Housing Bubble

I haven’t posted one of these things in a while, so I figured it was about time. The big peak was in March, with a total of 10,725 that month. October’s total was 6,618. <img style=“display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 400px; height: 260px;” src="/images/09OctNTRs.jpg" border=“0” alt=““id=“BLOGGER_PHOTO_ID_5398553297848650530” /> Lippard (2009-10-31): The stimulus tax credit ends at the end of the year. I suspect we're going to see it climb again next year. ...

In April 2009, the city of Phoenix received $40 million in federal stimulus money under the Neighborhood Stabilization Program. This program is designed to put a floor on house prices by providing zero-interest loans of up to $15,000 to home buyers to cover downpayments and closing costs on purchases of foreclosed homes. The number of home buyers who have used this program to date: zero. Several hundred people have applied for the program, but none has purchased a home yet. The program requires that buyers have incomes between $55,350 and $104,400, depending on size of family, must complete eight hours of financial counseling in budgeting and home ownership, and must invest $1,000 of their own money. The NSP loan must be repaid in the event that the home is sold or refinanced. (Via ABC15.com.)

The Center for Public Integrity, an organization I support, has just published the results of an investigation into the roots of the recent economic crisis and the major players involved: The top subprime lenders whose loans are largely blamed for triggering the global economic meltdown were owned or backed by giant banks now collecting billions of dollars in bailout money — including several that have paid huge fines to settle predatory lending charges. The banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves, but enablers that bankrolled the type of lending threatening the financial system. … According to the analysis: ...

At the Financial Times (with more detail for each item): 1. What is fragile should break early while it is still small. 2. No socialisation of losses and privatisation of gains. 3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. 4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. 5. Counter-balance complexity with simplicity. 6. Do not give children sticks of dynamite, even if they come with a warning . 7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. 8. Do not give an addict more drugs if he has withdrawal pains. 9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. 10. Make an omelette with the broken eggs. (Via Will Wilkinson.) ...

A banker who resisted the urge to invest in toxic assets during the boom is cleaning up during the bust. Andy Beal of Beal Bank in Plano, Texas “virtually stopped making or buying loans” from 2004 to 2007, leading people around him to think he was crazy. Now he’s buying up loans at fire sale prices and has tripled his bank’s assets to $7 billion in the last 15 months, and without government bailout money. Beal is also known for high-stakes poker games against the top poker players in the world, in which he has lost more than he’s won, but occasionally taken for a lot of money (including an $11 million win in one day). ...

$10.1 billion in federal stimulus money has been released to the states by the Department of Housing and Urban Development, and Arizona is receiving more than $150 million of that. And what is that money to be used for, in a state where there are tens of thousands of homes for sale with few buyers (50,000+ in Maricopa county alone)? Building more housing. The Arizona Republic reports that Millions of dollars more will go to state and local programs. That includes $32 million to begin construction of affordable rental housing, $22 million to prevent homelessness and $12 million to build or repair public housing across the state.To the extent this money is used to build new homes, as opposed to repairing deteriorating ones, it’s just going to accelerate the decline of home prices, putting more homeowners underwater and providing them with more incentive to walk away from their mortgages. Now, I think that a further decline in home prices is inevitable, no matter what the stimulus money tries to do, but it’s ridiculous to throw additional money at accelerating that process. It makes about as much sense as using federal stimulus money to give grants to investment bankers to develop more complex collateralized debt obligations. Now, this isn’t actually quite that bad, since it does apparently focus on some particular communities–a third of the money is for Native American communities that didn’t get a housing bubble of speculative buying. Some of it is also for families that need short-term help with utility bills, rent, or other expenses (something that the Modest Needs Foundation has been doing for years with private donations). And Tucson is apparently using it to improve energy efficiency of existing public housing units. Those are all much more reasonable uses of the money than building more houses. ...

Yesterday the Arizona Republic had an interactive foreclosure map and document of data (PDF) which includes the monthly foreclosure statistics for the last eighteen months: April 2007: 553 May 2007: 475 June 2007: 579 July 2007: 676 August 2007: 806 September 2007: 1,093 October 2007: 936 November 2007: 1,344 December 2007: 1,617 January 2008: 2,052 February 2008: 2,249 March 2008: 2,365 April 2008: 2,969 May 2008: 3,402 June 2008: 3,717 July 2008: 4,104 August 2008: 4,013 September 2008: 4,378 October 2008: 4,587 Total foreclosures per year: 2004: 4,444 2005: 1,370 2006: 1,070 2007: 9,920 2008: 33,836 through October This is not good news for a state where construction and real estate provide a large share of the employment opportunities. It is good news for those who do not own homes and have been waiting to buy at lower prices–it looks like next year will offer significantly better prices than this year, but there are still a lot of delusional sellers out there asking way too much. (There’s a two-bedroom, two-bathroom house on a half acre in a quiet neighborhood near us that looks very nice, but is probably worth about half of the $429,000 asking price, based on comparable sales and the current downward trend. Zillow says it’s worth $277,000.) See their summary article, which has links to the map and other documents. ...

Gee, who was completely full of crap? I love the captions–Dow over 13,000 and Ben Stein is saying now’s the time to buy… Merrill Lynch a buy at $76, Charles Payne says buy Bear Stearns… they were delusional idiots. Schiff was right about everything except inflation and gold (at least so far–deflation looks like a bigger immediate risk than inflation). He was saying to buy gold at $830 in late 2007; it’s at about the same point today, but if you had taken his advice you could have sold higher earlier this year, and at least you wouldn’t have taken any real losses. (Hat tip to Brett Vickers for the video.) ...

October set a new record of 8,503 notices of trustee’s sales in Maricopa County, of which 900 were duplicates of previous notices. The number of pending foreclosures has dropped, as Bank of America cancelled numerous foreclosures after acquiring Countrywide. 3,516 foreclosures were cancelled in October, about double September’s rate. At the end of October, there were 27,874 pending foreclosures in Maricopa County. (Back in the summer of 2005, the total inventory of homes for sale was around 5,000. Today it’s around 50,000 34,000, which obviously has the potential to go much higher.) Trustee’s sales hit 4,587 in October, up from 4,378 in September. (Via azcentral.com.) UPDATE (November 26, 2008): Updated the inventory number to October 21, 2008, which is down from a peak of over 50,000, but which has been climbing back up from a recent low of just under 26,000 at the beginning of August 2008.

Colorado College political science professor David Hendrickson has put together a nice resource at his new “Cause for Depression” blog: Think of it as a cartoon guide to the ongoing earthquake in the world of high finance. Through pictures, we will try to understand the dimensions of the current financial crisis–its origins and causes, its likely consequences, its potential remedies. The “Labels” in Blogspot allow us to construct a chapter organization that the reader should approach as she would a book. By hitting on the topics under “Labels,” the presentation will appear in an orderly fashion. Blogspot is not made for blogbooks, though it is easily adaptable to that purpose. Ordering within each of the chapters depends on time of posting, so my time stamps are not necessarily indicative of the actual time the material was posted. I have altered them to allow for an orderly presentation. If it seems to matter, I will post the date of composition and updates in the entry. The initial foray of posts was made in mid-October 2008. In seeking to understand the crisis, we need to begin with the credit mechanism. We are living through the bust of one of the greatest credit cycles of all financial history. In order get a handle on the seriousness of the bust, we must register the mania that fed the boom. We’ll first look at some measures indicative of the financial turmoil. Then we examine general conditioning circumstances: the role of the housing boom and bust, the general growth of credit market debt, the explosion in derivatives, all of which are relevant in considering how much insolvency exists within the financial system. That question–are our financial institutions insolvent?–in turn is vital in assessing the wisdom of various bailouts and rescues, the opportunity costs associated with the government-mandated maintenance of the “FIRE” sector (Financials, Insurance, Real Estate), and how the global imbalances that have marked the last fifteen years are likely to change. I conclude with some lessons. The final entry is a collection of paper topics for interested students to consider. Where possible, I’ve tried to indicate where readers can find updated sources of information for the material presented here. Given my harsh view of “derivatives,” I’m obliged to say that this compendium is almost entirely derivative. I’m deeply indebted to my blogroll for ideas, inspiration, and many of the charts contained herein. So, if you’ve read thus far, go now to “Financial Stress” in the “Labels” section.(Via Financial Armageddon.) The amount of public and non-public U.S. debt will inevitably come back down, one way or another. I just hope we don’t end up as a third-world nation (or worse yet, multiple third world nations) in the process.