Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Californian Housing Market in Meltdown, Liar Loan Writedowns Have Barely Begun

Housing-Market / US Housing Jun 28, 2008 - 03:59 PM GMT

By: Mike_Shedlock

Housing-Market Best Financial Markets Analysis ArticleMy friend "TC" monitors C.A.R. data, DQNews data, and Case-Shiller Data. Case-Shiller data was out a few days ago and you can read about it in Case Shiller Futures Suggest 2010 Housing Bottom .

What follows is an analysis of data from the California Association of Realtors from "TC" who tracks the data month by month and is looking at things from perspective of percent declines from the peak.


"TC" writes: I put together the just released May 2008 CAR data. As you can see the CA median home price is now down more than $200K and every region CAR tracks but one is down at least $100K. Additionally, 3 regions are now nearing a $500K median price decline. The declines in these areas is more than twice as much as the national median price!

Source: C.A.R. reports sales increased 18.1 percent; median home price fell 35.3 percent in May



According to CAR half of the decline is because of "shifts in the types of homes selling" and half due to price depreciation. Their calculation of "shifts in the types of homes selling" however is flawed. This because they base the shift on the % of jumbo loans. The problem with this method is that as prices decline the % of jumbo loans naturally moves lower so one can't automatically assume the "credit crunch" has lead to an equal % of the median price change.

However, CAR is in part correct that the credit crunch is having an effect on CA median home prices. In order to get a more accurate picture of how much I use the Case-Shiller data which using the repeated-sales methodology. This methodology is typically the most accurate representation of home prices (however Case-Shiller only tracks a few CA markets which is why I enjoy the CAR data as well).

Using the Case-Shiller data as a baseline one can see that about 1/4 of the median price decline can be attributed to the credit crunch statewide, with the other 3/4 of the decline being actual home depreciation.

Discussion Of Data Presentation Bias

The percentage declines from the peak is an admittedly biased way of looking at things as it makes each decline as large as possible. However there is an overall number from CAR and DQNews that shows the peak to be in April, May of 2007.

Is there any wonder that late vintage loans are defaulting at such a high rate. Liar loans were still ramping late 2006. Those liar loans found their way into various Alt-A pools. For a recent look at one Alt-A pool and what defaults are doing please take a peek at Is The Inflation Scare Over Yet?

Writeoffs in California have barely begun. However, the market is increasingly aware of what must happen. You can see it in the charts.

Washington Mutual Daily Chart





Washington Mutual (WM) crossed the magic threshold of $5. Many mutual funds have a requirement about market cap and price. Those with a threshold of $5 may have to dump it if it does not quickly recover.

On a purely fundamental basis, more writedowns on account of Alt-A liar loans are coming. More people will be walking away from their homes in California and Florida. Approximately 75-80% of those in liar loans only make the minimum payment. Negative amortization increases every month in those loans. On top of that, home prices are falling rapidly. Add the two together and anyone who put down even as much as 20% is now hugely underwater.

At some point escalation clauses will kick in. Escalation clauses vary by contract, but typically vary between 110% of the loan to 125% of the loan. Those clauses should be kicking in now, in mass, based on price depreciation alone.

Have they in practice? Think again. It would be the kiss of death for either WaMu or Wachovia to start enforcing those clauses, homeowners would immediately default. Instead, both banks pretend they are well capitalized when it is increasing apparent they are likely insolvent.

I fail to see how either of those banks survive. The Fed's policy so far is to have the relatively strong take over the pathetically weak. Examples of this are the shotgun wedding between JPMorgan (JPM) and Bear Stearns (BSC), and Bank of America (BAC) and Countrywide Financial (CFC).

Strong Become Weak

Eventually the strong become weak because of these actions. Bernanke's actions suggest there is no bank strong enough to take over the banks are about to fail. And that is why Bernanke is scrambling around like a mad fool (See Fed Looking To Bend Rules To Aid Banks ), directly soliciting private equity firms to invest in banks.

The situation is so dire that Turf Wars Between Fed, SEC, Congress, Treasury are being openly fought in public.

If those private equity firms were smart they will treat this Fed offering like a Trojan Horse.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

6 Critical Money Making Rules