Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Soybean Price Hits 9 Year Low Due to Trade War - 24th Jun 18
Small Cap Stocks, Technology and Pharma To Drive A Renewed Market Rally - 24th Jun 18
Gerald Celente: Why You Still Need Guns, Gold, and a Getaway Plan... - 23rd Jun 18
Cheap Gold Stocks Bottom Basing - 23rd Jun 18
A Trade War Won’t Be Good for the US Dollar - 23rd Jun 18
SPX/Gold, Long-term Yields & Yield Curve 3 Amigos Update - 22nd Jun 18
Gold - How Long Can This Last? - 22nd Jun 18
Dow Has Fallen 8 days in a Row. Medium-long Term Bullish for Stocks - 22nd Jun 18
Trouble Spotting Market Trends? This Can Help - 22nd Jun 18
Financial Markets Analysis and Trend Forecasts 2018 - A Message from Nadeem Walayat - 21st Jun 18
SPX Bouncing Above Support - 21st Jun 18
Things You Need To Know If You Want To Invest In Bitcoin Now - 21st Jun 18
The NASDAQ’s Outperformance vs. the Dow is Very Bullish - 21st Jun 18
Warning All Investors: Global Stock Market Are Shifting Away From US Price Correlation - 20th Jun 18
Gold GLD ETF Update… Breakdown ? - 20th Jun 18
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

A Bailout of the US Housing Market before the Bust ?

Housing-Market / US Housing Mar 14, 2007 - 11:28 AM GMT

By: Brady_Willett

Housing-Market Mortgage Bankers Association Chief Economist, Douglas Duncan, believes that mortgage activity is set to dip and that “there's no question that the decline in [mortgage] volume will reveal excess capacity”. Although Mr. Duncan isn't painting on overly grim picture, it is worth pointing out that he offered this negative outlook more than 3-years ago

Nearly Three Years of Insanity All But Over

As it would turn out, the so called ‘excess capacity' in the mortgage industry wasn't shed in 2004, it was simply utilized to push more ‘creative' mortgages.


“While most home buyers still opt for traditional fixed-rate loans, lenders are planning to introduce an even wider array of niche mortgages as the refinancing boom wanes and competition intensifies.”
Creative Mortgages Fuel Home Sales — Banks Push Variety of New Loans to Offset Rising Costs; the Price of a Missed Payment.” Wall Street Journal, March 16, 2004.

As the ‘creations' in question - including ‘interest only' and ‘no doc' loans – helped people who could otherwise not afford a house become homeowners, some people warned early and often that rapid home price appreciation and risky loans were a dangerous mix for the real estate market.  However, these analysts, including Robert Shiller, Dean Baker, Paul Kasriel, and ‘The Economist', were largely ignored for being overly pessimistic.  That is, of course, until now.

As Housing Boom Turns To Bust Policy Makers Press PANIC

As the U.S. housing market enters its bust phase policy makers have been quick to reiterate that the damage will be contained. In fact, the response to some relatively small blow-ups in the subprime market has been so quick that you have to wonder if what policy makers are really saying is they will not allow the carnage to spread.

Poole: “The possibility of a liquidity upset or crisis is a financial disturbance that may have some policy implications for the Fed to provide some liquidity” Fed's Stern says no spillover from subprime

Following Poole's suggestion of Fed help last week, Senate Banking Committee Chairman Christopher Dodd said yesterday that Congress “may need to do something much more quickly to provide some protection or you could end up with a lot of poverty and blight”. The astonishing point to be made about the bailout being talked about is that while Dodd is quoting research reports and talking about “losing 2.2 million homes”, the MBA “lists only 300,000 such [subprime] borrowers as being in foreclosure now”. Dated numbers aside, doesn't it seem odd that the bailouts and promises to defend ‘liquidity' may be set to arrive with less than 25% of the anticipated subprime bust complete? What is really going on here?

The U.S. Housing Market Is Too Important To Fail

Those that believed one of the greatest stock market busts in history would spark a serious U.S. recession were wrong – not about the stock market bust, but about how quickly the U.S. real estate market could manufacture a boom.

“We know that increases in home values and the borrowing against home equity likely helped cushion the effects of a declining stock market during 2001 and 2002.” Greenspan. Feb 23, 2004.

Such is why with the U.S. real estate bust gathering speed so many policy makers are preparing to try and stop it in its tracks: there is no other major asset class left to inflate if the U.S. real estate market tanks.

Exactly when the U.S. housing market will reach some semblance of a bottom isn't the most important question at hand, nor is how far the carnage in subprime area will continue to spread. Rather, the real question is how will the debt-engorged U.S. consumer cope with the next major economic downturn given that their two largest and most important assets (stocks and real estate) are unlikely to generate boom returns going forward?

In short, it is worth reiterating that the insanity is over; that with tighter lending standards/regulations arriving the real estate mania will continue to unwind.  And if recent events are any indication, the expectation is that Fed rate cuts and ‘creative' (‘preemptive'?) bailouts will soon start flying.  In other words, times are sure to remain interesting as the winds of reason return.

Incidentally, amidst the landslide of optimism one of the few policy makers to offer even handed comments has been Federal Reserve Governor Susan Bies, who bluntly said last week that “This is not the end, this is the beginning.” Bies will retire later this month.


“I haven't had this much fun since the NASDAQ started to deflate seven years ago.” Baker

Consumers have become so accustomed to very liquid mortgage markets, where credit is available for almost any circumstance, that they are not aware this is unusual in the market.  Somewhat tighter credit availability and somewhat higher interest rates are much more normal.
Keith T. Gumbinger, vice president of mortgage data publisher HSH Associates.

By Brady Willett
FallStreet.com

FallStreet.com was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

cathy simpkins
26 Sep 08, 09:30
stockmarket bail out suggestions

I know it might sound dumm but why cant the people that have alot of money like actors music people have a financial aid fund raiser like live aid program they had that raised alot of money.Then get rid of all or some of the people that ripped off all the big money makers?


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules