Will General Motors Bring The House Down?
GMs' stock is tanking again this morning, down to multi-year lows. This NM News site has a table showing the firms' increasing involvement in the mortgage market.
Another mortgage stock is in the news with a downgrade from Merrill Lynch, and Doral Financial is falling hard. Once again, mortgage backed securities are at the heart of the problem. "Doral shares have declined amid heavy volatility in recent weeks, as analysts fret over whether Doral is being too aggressive in valuing its securities portfolios. The shares have lost roughly two-thirds of their value since mid-January."
14 Comments:
Prices out of wack.
http://www.nationalmortgagenews.com/nmn/eye.htm
anon,
The writer seems to get it. Thanks
The Dow Jones Home Construction Index is down another 2.5% today. Down about 12% from its early March highs.
Interesting...
http://money.cnn.com/quote/quote.html?pg=qu&sid=171546&osymb=DJ_HOM&time=2mo&uf=0&x=17&y=12
IMF is worried about US finances:
http://story.news.yahoo.com/news?tmpl=story&cid=1518&ncid=1518&e=6&u=/afp/20050413/bs_afp/imfeconomygrowth_050413140116
They don't even mention the housing bubble. I wonder if they realize it exists.
Many housing bulls think that low interest rates mean that home prices won't come down. Today's market action belies that logic. Homebuilder stocks tanking with interest rates plunging.
Mortgage rates were falling during the early '90s (from a high of 10.13 in 1990 to the low 7's by 1995). Home prices fell b/w 20-30% in SoCal during that same period---more in some areas. The actual low in mortgage rates (1993) came at a time when home prices in SoCal were in freefall and foreclosures were skyrocketing.
At some point, the nominal price of housing (and the willingness to take on more debt) becomes too onerous. Also sentiment shifts from believing that homes will continue to the sky to a concern that prices may fall. That's all it takes to reverse a market. Interest rates could fall to zero (see: Japan) and home prices could still go down.
Ben, I thought a couple of up days were due. Not so. The transports have caved in again, DJIA, Nas & NDX hit year lows today. Only the SP500 remains, if he goes below 1163 and stays there for 2 trading days, its good night Loretta...we head for Oct lows.
http://naybob.blogspot.com/2005/04/market-soapbox-041305.html
(The Dow Jones Home Construction Index is down another 2.5% today)
Yep. Check out this chart.
http://finance.yahoo.com/q/bc?t=my&s=PHM&l=off&z=m&q=l&c=ryl%2Cctx%2Ckbh%2Cbzh
(They don't even mention the housing bubble. I wonder if they realize it exists)
One reason this blog exists; the "wisdom" out there thinks that if we talk about it, the bubble will burst.
(sentiment shifts from believing that homes will continue to the sky to a concern that prices may fall. That's all it takes)
That may be what we are seeing now. Historic.
John, Dave,
It has been a hard road for HB shorts, but your day may have arrived. Congrats!
Consumer non-cyclicals are moving up against the market. Are traders telling us something?
Wow! You can't tell me that chart isn't NASDAQ 5000 all over again.
And it is probably the same thing with the other zombie Ford Motors. Why can they learn from their mistakes ? The credit quality of their debt paper is horrible. They are getting murdered by Toyota, Honda and Nissan on the manufacturing front. And they are getting murdered by their involvment in the real estate credit bubble on the financial side. It's a formula for a 1929 catastrophe and it's just getting worse each day.
Update: the Autoworkers Union just told GM that I won't renegotiate things. They said this before GM even asked them too !
This is going to get very ugly.
Is GM's crash going to kill the housing bubble or will the housing bubble kill GM ? (The latter will happen when consumers stop spending.)
I'm surprised that the press hasn't picked up on the relationship between GM and GMAC and RE and also the fact that people are spending record dollars on RE and that must cut into their vehicle purchasing plans. As interest rates climb, this effect will get worse.
"I'm surprised that the press hasn't picked up on the relationship"
they are afraid, maybe.
Once housing crashes, I suggest the following slogan for GM:
"General Motors. Because you can live in your car, but you can't drive your house."
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