a car payment every month and that the car is mine
    It was a cash out refinance and your right i do still make a car payment every month but to the mortgage company BUT heres the thing in all reality im still making payments being that my house payment went up $435.75 and thats basiclly what i was paying with the sonata insured and what not but yes it still goes to the mortgage company but the infinity it completely paid for

  118. Nicholas says:

    http://finance.yahoo.com/news/Oil-prices-tumble-near-44-on-apf-13993243.html

    “Crude has become so cheap, it is being stored at sea to avoid selling it at current market prices.”

  119. veto says:

    my ideas to increase revenues without being forced to go commercial:
    1 – Display a semi annual list ranking bloggers in order of their contributions in shameless attempt to embarass us into ponying up again.
    2 – Sell advertisement space only to nj/ny small business owners/realtors/etc who frequent this blog, have them pay per month intead of per click.
    3 – Take the total cash donations thus far and invest in mortgage backed securities…

  120. grim says:

    From CNBC:

    Consumer Loan Late Payments at 28-Year High

    Soaring unemployment has caused more Americans to fall behind on loan payments than at any time since 1980, and delinquencies are likely to head higher, the American Bankers Association said on Wednesday.

    “It is not going to be a pretty picture in 2009,” James Chessen, the trade group’s chief economist for 18 years, said in an interview. “The dramatic loss of jobs will have a huge impact on the ability of people to meet their debt obligations. This is one of the toughest environments we have ever seen.”

    The quarterly ABA study of delinquent payments found the percentage of loans at least 30 days late rose to a seasonally adjusted 2.90 percent in the July-to-September period from 2.68 percent in the second quarter.

    Delinquencies on home equity lines of credit (HELOCs) and on indirect auto loans, which are made through dealerships, rose to the highest level on record, the ABA said. The ABA represents many of the largest U.S. banks and credit card companies.

  121. HEHEHE says:

    Five Things You Need to Know: “Economists” Embrace Government Spending

    http://www.minyanville.com/articles/economy-austrian-deflation-keynesian/index/a/20552

  122. Sean says:

    Heard another cash out scheme today from a coworker who wants to take advantage of a IRA loophole for “home remodeling.”

    Not quite sure how it works, but my question to him was if he was planning to retire at 62 or 82?

  123. bairen vulture says:

    Essex,

    I can say the same about Basking Ridge.
    My fondest memories of my time in Brigadoon West aka Basking Ridge

    1) Seeing stay at home moms and children in designer clothes at the local playgrounds, with some moms saying how they were happy hubby went back to work cause they were about to lose the house. Now they can go back to remodeling.

    2) My neighbor telling me she was keeping her kid out of kindergarden for another year because BR was so competitive, and she knew of 15 other families doing the same for the 2009-10 school year. I wanted to shout “it’s f*cking kindegarden, what’s wring with you people”

    3) A pitbull came after my 3 year old son. I stepped between my son and the dog, which broke his charge. The cute doggie kept trying to get behind me to go after my kid and followed me to my car while I was carrying my son. I was going to carmegeddon the cutie, but he took off.

    4) Any time it snowed I could instantly tell when I had entered BR because the streets were so lousy. I guess all the high taxes don’t go for plowing the roads.

  124. grim says:

    From Forbes:

    America’s 25 Weakest Housing Markets

    There is another region where the worst may be to come: New York City-area metros. Housing values in Newark, N.J., could fall 26%.

    Likewise, Edison, N.J., is also among the mid-sized metro areas expected to see the steepest drops this year. But the worst could be over by the end of 2009 for New York’s satellite cities.

    Manhattan, now at the epicenter of the financial crisis, is noticeably absent from the top 25 weakest markets list. So far, the city has been isolated from the popping bubbles in the rest of the country.

    Property prices were rising in Manhattan until early last year. Zandi believes Manhattan could be spared a steep drop. He expects a fall of around 20%. Even if big bankers lose their bonuses, “Manhattan is still supported by international demand,” he says.

    That prediction may prove conservative. The value of new contracts signed have already dipped 15% to 20% in the fourth quarter, according to a Beige Book report from the U.S. Federal Reserve last month.

    The report said much of the activity came from “desperate sellers,” so it may not be a fair gauge of where prices will go from here.

    Of course, that depends on how many more sellers become desperate.

  125. comrade nom deplume says:

    [56] vic,

    WSJ reporting is pretty balanced. Op-ed is a different story.

    Contrast that to NYT/LAT/Globe/Post, which puts their liberal spin in the story selection and the content itself. Or the Post, which does the same thing, only with a conservative spin.

    It isn’t enough to read the Op-Ed; look at what the news outlet chooses to cover, and how they present it. I find that to be a surer measure of bias.

  126. grim says:

    “Newark” and “Edison” in the above article refer to Metropolitan Divisions, not specific towns.

    Newark-Union
    Essex County
    Hunterdon County
    Morris County
    Sussex County
    Union County

    Edison-New Brunswick
    Middlesex County
    Monmouth County
    Ocean County
    Somerset County

    See: http://en.wikipedia.org/wiki/Metropolitan_Statistical_Areas_of_New_Jersey

    For additional information.

  127. bairen vulture says:

    #124
    Of course, that depends on how many more sellers become desperate.

    No worries. There’s a river of wealth running under Manhattan.
    /off sarcasm

  128. Essex says:

    123…Yeah. The cultural center of Montville was the Deli in the strip mall. I liked the countryside for cruising around on nice days…but you can do that from here….1.5 hours into NYC sucked….the fact that you had to drive everywhere also was stinky. The homes were really pricey…and the whole scene was just a giant snoooooze.

  129. Essex says:

    The funny thing is that people out there were either banal city folk in giant SUVs and lip liner….or these really vacant locals that were two generations and seemed to think the ‘congestion’ was too much….UGH. Tons of suck.

  130. make money says:

    CNN to Broadcast I.O.U.S.A.

    The public has spoken, and we’ve listened. In response to demand for information about our country’s financial challenges, CNN/U.S. will air the broadcast premiere of the acclaimed documentary I.O.U.S.A. on on Saturday, January 10 at 2:00 p.m. EST and on Sunday, January 11 at 3:00 p.m. EST. Accompanying the documentary will be an unscripted panel discussion with policy leaders about various economic solutions currently under consideration.

    This exclusive televised event will air only on CNN, and will be hosted by Ali Velshi and Christine Romans, co-anchors of CNN’s Your $$$$$, the network’s weekend business roundtable program.

    Throughout I.O.U.S.A.’s broadcast premiere, Velshi and Romans will engage a distinguished group of panelists, including Pete Peterson, Chairman of the Peter G. Peterson Foundation and former U.S. Commerce Secretary; Dave Walker, President and CEO of the Peter G. Peterson Foundation and former U.S. Comptroller General; Alice Rivlin, noted economist and former Director of the Office of Management and Budget; and Bill Bradley, a Managing Director of Allen & Company and former U.S. Senator and Democratic presidential candidate, in discussions about issues raised in the film and their ties to current economic events.

  131. grim says:

    New thread!

  132. BC Bob says:

    “Crude has become so cheap, it is being stored at sea to avoid selling it at current market prices.”

    Nicholas,

    That’s not the whole picture. The spreads have gone bonzo. Many are taking delivery, storing it, and selling the back months against the physical.

  133. bairen vulture says:

    Essex,

    I was amazed that I kept meeting people who loved BR and commuted to NY from BR for 10+ years. They were spending 4 to 5 hours a day commuting. When would they have time or energy to enjoy their hometown? Bonkers

    Actually i think I’ll change my handle to bonkerz. more appropriate on many levels

  134. veto says:

    WSJ is biased too… they dont even recognize case schiller. 18% historical drop in home prices and one of the main causes of this financial catastrophe but they dont think its worthy of the front page? please.
    IBD is great for balance, they tell it like it is, but unfortunately dont have such wide coverage or appeal.

  135. Barbara says:

    129. Essex
    “The funny thing is that people out there were either banal city folk in giant SUVs and lip liner….or these really vacant locals that were two generations and seemed to think the ‘congestion’ was too “much….UGH. Tons of suck.

    You just described my childhood in south jersey in the 70s and 80s. Marlton to be specific when it was still a bit rural.

    Guido transplants from south philly or 100% 4th gen redneck.

  136. Qwerty says:

    RE: Which newspaper do you think offers the most balanced views/newsreports?

    http://news.google.com

  137. Rich says:

    Lets get real with these articles. If they are right we will be back to 1994 prices. Thats not realistic.

Comments are closed.