The Day After The Bond Marked Tanked....Must Read Report From Mr. Mortgage / Field Check Group

I have said a few weeks ago Ben, You Have A Problem......".... The problem has not gotten smaller......Get ready for QE 2.0......... Version 1.0 worked wonders for at least two weeks.....No wonder Gold has a chance for a breakout ( via Zero Hedge ). I highly recommend to read the entire piece and visit Mark Hanson & his Field Check Group site on a regular basis. Excellent stuff!

Vor einigen Wochen habe ich bereits getitels Ben, You Have A Problem....... Sieht so aus als wenn aus dem großen ein wirklich großes Problem geworden ist.....Wenn man weiß wie beschränkt Bernanke in seinem Denken ist gilt es als abgemachte Sache das wir uns auf eine massive Ausweitung des Quantitve Easing ( Notenpresse ) gefasst machen können. Macht ja auch Sinn wenn man sieht wie "toll" der erste Versuch funktioniert hat...... Da verwundert es wenig das Gold kurz davor ist "auszubrechen" ( via Zero Hedge ). Empfehle den kompletten Report zu lesen und den regelmäßigen Besuch von Mark Hanson und seiner Field Check Group Seite. Hier gibt es ungelfilterte "Bodenberichte" von der Hypotheken und Immobilienfront.


bigger / größer Thanks to Karl Denninger

5-28 - Potential Consequences of 5.5% Mortgage Rates Mr. Mortgage / Field Check Group

Mortgage Rates - It Could be as Bad as You Can Imagine

With respect to yesterday’s in the mortgage market — yes, it is as bad as you can imagine. No call can be made on the near-term, however, until we see where this settles out over the next week of so. If rates do stay in the mid 5%’s, the mortgage and housing market will encounter a sizable stumble. The following is not speculation. This is what happens when rates surge up in a short period of time - I lived this nightmare many times.

Yesterday, the mortgage market was so volatile that banks and mortgage bankers across the nation issued multiple midday price changes for the worse, leading many to ultimately shut down the ability to lock loans around 1pm PST. This is not uncommon over the past five months, but not that common either. Lenders that maintained the ability to lock loans had rates UP as much as 75bps in a single day.

Jumbo GSE money — $417k - $729,750 — has been blown out completely with some lender’s at 8%.

I have seen it all in the mortgage world — well, I thought I had.

A good friend in the center of all of the mortgage capital markets turmoil said to me yesterday “feels like they [the Fed] have lost the battle…pretty obvious from the start but kind of scary to live through it … today felt like LTCM with respect to liquidity.”

The consequences of 5.5% rates are enormous. Because of capacity issues and the long time line to actually fund a loan in this market, very few borrowers ever got the 4.25% to 4.75% perceived to be the prevailing rate range for everyone.

A significant percentage of loan applications (refis particularly) in the pipeline are submitted to the lenders without a rate lock.

This is because consumers are incented by much better pricing to lock for a short period of time…12-30 day rate locks carry the best rates by a long shot. But to get this short-term rate lock, the loan has to be complete enough to draw loan documents, which has been taking 45-75 days over the past several months depending upon the lender’s time line.

Therefore, millions of refi applications presently in the pipeline, on which lenders already spent a considerably amount of time and money processing, will never fund.

Furthermore, many of these ‘applicants’ with loans in process were awaiting the magical 4.5% rate before they lock — a large percentage of these suddenly died yesterday. From the lows of a month ago to today, rates are up 20%.

To make matters worse, after 90-days much of the paperwork (much taken at the date of application) within the file becomes stale-dated and has to be re-done with new dates — if rates don’t come down quickly many will have to be canceled out of the lender’s system.

To add insult to near-mortal injury, unless this spike in rates corrects quickly, a large percentage of unlocked purchases and refis will have to be denied because at the higher interest rate level, borrowers do not qualify any longer. For the final groin kicker, a 5.5% rate just does not benefit nearly as many people as a 4.5%-5% rate does. Millions already have 5.25% to 5.75% fixed rates left over from 2002-2006. .....

With respect to banks, mortgage banks, servicers etc, under-hedging a potential sell-off with the Fed supposedly having everybody’s back was a common theme. Banks could lose their entire Q2 mortgage banking earnings and middle market mortgage banker may never recover or immediately have to close shop

Lastly, consider sentiment — this is a real killer. This massive rate spike may have invalidated hundreds of billions spent to control the mortgage market literally overnight.

This leaves the mortgage and housing market very vulnerable.

Mortgage loan officers around the country are having a very very bad day today explaining to their clients why their rate was not locked and how rates are going to come right back down. They are also taking calls from borrowers with locked loans to confirm that the loan is indeed locked, inquiring as to when it will be approved or fund, and to rush the process in order to fund the loan by end of the lock-in term. This creates a customer service log-jam that chews through lender capacity quickly making the loan process even longer. Loans with second mortgages that need to be subordinated, are in a world of their own. Essentially, everything becomes a rush. Subsequently, loan officers will not feel like getting too aggressive taking new loan applications at least for the next month unless this corrects quickly.

Press surrounding this event will be the talk of Main Street immediately and cast a serious doubt over the housing recovery story that has been the common theme for months. An overnight housing market sentiment killer wildcard is something that nobody was factoring in.

We have to see where all this settles over the next few days before making a near to mid-term call on the outright damage because at this point, Fed or Treasury shock and awe is almost certain — another common theme has been ‘if it doesn’t work throw much more money at it’.

Obviously they have been following this closely for the past few weeks, as conditions began to deteriorate, and have likely been waiting to see where the upper range was before shocking in order to get maximum benefit…that would be a humongous short squeeze in Bonds driving rates lower. The problem is…if they do shock her and it is sold into with the same fury that we have been seeing, there may not be an act two.

The bond and mortgage market got complacent with the ultimate in moral hazard’s — the Fed’s got my back. Complacency is a killer.

Where we stand in two weeks in unknowable......

Bank Or REIT..... :-)

I know that the headline is a little bit overstreched but i couldn´t resist.....When you now add Quelle Surprise! Banks Taking Big Losses on Real Estate Disposals via Naked Capitalism ( watch the chart! ) you know that the bottom for banking stocks and housing is nowhere near. .... Unless you are "Easy Al" Greenspan Calls a Housing Bottom (Again) Thanks Mark :-)!

Bin mir sehr wohl bewußt das die Überschrift natürlich übetrieben its. Da der Trend aber aif Sicht anhalten wird würde es mich nicht weiter wundern wenn die größten US Banken demnächst unter den größten Immobilienbesitzern auftauchen werden ( wenn auch ungewollt....) Wenn man jetzt noch dieses Posting von Naked Capitalism Quelle Surprise! Banks Taking Big Losses on Real Estate Disposals in die Betrachtung miteinbezieht ( bitte den Chart beachten ) ist es offensichtlich das der Boden der ja jetzt zum gefühlten zwanzigsten Male von sog. "Experten" ( hier ein extrem tarurigens und schauriges Beispiel Greenspan Calls a Housing Bottom (Again) ) ausgerufen worden ist für US Finanzwerte und den Immobilienmarkt noch lange nicht erreicht ist.

U.S. Foreclosures Increase 55%, Bank Seizures Rise to Record Bloomberg
Bank repossessions almost tripled in July and U.S. foreclosure filings increased 55 percent from a year earlier as falling prices cut homeowner equity, accelerating the housing decline, RealtyTrac Inc. said. ....

Bank seizures rose 184 percent, the most since reporting began in January 2005, the Irvine, California-based seller of foreclosure data said today in a statement

Bank seizures, known as real estate-owned or REO properties, are the ``fastest growing segment of foreclosure activity,'' James Saccacio, chief executive officer of RealtyTrac, said in the statement. The REO properties in the company's database represent about 17 percent of the inventory of existing homes reported in June by the National Association of Realtors, he said.

via FT Alphaville

RealtyTrac now has more than three quarters of a million properties in its active REO database, a number that represents approximately 17 percent of the inventory of existing homes for sale reported in June by the National Association of Realtors.

F.H.A. Faces $4.6 Billion in Losses

"Unexpected losses".......LOL!

"President Bush and leading Democrats in Congress are counting on the F.H.A., which is overseen by the Department of Housing and Urban Development, to help istressed borrowers refinance into stable, government-backed loans."

Got gold.....?

Yves from Naked Capitalsim has much more on this topic FHA Repudiates Housing Rescue Bill including this desperate comment to fend off the latest rescue packages from the FHA chief Brian Montgomery ( also hat tip to Housing Wire) .

Yves von Naked Capitalsim hat mehr deprimierende Details zu diesem verzweifelten Versuch der Politik das Unvermeindliche zu verhindern FHA Repudiates Housing Rescue Bill . Hier ein an Deutlichkeit nicht zu überbietender Hilfeschrei von FHA Boss Brian Montgomery ( Dank auch an Housing Wire) das die von der Politik geplanten Rettungsaktionen für den US Immobilienmarkt unweigerlich in ein Desaster führen werden ..... Unnötig zu erwähnen das letztendlich der Steuerzahler für diesen erneuten Irrsinn geradezustehen hat...... Unnötig ebenfalls zu betonen das sich die Politiker gerade in Wahlkampfzeiten am Ende sicher durchsetzen werden....

"Some of the proposed Congressional actions could actually weaken FHA and endanger the housing market by turning FHA into a less stable, less solvent, more bureaucratic entity.

There are some who want FHA to pick up all the potentially delinquent 2 million subprime loans.This is a worrisome idea.

FHA is designed to help stabilize the economy, operating within manageable, low-risk loans.It is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans."

He should have been so vocal a litlle bit earlier ( enjoy the rant from Mish )

Hier noch ein netter Rumumschlag von Mish

F.H.A. Faces $4.6 Billion in Losses NYT
WASHINGTON — The Federal Housing Administration expects to lose $4.6 billion because of unexpectedly high default rates on home loans, officials said Monday.

Brian D. Montgomery, the F.H.A. commissioner, attributed the unanticipated losses primarily to the agency’s seller-financed down payment mortgage program, which has suffered from high delinquency and foreclosure rates in recent years.

Housing officials said the agency was also hurt by poor performance in its traditional mortgage portfolio. Deteriorating economic conditions led some of its core clients — first-time buyers, minorities and lower-income owners — to default, they said.

The projected loss is the highest in the home loan program since 2004, and officials said the F.H.A. had to withdraw $4.6 billion from its $21 billion capital reserve fund in May to cover the costs. They said the agency, which is self-sustaining, would not need appropriations from Congress to remain solvent.

But Mr. Montgomery warned that the F.H.A. would have to renew its efforts to end the seller-financed down payment program, which accounted for 35 percent of its loans in 2007.

He said the mortgages had foreclosure rates three times those of traditional loans and would push the F.H.A. to the brink of insolvency.

“Let me repeat: F.H.A. is solvent,” Mr. Montgomery said on Monday in a speech at the National Press Club. “However, no insurance company can sustain that amount of additional costs year after year and still survive. Unless we take action to mitigate these losses, F.H.A. will soon either have to shut down or rely on appropriations to operate.”

F.H.A.’s projected loss, more than four times the shortfall attributed to the home program last year, raised concerns about the agency’s ability to lead the national effort to rescue homeowners facing foreclosure.

President Bush and leading Democrats in Congress are counting on the F.H.A., which is overseen by the Department of Housing and Urban Development, to help distressed borrowers refinance into stable, government-backed loans.

Officials say the agency will help 500,000 people refinance by the end of the year, but a vast majority of those have made their payments on time.

Howard Glaser, a mortgage industry consultant who served as HUD general counsel in the Clinton administration, sees the anticipated loss as a concern. “Congress is relying on F.H.A. to help stabilize the mortgage market, but it’s not clear that F.H.A. is as strong as it could be,” he said.

Mr. Montgomery said the agency planned to reopen the comment period on a proposed rule to the Federal Register that would ban the program. But the F.H.A. has tried to eliminate seller-financed down payment loans for years, and it remains unclear whether it will be successful now.

Under the program, a home seller arranges to cover the buyer’s down payment, using financial help from a nonprofit company, but typically adds that sum or more to the price of the house. The deal has been particularly attractive to financially struggling buyers and to owners in depressed markets, according to Congressional officials.

Critics say the practice puts overpriced houses in the hands of poor and minority homeowners who ultimately cannot cover the mortgage. In recent years, the Government Accountability Office and the Internal Revenue Service have both raised concerns about the program.

But with the subprime market collapsed and mortgage companies tightening lending criteria, seller down payment loans have become increasingly appealing both to sellers in slumping housing markets and to lower-income homebuyers unable to get conventional mortgages.

The program, which accounted for less than 2 percent of F.H.A.-insured loans in 2000, now accounts for more than a third of the agency’s portfolio. Housing officials said that 60 percent of F.H.A.’s anticipated loss was directly attributable to the seller-financed down payment program.

Supporters of the loans, who include some powerful members of Congress, counter that the program provides much-needed assistance to low-income and minority families who would otherwise be unable to buy homes.

Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, remains opposed to any F.H.A. rule that would eliminate the program, a spokesman said on Monday. Mr. Frank has said he would like to reform the program without killing it.

About 1 in 11 Mortgageholders Face Loan Problems

"Contained" :-) ...... No wonder the market was up yesterday......

Kein Wunder das der Markt gestern so freundlich war....... Jeder der denkt das die Krise im US Finanzsektor überstanden ist sollte sich die nachfolgende Grafik sehr genau ansehen. Finanztitel sollte man nach wie vor nicht mal mit der Kneifzange anfassen.

About 1 in 11 Mortgageholders Face Loan Problems NYT


grösser/bigger

US House Prices Falling Faster Than During The Great Depression

Unbelievable that 95 percent of so called "Experts" didn´t see this coming....... These are often the same that are now calling for the bottom and are declaring the recession that never was is already over......

Unfassbar das selbst im Jahr 2006/2007 95% der sogennaten Experten das Unheil nicht haben kommen sehen.... In der Regel sind das dieselben "..............." ( möchte höflich bleiben ) die den Boden gesehen haben und die nicht vorhanden gewesene Rezession als beendet erklären.....

Economist America's house prices are falling even faster than during the Great Depression

AS HOUSE prices in America continue their rapid descent, market-watchers are having to cast back ever further for gloomy comparisons. The latest S&P/Case-Shiller national house-price index, published this week, showed a slump of 14.1% in the year to the first quarter, the worst since the index began 20 years ago. Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s house prices declined less in real terms. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year.

Housing Meltdown / Business Week Cover Story

You gotta give them credit for being one of the first major media outlets that had predicted some kind of trouble brewing in the housing market. Here are some examples of their earlier track record. If you don´t want to digg through the entire 5 page long lead story i suggest to skip through the slide shows ( see one example below ). I think that most of the stuff isn´t really news to reader of this blog but it is at least a good and short summary.

Man muß Business Week mal ausdrücklich ein dickes Lob aussprechen. Sie waren einer der ersten bedeutenden großen Medieninstitutionen die zeitig auf das kommende Unheil hingewiesen haben. Zum Beweis kann man hier einige Beispiele einsehen. Wenn Ihr keine Muße habt Euch durch den langen Leitartikel zu kämpfen empfehle ich alternativ sich durch die Slideshows zu klicken. Exemplarisch habe ich weiter unten ein Beispiel herausgepickt. Obwohl das Meiste dürfte den Lesern des Blogs nicht wirklich neu erscheinen so ergeben sich doch eine schöne Zusammenfassung und wagen einen wie ich finde einigermaßen realistischen Ausblick.

Housing Meltdown / Why home prices could drop 25% more on average before the market finally hits bottom Full Business Week Cover Story

Analyzing the Housing Crisis Slide Show

The 25% Dissolution Slide Show

Housing Prices Shed Gains Slide Show

Coast To Coast
A 20% decline in home prices would wipe out all of the home equity of two-thirds of all people who bought houses in the last year, Zillow.com estimates. The bars show the percentage of recent buyers in each market whose home equity would be wiped out by a further 20% price decline.

The United States of Subprime / WSJ

Brilliant! This is a must read and the interactive map "subprime tidal wave" is a must see!

Brilliant! Der komplette Artikel ist zu Recht auf Seite 1 vom WSJ. Die interaktive Karte "Subprime Tidal Wave" ist ein echter Hingucker und sollte auf keinen Fall verpaßt werden!

I suggest to read the entire link

Ich empfehle den kompletten Link zu lesen.

The United States of Subprime
As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash.

To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.

Banks and other mortgage lenders have long charged higher rates to borrowers considered high-risk, either because of their credit histories or their small down payments. As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations.

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.

The data also show that some of the worst excesses of the subprime binge continued well into 2006, suggesting that the pain could last through next year and beyond, especially if housing prices remain sluggish. Some borrowers may not run into trouble for years. ....

Housing: That Sinking Feeling / Business Week Cover Story

After Bonfire Of The Builders Mara de Hovanesian from Business Week has put up another excellent cover story. And this comment from Mike Morgan is one more reason to read the entire story Housing: That Sinking Feeling . This from Bloomberg Homebuilders Liquidate Assets as Threat to Survival Spurs Sales is also wort a look.

Nach der Titelgeschichte Bonfire Of The Builders hat Mara de Hovanesian eine weitere extrem gute Titelgeschichte zum Thema Immobilien und Homebuilder herausgebracht. Ein Grund mehr die komplette Geschichte Housing: That Sinking Feeling zu lesen ist das der von mir sehr geschätzte Mike Morgan voll des Lobes für Mara ist. Dieser Link von Bloomberg Homebuilders Liquidate Assets as Threat to Survival Spurs Sales ist ebenfalls zumindest einen Blick wert

"If you want information that is relevant, insightful and accurate, follow Mara Der Hovanesian in Business Week." Mike Morgan

Housing: That Sinking Feeling

Homeowners are getting slammed as builders slash prices. The big question: Will this shock treatment help hasten the end of the painful downturn....

Builders' balance sheets needed a boost, too. Even though the five-largest publicly held residential builders have cut the value of their land and unsold homes from $49.7 billion in 2006 to $41.9 billion today, that inventory as a percentage of sales has soared 33% during the past year, according to Banc of America Securities (BAC ). Those idle assets have taken a toll on the industry's health. A year ago builders' debt payments were roughly the same as their cash flow. Now debt is 2.5 times cash flow. ....

Driving along interstate 215 west of McCarran International Airport, it's easy to forget that Vegas' lifeblood is gambling and not homebuilding.

Rant Of The Week.... Mike Morgan

Mike Morgan is probably one of the best housing experts out there and was spot on since i followed him almost 2 years ago via Mish. Take Morgan vs Cramer as one of many example how consistent he was all the time long in times other "professionals" were still drinking the Kool-Aid. It is almost impossible to highlight something out of his posts. So i suggest to read the entire report starting with the quote of the week ”Florida’s going to have a sonic boom when this happens.” Governor Crist commenting on the real estate boom coming to Florida .

Mike Morgan ist wahrscheinlich einer des besten oder gar der beste Experte in Sachen US Immobilien. Seit ich die ersten Artikel von ihm vor 2 Jahren via Mish gelesen habe liegt seine Trefferquote nahe 100%. Beispielhaft für etliche seiner Aussagen steht Morgan vs Cramer als immer noch etliche "Profis" nicht erkennen wollten was tatsächlich Sache ist. Da es fast unmöglich ist besondere Highligts aus diesem Posts herauszufiltern empfehle ich den kompletten Link ”Florida’s going to have a sonic boom when this happens.” Governor Crist commenting on the real estate boom coming to Florida zu geniessen.

> When i think of housing several other "species" are popping up that could easily qualify for the list..... :-)

> Im Zusammenhang mit dem Immobilienmarkt fallen mir spontan noch etliche "Exemplare" ein die sich ebenfall für diese Liste qualifizieren würden ..... :-)

There is no better source from ground zero than the updates from Mike Morgan. Make sure you don´t miss the latest one...

Da es generell keine besseren Updates als von Mike Morgan gibt sollte man auch die neuesten Posts mit Interesse verfolgen

Mortgage Rate Rise Pushes U.S. Housing, Economy to `Blood Bath'

nothing really new but a nice summray. from "home sweet home" to "blood bath" in 24 month....always good to remember that this cover is just 2 years old and marked the peak....

nichts richtig neues aber eine erstklassige Zusammenfassung der aktuell trüben Lage. Das inzwsischen brühmte Cover im Sommer 2005 hat ziemlich genau das Top im Markt getroffen...

The worst is yet to come for the U.S. housing market.

The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, according to the National Association of Realtors. ...

Confidence among U.S. homebuilders fell in June to the lowest since February 1991, according to the National Association of Home Builders/Wells Fargo index released this week.

Housing starts declined in May for the first time in four months, the Commerce Department reported yesterday. New-home sales will decline 33 percent from 2005's peak to the end of this year, according to the Realtors' group, exceeding the 25 percent three-year drop in 1991 that helped spark a recession. `Economic Recession'
``It's not just a housing recession anymore, it looks more and more like an economic recession,'' said Nouriel Roubini, a Clinton administration Treasury Department director and economic adviser who now runs Roubini Global Economics in New York.

Goldman Sachs Group Inc., the world's biggest securities firm, and Bear Stearns Cos., the largest underwriter of mortgage-backed securities in 2006, said last week that rising foreclosures reduced their earnings. Bear Stearns said profit fell 10 percent, and Goldman reported a 1 percent gain, the smallest in three quarters. Both firms are based in New York.

The investment banks, insurance companies, pension funds and asset-management firms that hold some of the U.S.'s $6 trillion of mortgage-backed securities have yet to suffer the full effect of subprime loans gone bad, said David Viniar, Goldman's chief financial officer. Subprime mortgages, given to people with bad or limited credit histories, account for about $800 billion of the market.
Homebuilder Stocks
Homebuilding stocks are down 20 percent this year after falling 20 percent in 2006, according to the Standard & Poor's Supercomposite Homebuilding Index of 16 companies. Before last year, the index had gained sixfold in five years.

``There isn't a recovery about to happen,'' said Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., the Red Bank, New Jersey-based homebuilder. The company's stock tumbled 42 percent this year through yesterday.

The share of people taking out all types of adjustable-rate home loans averaged 29 percent during the past three years, compared with the 17 percent average of the prior three years, according to data compiled by Mclean, Virginia-based Freddie Mac.

Higher fixed mortgage rates and stricter lending standards mean some of those borrowers won't be able to refinance into fixed-rate loans. Many of them have seen their home's value drop even as their interest rates adjust higher.

`Millions of People'
``When all these people see their mortgage payment and it's up 40 or 50 percent, they're going to say, `We can't stay in this house,''' Pimco's Kiesel said. ``And there are millions of people in this situation.''

The average U.S. rate for a 30-year fixed mortgage was 6.74 percent last week, up from 6.15 percent at the beginning of May, according to Freddie Mac, the second-largest source of money for home loans. That adds $116 a month to the payment for a $300,000 loan and about $42,000 over the life of the mortgage.

The recent increase in mortgage rates is the biggest spike since 2004. The change means buyers can afford 8 percent less house than they could five weeks ago, Kiesel said.

``Prices are going lower,'' he said.
The housing sector will push the U.S. economy into recession unless the Federal Reserve cuts its benchmark rate at the first surge in unemployment, said Kiesel, who expects the Fed to reduce rates.

Home Equity Loans
In addition to their primary mortgages, homeowners had $913.7 billion of debt in home equity loans in 2005, more than double the $445.1 billion in 2001, according to a paper by former Federal Reserve Chairman Alan Greenspan and James Kennedy on equity extraction issued by the Fed three months ago.

About a third of that money, extracted as home values surged 53 percent from 2000 to 2005, was used to buy cars and other consumer goods, according to the paper. The interest rate on those loans doubled to 8.25 percent in 2006 from 4 percent in 2003.
If the Federal Reserve lowers the rate it charges for overnight lending to banks, that would cut the prime rate that moves in tandem with it and reduce the interest on many types of adjustable home loans, including home equity mortgages.


Boom and Bust
Homebuyers who got an adjustable-rate mortgage, a so-called ARM, in 2004 have seen their rate climb by about 40 percent. That's enough to add $288 to the monthly payment for a $300,000 mortgage. The average adjustable rate last week was 5.75 percent, an 11-month high, according to Freddie Mac.

Roubini predicts the decline in U.S. home sales will last at least another 12 months, reducing the median house price by 5 percent this year and next. That would take home prices back to 2004, when the national median was $195,200.

The primary cause of the 1990 to 1991 recession was a real estate boom and bust similar to the past seven years, Roubini said. A real estate ``bubble'' in the mid-1980s led to speculative buying and lower credit standards that resulted in widespread foreclosures, he said. The defaults triggered a credit crunch that turned into an economic recession in the spring of 1990, said Roubini, who is an economics professor at New York University's Stern School of Business.

He put the chance of a recession this year at ``50-50,'' above former Fed chief Greenspan's 33 percent estimate. A recession is a decline in gross domestic product for two consecutive quarters.

A Fed survey of senior loan officers issued in April said that 45 percent of lenders had restricted ``nontraditional'' lending, such as interest-only mortgages, and 15 percent had tightened standards for the most creditworthy, or prime, borrowers. More than half had raised standards for subprime borrowers, according to the survey.


The median U.S. price for a previously owned home fell 1.4 percent in the first quarter from a year earlier, the third consecutive decline, according to the National Association of Realtors. Before the third quarter of 2006 prices hadn't dropped since 1993. The quarterly median may dip another 2.4 percent in the current period, the Chicago-based industry trade group said in its June forecast.

Increase in Foreclosures
The share of mortgages entering foreclosure rose to 0.58 percent in the first quarter, the highest on record, from 0.54 percent in the final three months of 2006, the Mortgage Bankers Association said in a report last week. Subprime loans going into default rose to a five-year high of 2.43 percent, up from 2 percent, and late payments from borrowers with poor credit histories rose to almost 13.8 percent, the highest since 2002.
thanks to http://www.recharts.com/rt/RT_1.html

Prime loans entering foreclosure increased to 0.25 percent, the highest in a survey that goes back to 1972. That's a sign that even the most creditworthy borrowers are being squeezed, Roubini said.

``We have a lot of people, even prime borrowers, who are at the edge because they either bought with no equity, they have an ARM that's seen a rate spike, or they used their house like an ATM and turned their equity into cash,'' Roubini said. ``Many of those people are under water today, and if they have to sell, it's going to drag down values in their neighborhood.''


Adjustable Rates
Some owners are selling their homes at ``fire sale'' prices to avoid foreclosure after seeing their adjustable mortgage rates spike, said Lawrence White, an economics professor at the Stern School of Business.

``Prices will continue to soften for as long as we have distressed sellers,'' White said. Some regions of the U.S. could see price declines of 10 percent in the next six to 12 months, he said. The slump probably won't cause a recession, he said.

``It's not going to be the 1929 stock-market disaster, with people jumping out of buildings, but there is going to be widely dispersed pain for the next few quarters,'' he said.

The biggest problem is volatile home prices, said Gary Shilling, head of A. Gary Shilling & Co., an economic forecasting company in Springfield, New Jersey. Shilling put the chance of a recession this year at 75 percent.

``A lot of people went out on a limb to pay the record high prices for homes, and they're in trouble now,'' he said.

`Exploding ARMs'
Borrowers who got loans with so-called teaser rates are in the biggest bind, according to Shilling. Prices surged a record 12 percent in 2005, spurring buyers to ``stretch'' to qualify for bigger loans by using interest-only ARMs or so-called option ARMs with low introductory payments.

Some have payments based on interest rates as low as 1 percent. At the end of an introductory period, the rate can more than quadruple, leading them to be called ``exploding ARMs,'' he said. Some loans allow borrowers to choose how much they want to pay, with the balance added to the loan's principle, making it possible to owe more than the home's purchase price.

``Homeowners with adjustable-rate mortgages are getting squeezed on all sides,'' said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. Real estate taxes have surged along with home prices, and many U.S. homeowners saw their property insurance double after Hurricane Katrina ravaged Louisiana and Mississippi, she said.

disclosure: short several hombuilder, lender

Housing? What Housing? I Don't See Any Housing: Caroline Baum

nothing to add.... / dem ist nichts hinzuzufügen.....

April 30 (Bloomberg) -- Excluding housing, the U.S. economy is doing just fine.

That's the latest rationalization of a select group of operators who think that the Bush administration's 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate can protect the economy from any and all ills.

To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush's Middle-East policy is a rousing success.

How valid is the claim that outside of housing everything is hunky dory? Let's go to the videotape to see how housing- centric the U.S. economy's weakness really is.

The Commerce Department reported Friday that real gross domestic product rose 1.3 percent in the first quarter, the slowest pace in four years. The year-over-year growth rate slipped to 2.1 percent, also a four-year low.

Investment in housing, the purported culprit, fell 17 percent, less than in the fourth quarter. Residential investment, as it's known in the GDP accounts, subtracted from growth for the sixth consecutive quarter, something that hasn't happened since 1980.

thanks to http://calculatedrisk.blogspot.com/

The first quarter's sluggish growth wasn't confined to housing, however. Exports declined, inventories were a small drag, and capital spending (investment in equipment and software) rebounded 1.9 percent -- better than expected based on monthly data on shipments but nothing to write home about after declines in the second and fourth quarters of last year.

``The initial weakness was in housing, but the weakness in capital spending is not a cross-infection from housing,'' says Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Housing Plus
One year ago, capital spending was growing at a 9 percent year-over-year rate, he points out. Now it's zero.

``A year ago, people said capital spending was going to rescue us as housing slowed,'' he says. ``Capital spending is down to zero (year-on-year). There's been an unambiguous slowdown.''

In only one quarter of this entire expansion did capital spending add 1 percentage point or more to growth compared with an average contribution of 1 percentage point from the end of 1992 through the middle of 2000. The first-quarter contribution was 0.1 percentage point.

``Are businesses going to step up their pace of capital spending with the utilization rate falling and consumer demand slowing?'' asks Paul Kasriel, director of economic research at the Northern Trust Corp. in Chicago.

He clearly doesn't think so.

Boxes of Wallboard?
The American consumer keeps on trucking at a healthy pace. Consumer spending rose 3.8 percent last quarter, the only sector outside of government to contribute to growth.
Granted it's the biggest sector of the economy: 70 percent in 2006. But even the consumer is showing some signs of fatigue.

The rate of growth in retail sales has slowed in the past year, High Frequency's Shepherdson says. He uses a measure of core sales, which strips out building materials (the GDP ex- housing crowd can relate to that), price-driven food and gas, and autos, and is growing at a 4.7 percent pace now compared with 8.6 percent in March 2006.

Companies that haul the stuff consumers buy -- United Parcel Service, for example -- are reporting weakness in their domestic operations. UPS, the world's largest package-delivery company, said U.S. volume showed no change in the first quarter from a year ago.

``I don't think much of UPS's business is housing related,'' Kasriel says. ``They don't ship lumber, wallboard and toilets.'' ....

Excluding Everything
Another quarter of growth with a 1 percent handle is apt to make Fed officials nervous for the simple reason that there is no mandate for a recession with inflation running at 2-something percent. When growth is that slow, all it takes is a big quarterly inventory decline to thrust a negative sign in front of GDP, which in turn leads to a diminution in confidence.

While Fed Chairman Ben Bernanke's reaction function is different than Alan Greenspan's -- he's not a politician, looks uncomfortable at hearings, and keeps his answers short and to the point -- he isn't immune to what's going on around him.

Imagine how it would look if Congress were to ask him to explain why the Fed let the economy slip into recession with inflation so low. Would Bernanke be able to keep a straight face when he told them that GDP ex-housing was solid?

Heck, GDP excluding consumer spending, business investment, housing and exports was robust in the Great Depression, too.

U.S. House Prices Slide As Property Glut Grows / WSJ

not a pretty picture...../ sieht düster aus.....

....Standard & Poor's reported yesterday that the S&P/Case-Shiller 20-city composite index in February was down 1% from a year earlier. The metro-area price changes ranged from drops of 7.8% in Detroit and 5% in San Diego to rises of 10.6% in Seattle and 7.7% in Portland, Ore. In 15 of the 20 cities, March prices were down from a month before....

größer / bigger http://tinyurl.com/34udo2

thanks to http://macroblog.typepad.com/macroblog/

größer/bigger http://tinyurl.com/2pnryu

thanks to http://indexuniverse.com/index.php

In Florida's St. Lucie County, current inventory is enough to last more than 34 months at March's sales rate, says Mr. Lawler. The supply is 29 months in Palm Beach County and 25 months in both Miami-Dade and Broward counties, he adds.

Other cities with big increases in listings from the already swollen levels of a year ago include Phoenix (36%), Chicago (44%), Los Angeles (54%) and Las Vegas (30%). The inventory was little changed but still plentiful in the San Diego and Washington, D.C., areas...

At the same time, delinquent mortgage payments -- a precursor of more foreclosures -- are on the rise. Lenders sent 46,760 default notices to California homeowners in the first three months of this year, more than double the year-earlier tally and the highest in nearly 10 years, according to DataQuick Information Systems, a research firm in La Jolla, Calif. Defaults were particularly prevalent in Sacramento, Riverside and San Joaquin counties

Still Renting / PIMCO / Hall of Fame

once more excellent stuff from pimco. mark kiesel was right in the past and it his current outlook seems aslo be spot on.

einmal mehr eine tolly analyse von pimco. mark kiesel war einer der wenigen die in der vergangenheit richtig lagen und ich denke auch seine aktuelle beschreibung trifft ziemlich genau zu.


One question my friends and colleagues have asked me repeatedly over the past six months is: Are you still renting? Yes! I sold my house over a year ago and continue to rent.

Back in late 2005, I became anxious about my investment in the “American Dream,” after spending a considerable amount of time and effort researching several factors that I felt would influence housing prices. At the time, I was nervous about housing and ended up selling my house in early 2006 after owning for eight years, and then, upon closing, published For Sale, our U.S. Credit Perspectives, June 2006 publication. A year ago, I suspected housing prices were set to take a sharp turn for the worse and more “For Sale” signs were coming.

Based on the current outlook for housing, I will likely be renting for one to two more years. While many factors that influence housing prices have turned negative, I suspect we have not yet hit bottom. In fact, housing prices should head lower throughout the rest of this year and next year as well. Why? Housing inventories remain high, delinquencies and foreclosures are set to rise as homes purchased over the past few years by speculators and individuals with teaser-rate and adjustable-rate mortgages come back on to the market, affordability is low, and sentiment and risk appetite has shifted negatively. Most importantly, the availability of credit is set to take a turn for the worse as lenders tighten credit standards.

This is all great news for renters and buyers who are patient. Over time, housing prices and interest rates should decline, resulting in improved affordability. This adjustment, however, will take time and occur over a period of years, not months. Housing is illiquid and prices are sticky. As a result, potential buyers should exercise patience and not jump back into the housing market too early. A year ago, I described the state of the U.S. housing market as “the next NASDAQ bubble.” The NASDAQ took over 2 ½ years to go from peak to trough. I suspect that housing prices could display a similar pattern, and we are still over a year away from the bottom. Given these risks, I prefer renting versus owning, and an investment strategy which favors defense versus offense.

Unwinding the Housing Bubble
Housing was an asset bubble influenced by bullish sentiment, robust risk appetite and speculation, lack of fundamental analysis, cheap money, inflated appraisals and easy lending standards. These factors helped to drive housing prices up to new levels and the unwinding of these conditions is expected to drive housing prices down. Never before have we witnessed so many people lever-up real estate with so little money down or “skin in the game.” This growth in mortgage debt and risk appetite helped fuel consumer spending and corporate profits. As such, the unwinding of this bubble will have broad consequences for the overall economy.

As the housing bubble unwinds, what are the implications for the overall economy and credit spreads? The U.S. economy will likely experience sub-par economic growth for the next year as declining housing prices lead to weaker consumer spending, slower corporate profit growth, a decline in business investment and less job creation. This environment favors reducing credit risk, especially to cyclical industries and lower-quality sectors of the market. As lending standards tighten and risk appetite turns more conservative, housing prices are likely to face a further leg down.

What’s the big picture? Declining housing prices will lead to a pullback in job creation and a sharp slowdown in corporate profit growth, causing the Fed to lower short-term interest rates by the end of this year. Despite lower short-term rates, mortgage rates may not follow downward, because more cautious lenders will charge higher spreads relative to Treasuries. In addition, credit spreads should widen as consumers rein in their risk appetite for housing and investors turn more cautious on the outlook for the U.S. economy. We will now turn to an analysis of the supply and demand factors influencing housing. These factors should help to illuminate the future path of housing prices over the next year.

Inventory
On the supply side, the inventory of new and existing homes available for sale remains near all-time highs (Chart 1). The homebuilder industry helped contribute to today’s record inventories through its bullish sentiment and aggressive land purchases over the past several years. Unfortunately, homebuilders have little incentive to stop building once they have purchased land for development. In hindsight, homebuilders bought too many lots over the past few years, expecting that the run-up in land prices would continue for several more years. Given that undeveloped land is less valuable than developed land, homebuilders went through the process of getting zoning approvals on their land and started the build-out process in order to monetize their investments.

Even when prices appeared to have peaked over a year ago, homebuilders continued to commit to new developments and communities. Meanwhile, even in the face of large discounts and concessions, housing order rates have fallen more precipitously than most expected, resulting in inventories remaining stubbornly high. Undeveloped land cannot be monetized without a completed home. The cost of carry, including completion guarantees, provides strong incentives for builders to keep building. Unfortunately, housing is like a supertanker, which takes time to slow down. In addition, homebuilders have little incentive to stop building when a home is incomplete, even if economic conditions soften. All of these factors help to ensure that once projects are started, they are completed, and also help to explain why homebuilders’ inventories have remained elevated despite aggressive incentives such as –10% to –15% price discounts.

The housing market faces potential new supply from other sources as well. First, a large portion of incremental housing demand over the past several years has come from speculators and investors. With housing prices now falling in most of the markets where speculative activity was strongest, yesterday’s marginal buyer is becoming today’s marginal seller. Not surprisingly, the inventories in highly speculative regions such as Florida, California, Phoenix and Las Vegas, have risen sharply. In some of these over-heated markets, supply represents several years of demand. Not surprisingly, homeowner vacancies are soaring (Chart 2). This trend may even accelerate as recent speculators with low initial equity, and negative future equity, choose to walk away from paying monthly mortgage payments on a losing investment, especially factoring in the cost of 4-5% real estate commissions.

Another source of new supply will likely come from rising delinquencies which will eventually turn into more foreclosures. A growing segment of recent homebuyers have bought homes using teaser-rate, adjustable-rate, and no-money-down or low-money-down mortgages. As adjustable-rate mortgages reset upward, the housing market will likely see increased foreclosures involving individuals who can’t afford the new reset rate on their mortgage. The total inventory of homes in foreclosure has risen to 437,041 homes, a +39% increase over the past year.1 The problem is not only in the subprime category, as delinquencies for both prime and subprime loans are rising (Chart 3).

In fact, the market’s primary focus on subprime ignores a major issue, which is that Alt-A and prime borrowers will also face “sticker shock” when adjustable-rate mortgages reset upward. Lehman Brothers estimates $421 billion of ARMs will reset in 2007 ($308 billion subprime and $113 billion prime) and $542 billion of ARMs will reset in 2008 ($349 billion subprime and $193 billion prime).2 Clearly, this is not just a subprime issue, but rather an ARM reset issue as both subprime and prime borrowers potentially are forced to put homes back on the market with almost $1 trillion of ARMs resetting over the next two years. What impact will this have on housing? According to a study published last month by First American CoreLogic, a total of 1.1 million foreclosures with losses of about $112 billion will occur over a period of six years or more with roughly 500,000 homes going into foreclosure over the next two years.3

größer/bigger http://www.smugmug.com/photos/136440158-O.png

Rising foreclosures will result in homes coming back on the market not only at a time when current inventories are near record levels, but also when pent-up demand for housing is low. Easy lending standards and innovations in the mortgage market over the past several years brought forward future housing demand. People who would have qualified for a mortgage in the future were given a mortgage today. Why? Lenders, hungry for yield, relaxed their underwriting standards and provided cheap money. Naturally, consumers took the bait, and levered-up with record low down payments. In fact, 46% of homes purchased in the U.S. last year had less than a 5% down payment.4 Over time, homeowners with little capital at risk and negative home equity will likely walk away from homes under water. For all these reasons, housing inventories are likely to remain high over the next few years.

Affordability and Risk Appetite
On the demand side, housing affordability remains near 20-year lows due to a sharp run-up in housing prices (Chart 4). While mortgage rates have come down slightly over the past few quarters, housing remains unaffordable for a large group of new potential buyers. This buyers’ strike will continue until prices fall and/or mortgage rates decline. Given that homebuilders can’t control the absolute level of mortgage rates, we should expect buying incentives to remain elevated over the next several quarters. Given the strong incentives for buying a new home, owners of existing homes who are forced to sell will likely be forced to lower their asking prices.

We know from the NASDAQ bubble that once risk appetite changes, prices can shift violently in the other direction. Housing is different from equities because it is much less liquid; therefore price adjustments take more time. In a down housing market, the gap between buyers and sellers widens, and volumes fall. Buyers pull back and sellers take time to realize their listing prices are too high. Eventually, housing prices in entire neighborhoods will get reset downward by the weakest hand. Just as prices went up and everyone in the neighborhood applauded the newest neighbor who bought at the top, prices will likely start to fall as financially-stretched home owners and speculators sell, and are forced out of the market. As this process unfolds, risk appetite for housing should take a sharp turn for the worse. This year’s weak start to the traditionally strong spring selling season suggests we have indeed entered the “buyer’s strike” phase of the cycle.

Credit Availability, Lending Standards and Appraisals
A major headwind for housing in the near future will be more restrictive credit availability. Lenders are already increasingly asking for income verification and higher down payments. Countrywide changed their no down-payment lending policy last month, and is now requiring homeowners to have at least a 5% stake in their homes.5 Other lenders are following Countrywide’s lead, which will result in a smaller pool of potential homebuyers. The threat of increased government regulation and restrictive legislation is likely to cause lenders to reduce offerings of no-documentation loans, and to ensure that adjustable-rate borrowers can qualify at the higher reset rate. This trend will tighten credit availability for potential homebuyers.

As delinquencies and foreclosures rise, lenders will also suffer losses. This should reduce their willingness to take risk and cause credit spreads to widen, particularly for riskier borrowers. As lending standards tighten, less credit will be granted. And, credit that is granted will likely be offered at higher interest rates. In the long run, this will be a positive for the housing market, as only buyers who can afford to buy a house will buy one. However, in the short run, tighter lending standards will cause a reduction in demand for housing, and could cause the home ownership rate to fall. Given the significant increase in projected foreclosures mentioned above, an extended period of credit tightening could materialize.

As we discussed in Credit Innovation and Opportunity, our December 2006 U.S. Credit Perspectives, the mortgage industry’s ability to develop new products that kept initial monthly payments low enabled consumers to buy homes they could not otherwise afford, and was a major factor in driving the home ownership rate up 5% in the last 10 years to today’s level of 69%. With rising delinquencies and foreclosures, the downside of credit innovation will surface and may be met face-to-face with increased regulation. Innovation in the mortgage market, which has provided a huge lift to consumers and housing prices through growth in non-traditional products (Chart 5), is clearly at risk. Consumers will likely shift away from exotic mortgages, resulting in less overall stimulus for the housing market, particularly given the lack of pent-up demand for housing.

Lenders are not the only players in the real estate market who are turning more cautious. Real estate appraisers will also become more conservative in their evaluations of property. Some appraisers, who in hindsight probably inflated appraisals over the past several years, helped contribute to the housing bubble on the way up by helping to get marginal buyers and mortgages approved in order to “make the deal work.” Given heightened regulatory oversight, appraisers will turn more realistic. As lending standards tighten (Chart 6) and appraisals become more conservative, the pool of potential homebuyers will shrink. Why? A major problem in today’s housing market is not only sales to new home owners. The “move up” market, or existing owners who want to sell their current house to buy another house, is basically frozen. Outside of speculators exiting the market, this is a major reason why cancellation rates have risen. It isn’t only the speculators and investors backing away. Potential new homebuyers can’t sell their existing home to another buyer. As a result, they cannot move up. Changing buyer sentiment, more restrictive credit and less aggressive appraisals are all helping to restrict marginal buyers.

Where’s The ATM ?
Over the past several years, consumers leveraged rising housing prices and easy credit availability using their home as an ATM. Mortgage equity withdrawal (MEW) soared, allowing consumer spending to grow faster than income growth over the past several years. This process was facilitated by rising home prices and loose lending standards. As long as housing prices were rising, lenders were willing to lend, and consumers were willing to spend, as rising housing prices gave them the confidence to draw down on savings. Today, mortgage equity withdrawal appears tapped. Consumers have been accessing their homes as bank accounts, but housing prices are now falling in many areas, and credit is becoming more difficult to obtain. The slowdown in MEW has been remarkably swift. Over the past year, consumers tapped over $400 billion less equity out of their homes than the previous year. And, in looking at the four-quarter moving average of MEW divided by nominal GDP, the change in MEW as a percent of nominal GDP is now –1.8% (Chart 7). Slower housing price appreciation is causing mortgage equity withdrawal to fall sharply, and is set to detract from U.S. economic growth.

To understand why corporate profits may be at risk as a result of the slowdown in MEW, let’s turn our attention to consumer spending. Companies make money when consumers spend. And, consumers have been spending in part due to rising housing prices, which have allowed consumers to grow debt faster than nominal GDP. Why are corporate profits as a percent of nominal GDP at new highs? Some would argue the reasons are: (a) healthy productivity gains, (b) cost cutting, (c) strong global growth, and (d) low long-term interest rates due to robust global savings. Instead, I suggest turning the focus back to the consumer and housing. Thanks to rising housing prices, consumers have been able to grow spending significantly faster than income growth, through unprecedented increases in mortgage equity withdrawal. In fact, the growth in mortgage debt parallels the growth in corporate profits (Chart 8). As a result, corporate profits, and thus economic growth, are highly dependent on housing prices. As housing prices turn negative, corporate profit growth will eventually follow.

Housing Is Today’s Leading Indictor
Housing is today’s leading economic indicator. To quote our forecast from one year ago in For Sale, “with a softening housing market, we should expect tighter lending standards, a moderation in the willingness to take risk, a slowdown in the pace of asset price appreciation, less liquid markets, and rising volatility in financial markets.” On the economic front, I believe declining housing prices and tighter credit are set to unleash a sharp downturn in housing turnover and job creation. As housing prices fall, corporate profits are expected to be at risk as consumers pull back their spending.

Housing is a momentum market. Turnover rises when real housing prices, as defined as housing price appreciation (HPA) minus mortgage rates, are rising. Turnover slows when real housing prices are falling (Chart 9). Today, the growth in real housing prices is falling. We believe real housing prices will turn further negative in 2007, causing new and existing home sales to decline towards 5 million units per year, down from a peak of over 7.5 million units per year in 2005.

Housing starts and permits tend to be a good leading indicator of job growth. Through February 2007, housing starts are down –28% year-over-year. This type of decline in housing starts typically leads to a sharp slowdown in job growth, within roughly one year (Chart 10). As a result, I believe that job creation is set to slow, possibly materially. The U.S. economy created approximately 200,000 new construction jobs last year. It would not surprise me if we lost 400,000 construction jobs this year, as homebuilders complete their existing projects and then lay off workers. As corporate profit growth deteriorates with a slowdown in housing, business investment and consumer spending, layoff announcements across all sectors of the labor market will likely pick-up

here the link to the economic impact on the illegal immigrants

"Housing Slump Takes a Toll on Illegal Immigrants" http://tinyurl.com/22bv9l

The Fed should lower the Fed Funds rate as soon as we have confirmation that the employment situation is deteriorating. By that time, credit spreads will have already anticipated the fact that risk appetite is set to turn for the worse.......

For renters and potential homebuyers, my advice is to still rent. The housing market has turned for the worse but the unwinding of this bubble will take more time. Unfortunately, this is not good news for the U.S. economy, job creation or corporate profits. Nevertheless, investors who are patient and adopt a conservative investment strategy should prosper over the next few years.