Thursday, March 01, 2007

L.A. Times: Sub-prime lending shakeout heats up - "Think how that's going to ripple through the economy, it could really affect home prices"

This February 28 story by E. Scott Reckard discusses the continuing trials and tribulations of sub-prime lenders. Freddie Mac is tightening its standards and refusing to buy "foreclosure-prone" loans. Ameriquest is looking for a buyer or potential partner, exploring "strategic alternatives". Santa Monica's Fremont General Corp said on Tuesday it was delaying the release its 4th quarter financial results. We already know about Irvine's New Century Financial, which has stated heavy losses, and we know that Ownit Mortgage of Agoura Hills has filed for bankruptcy protection. Other mortgage companies, like Countrywide, have been announcing layoffs.

The music has stopped for serial refinancers and they are now stuck with payments that are likely to explode upwards. Some analysts fear that the toxic effect of the sub-prime market will spill into the prime market and perversely damage the economy. (Economist Nouriel Roubini has recently posted about the possible contamination.)

Layoffs in the mortgage industry have been affecting the employment picture in Southern California, too. There was a net loss of jobs last summer for the first time since mid-2000. The mortgage industry had been a "major growth engine" in Orange County and is now a "big drag" on growth.


It still continues to amaze me that even though there are economists and financial analysts out there who see the handwriting on the wall, we have yet to see a discussion in the newspapers of a potential for severe price declines.

8 Comments:

Blogger bearmaster said...

I'm hoping to get February dollar volume charts up this weekend. I am waiting for a final February update in Melissa Data.

7:42 AM, March 01, 2007  
Blogger stevebopp said...

Alan Greenspan (remember him?) says the U.S. economy might go into recession before the end of 2007.

He may be right. The subprime mortgage market is getting whacked hard. And when people can't buy at the bottom, it weakens the whole market structure.
Prices fall.
Jobs are lost.
Spending declines.
What we're seeing so far is that people who can afford to do so are taking their houses off the market. This creates an invisible inventory of empty houses
that will probably hold down prices for many months to come.
Steadily, but surely, the millwheel of a correction will grind away.

10:56 AM, March 01, 2007  
Blogger bearmaster said...

I don't place to much credence on Alan Greenspan because he talks out of both sides of his mouth to cover his butt. He missed the start of the recession in the early 90's by some eight months, denying it during that time. But yes, I am of the opinion that our next downturn will be housing based.

That hidden inventory is one of the key points I base my opinion on for the future direction of the housing market.

Last year the media was trying to tell us that inventory was falsely inflated by some 50% because so many sellers were not "serious" about selling, just out on fishing expeditions for top dollar.

12:38 PM, March 01, 2007  
Blogger wannabuy said...

" Layoffs in the mortgage industry have been affecting the employment picture in Southern California, too. There was a net loss of jobs last summer for the first time since mid-2000. The mortgage industry had been a "major growth engine" in Orange County and is now a "big drag" on growth."

That will hurt OC, LA, and ventura counties in a big way. (All three have large mortgage employment.) Any bets on when countrywide consolodates in Tucson?

The serial refinancers probably won't start to panic for a few quarters... but when that happens, don't be near the door.

Got popcorn?
Neil

5:27 PM, March 01, 2007  
Blogger mike said...

lending, lending, lending. that's what it all boils down to in this market. why they don't connect the dots in the media boggles the mind.

more stringent lending standards (actually qualifying people for what they can reasonably afford to pay back) = 75% of the potential buyers who can pay current prices fall out of the buyer pool = prices go down, down, down.

similarly, more stringent standards + flat to slightly negative price appreciation = if you bought recently (or heloc'd your house to the hilt recently) there is no way you can refi out of your loan that is going to reset and eat you alive.

if anyone can offer any reasonable explanation as to why the above won't happen i'd love to hear it.

6:41 PM, March 01, 2007  
Blogger bearmaster said...

The serial refinancers probably won't start to panic for a few quarters... but when that happens, don't be near the door.

For some reason I have this picture of a herd of elephants stampeding through a turnstile. That's what I may end up being.

8:36 PM, March 01, 2007  
Blogger GoBig said...

I see lots of pending home sales in the South Bay for lower priced homes. I'm also seeing longer escrows. I wonder how many pendings will close with the tighter lending requirements. You'll see inventory increase dramatically in April-May when 33% to 50% of the pending home sales fall out of escrow and get relisetd along with the new listings.

6:36 AM, March 02, 2007  
Blogger bearmaster said...

Yes, I don't see higher priced properties moving very much, but there certainly seem to be be plenty of new listings for higher priced properties. I hope to publish a breakdown of February inventory this weekend.

7:10 AM, March 02, 2007  

Post a Comment

<< Home

Dogmation