Friday, March 25, 2005

And This Is During The Good Times

A story at Newsday.com set out to establish that home owners in booming markets are paying their mortgages on time. But the national comparisons don't look so good.

"In Texas, 6.8 percent of homeowners were behind on their loan payments. In Mississippi, 8.8 percent of owners were delinquent. In Louisiana, 7.2 percent paid late. Georgia 6.3%, Tennessee 6.4% and West Virginia 6.6%."

And how about the rapidly growing subprime market? 11 percent of subprime borrowers are behind on payments. "Subprime borrowers were 7 1/2 times more likely to be 90 days delinquent, and 8 times more likely to be in foreclosure proceedings. (In) West Virginia..more than 21 percent of (subprime) homeowners were behind." But the worst group is FHA. "Nearly 13.2 percent of all FHA borrowers were delinquent at the end of 2004."

The theme is that if a region is under the national average, 4.6%, things are fine. But this writer senses the public is too comfortable with debt and delinquency. Here are the 'good' numbers. "Delinquency rates in high-cost New York, New Jersey and Florida were..around 4%, California, 2.04%."

12 Comments:

At 11:39 AM, Anonymous Dan said...

Only 2% deliquency in California? Does not seem like a bubble ready to pop, does it?

Dan

 
At 11:46 AM, Anonymous Tim said...

"As long as interest rates remain low and employment growth continues, that could be a bellwether indicator that bursting bubbles are nowhere in sight." - I was worried there for a minute that there might be a problem - a few murky qualifiers and a bold prediction of nothing to be worried about - I feel much better now.

Gee - do you think the delinquency rate has anything to do with the owners ability to borrow against his house to make ends meet if times get tough - the house that has appreciated by hundreds of thousands of dollars in the last few years in all the bubble areas? Ya might have mentioned that Kenneth.

Great Blog!

 
At 11:54 AM, Blogger Ben Jones said...

dan,
california isn't close to moving down. sounds like texas and some other states are.

the risk is that the leverage in the housing market will turn against owners if the economy slows, interest rates take off or speculative fever breaks.

investors are so active in many markets i wouldn't expect foreclosures to move higher until the psychology changes. enjoy good friday!..ben

 
At 1:19 PM, Anonymous Anonymous said...

Dan: It doesn't take a liquidity event to pop a bubble. There was no liquidity problem when the dot com bubble burst in 2000. The bubble bursts when people realize that the asset they hold is over valued and they start to sell. As soon as people start to sell and there are no buyers at the price they paid, "the jig is up".

Japan is a good example of a bursting bubble with good liquity. Japan is/was floating in money yet their housing bubble burst.

 
At 1:25 PM, Anonymous Anonymous said...

BTW: I do think California will move down, and in a dramatic way. I've got this feeling that housing IS the thing that keeps California up these days.

One more thing: it isn't the liquidity of the current owners that one needs to consider. It the the access to cash that the would be buyers have access to that will determine when the bubble pops. When there are no NEW buyers for the existing over priced real estate, that is when the bubble bursts.

It is like when people stopped buying dot com stocks, that is when the crash happened. Sure, houses are real and dot com stocks were just paper. While houses are real, they also have real value and that real value is set by the COST of the labor, lumber, concrete and fixtures to build them. Has lumber, concrete, labor, etc, increased in value by 40% in the last year ? Nope. Then the real COST of a house hasn't increased in value either.

The California situation is as much a house of cards as is any other place, even though there is no liquidity issue.

 
At 2:15 PM, Anonymous Tim said...

In Southern California, half of all new jobs created in the last few years are housing related - this is very much a self-reinforcing boom.

At first I thought that things would change when people realized that they are crazy to pay $600,000 for something that would have cost $300,000 only a few years ago, but I am now convinced that most people haven't got a clue - people reading this blog are giving way too much credit to your average home-buyer - they are not thinking about $300,000 from a few years ago, but about the $900,000 that the house will be worth a few years hence. This is a housing bubble of epic proportions for all those people who couldn't participate in the Nasdaq bubble, thanks to the Fed, Fannie and Freddie, Ameriquest, Asian central banks, etc.

Things will only slow down and begin the inevitable reversion to the mean when people no longer qualify for loans to buy homes at the prices the sellers ask, and then the sellers will ask less - price is really not a factor to your typical home buyer and as long as someone will lend the money, people are dumb enough to do the deal - after all, it is the American dream to own your own home.
There used to be common sense lending standards (remember downpayments? 42% of all first time homebuyers put 0% down) but today anything goes.

Any rational person would look at the California real estate market and conclude that it will have to end badly, but the problem is that people do not act rationally when they are in the midst of a mania such as this.

 
At 3:59 PM, Anonymous Dan said...

I see prices coming crashing down only if it becomes advantegeous to pull your money out of housing and put it into the next "sure thing".

In my opinion, it will take checking accounts, money markets, and CDs to start offering 10%+ interest rates in order for people to dump their real estate.

However, a decline in real estate will have such a bad effect on the economy that the fed will be pressured to lower rates again, or at best hold steady, postponing the day of reckoning even further.

In addition, there are still other tricks to keep this bubble going. Imagine a 50 year mortgage Japan style.

Dan

 
At 4:27 PM, Anonymous Anonymous said...

It won't be a matter of pulling their money to put it in the "next sure thing" because most of these people don't have any money other than their houses and during/after the correction they won't have any money at all.

I think what will drive the crash is higher interest rates, which are on the way because the US is broke.

 
At 4:27 PM, Anonymous Anonymous said...

It won't be a matter of pulling their money to put it in the "next sure thing" because most of these people don't have any money other than their houses and during/after the correction they won't have any money at all.

I think what will drive the crash is higher interest rates, which are on the way because the US is broke.

 
At 4:28 PM, Anonymous Anonymous said...

It won't be a matter of pulling their money to put it in the "next sure thing" because most of these people don't have any money other than their houses and during/after the correction they won't have any money at all.

I think what will drive the crash is higher interest rates, which are on the way because the US is broke.

 
At 5:40 PM, Anonymous Anonymous said...

GA market at 80 days; rising interest rates won't help:

http://biz.yahoo.com/ap/050325/home_sales_2.html

 
At 6:37 PM, Blogger Ben Jones said...

(I've got this feeling that housing IS the thing that keeps California up these days.)
(Tim said..In Southern California, half of all new jobs created in the last few years are housing related - this is very much a self-reinforcing boom.)
both correct. UCLA's anderson forecast agrees too. see:

http://thehousingbubble.blogspot.com/2005/03/ucla-anderson-forecast-recession.html

(but I am now convinced that most people haven't got a clue)....thats a scary thought but you may be right. people are blind.

(While houses are real, they also have real value and that real value is set by the COST)...you hear the "tangible" thing a lot, but i think they miss the real weakness of houses. they can be very illiquid and i don't think people are prepared for months or years to sell these homes, which may be around the corner. an empty house is an albatros around the owners neck.

(Things will only slow down..when people no longer qualify for loans to buy homes at the prices the sellers ask, and then the sellers will ask less - price is really not a factor to your typical home buyer and as long as someone will lend the money)....excellent point. the buyers have no regard for valuations, typical of a mania..

thanks for all the feedback..ben

 

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