January 18, 2006

Good News and Bad News in the Housing Market

Filed under: Economy,Taxes & Government — Tom @ 5:54 pm

The good news: 43% of first-time home buyers put no money down.

The bad news: 43% of first-time home buyers put no money down, and the median down payment is 2% on a $150,000 home:

As housing prices soared last year, an eye-popping 43% of first-time home buyers purchased their homes with no-money-down loans, according to a study released Tuesday by the National Association of Realtors.

The trend is potentially ominous. The real estate market is cooling in some areas, and rates on adjustable-rate loans are creeping up. As a result, some no-money-down buyers could owe more than their homes are worth.

The median first-time home buyer scraped together a down payment of only 2% on a $150,000 home in 2005, the NAR found.

Already, home prices in many areas are declining, and the “For Sale” signs are hanging in front yards longer. There’s now at least a 50% risk that prices will decline within two years in 11 major metro areas, including San Diego; Boston; Long Island, N.Y.; Los Angeles; and San Francisco, according to PMI Mortgage Insurance’s latest U.S. Market Risk Index.

“In a number of areas, particularly on the coasts, they have a high risk of price declines in the next two years,” says Mark Milner, chief risk officer of PMI.

Red-hot home building, acquisitions, remodeling and refinancing in recent years helped drive the economy and raise fears of a real estate bubble. Dean Baker of the Center for Economic and Policy Research says that if housing prices fall at least 10%, it could be even more damaging than the collapse of the high-tech stock bubble in 2000.

“If we do get a spike in mortgage rates, and a modest decline (in the housing market) turns into a rout, there’s almost no bottom to that,” Baker says. “That’s a crash scenario.”

I agree that there’s a risk, but I don’t think it’s as big as portrayed in the article. But the possibility of trouble is why it’s good news that the Fed appears close to being done with the rate-hiking, and that mortgage rates have stayed stubbornly low. Nevertheless, there is valid reason to be worried about certain markets, especially those where the runup in prices has been steep in the past year.

Column Title of the Day: Thomas Sowell

Filed under: Quotes, Etc. of the Day,Taxes & Government — Tom @ 1:39 pm

OK, technically, yesterday.

Sowell on Alito:
Senate Condemnation Hearings

Great column, as usual.

Positivity: Kidnapped Journalist Rescued by Chance

Filed under: Positivity — Tom @ 11:11 am

Nothing wrong with luck like this, reported last Saturday:

Kidnapped journalist rescued ‘in chance raid’

A British journalist kidnapped in Iraq was freed by chance after US soldiers raided the farmhouse where he was being held, it was disclosed today.

Phil Sands, a reporter for Dubai-based newspaper Emirates Today, was rescued after being held captive for five days last month on the outskirts of Baghdad, a Foreign Office official said.

“He was kidnapped on December 26, but was not reported missing and was found during an unrelated coalition military operation,” said a Foreign Office spokesman.

The 28-year-old journalist, from Dorset in England, was flown by US troops into Baghdad’s Green Zone and given a medical check up by British officials, before leaving Iraq, the spokesman said.

In an article published in Emirates Today, Sands recounted details of his abduction and said he felt “lucky to be alive”.

Sands said he was ambushed and captured after setting out with a local driver and interpreter to interview Baghdad academics.

“From the moment I was taken hostage I was certain I would be killed. A strange calmness fell over me. I thought ’what is the point in panicking – I am dead,”’ he said.

He said that he was not mistreated, but was forced to make a statement on video denouncing British Prime Minister Tony Blair and calling for foreign troops to leave Iraq.

The newspaper said Sands was discovered handcuffed and blindfolded by US soldiers as they entered the farmhouse on December 31 during an unconnected operation.

“This is frankly an amazing case,” US military Central Command spokesman Captain Eric Clarke told Emirates Today.

Back, Finally

Filed under: General — Tom @ 9:49 am

The web host said I’d be back by 6AM. Fashionably late as usual, it was more like 8:20 after some phone howling calling.

So much for routine downtime. Once a year or so of this is enough. Carry on.

It’s Still Too Early, Folks (Very Premature and Incoherent Articles on Effect of Bankruptcy “Reform”)

Filed under: Bankruptcy & Reform,MSM Biz/Other Ignorance — Tom @ 9:45 am

This is a CNN report that summarizes a longer Washington Post story. The bottom line is that it’s way too early to tell from these reports what’s going to happen. And the detail of the articles runs counter to what is claimed in their headlines:

Report: Bankruptcy filings steady
Tougher law requiring debtors to seek counseling hasn’t stemmed tide of new filings, newspaper says.

NEW YORK (CNNMoney.com) – A toughened bankruptcy law requiring debtors to seek credit counseling is doing to little to curb the number of consumers filing for bankruptcy, according to the Washington Post.

While the new law, which took effect late last year, requires debtors to seek counseling in hopes that it will steer them toward repayment plans instead of bankruptcy court, counseling agencies said most debtors are too far in financial trouble to qualify for a debt-management plan.

Money Management International Inc., the nation’s largest credit counseling organization, told the Post that in the first 13 weeks since the law took effect Oct. 17, only 4.5 percent of the 14,907 debtors the company counseled were in a position to qualify to pay back debts over a few years. Other credit counseling agencies, likewise, said few qualified for any plan other than bankruptcy.

And credit counselors expect bankruptcies to climb steadily in the next few months as consumers are faced with rising energy costs, higher interest rates and the new federally mandated policy that raises the minimum due on credit card bills.

Advocates of the bankruptcy law said it’s still too early to determine how successful the new requirements are in curbing bankruptcies, while financial industry officials said debtors will benefit from the financial education given by credit counselors.

Well OF COURSE the vast majority of filers are Chapter 7s — that was expected.

One big open question is in the long run how many filers are going to be forced into Chapter 13′s partial payments regimen. It will take at least another month or two before we know, because anyone with above-median income in their state, who under the new law would be forced into Chapter 13, would have been wise to attempt a Chapter 7 before the new law kicked in on October 17 of last year.

Also, the stats cited are skewed because, under the old law many people with LOW incomes in the South were put into Chapter 13 who in other parts of the country would have been instant Chapter 7s, based on a bit of a paternalistic tradition in that part of the country. Under the new law, sub-median filers will always be Chapter 7s, whether the paternalistic judges like it or not.

The other big question is whether the rate of filings per year of about 1.5 million (before the pre-October 17 rush) will resume once the fresh cases start coming in. Contrary to the headlines, the longer WaPo article notes that nationwide bankruptcies were running at about 5,000 a week in December — a very low level historically. Well, of course — hundreds of thousands filed ahead of the law’s deadline, and it will be at least another month or two (maybe even three) until the ongoing rate of truly fresh cases will be known.

So, let’s just chill for about 30-60 days, OK?

UPDATE: Jeff at Credit/Debt Recovery is in the Coalition of the Chillin’ (on the law, not the news coverage), and adds an important point:

The Post article says the law’s supporters “envisioned” that debtors would use repayment plans instead of bankruptcy. I never “envisioned” that. What I expected is precisely what is happening; everyone who needs bankruptcy is still getting it, and they’re getting valuable counseling and education in the process. Where’s the problem in that?

And finally, (and I almost hesitate to get into this here) the article completely misses a huge part of this story. Credit counselors don’t dare try to convert bankruptcy filers into Debt Management Plans; if they do, they know that large groups of bankruptcy lawyers are ready to refer their clients elsewhere, or worse, file lawsuits against them. Why swim in those shark-infested waters? Better provide quality budget counseling and education, and send the client back to his/her attorney for proper legal advice.

Jeff also likes the WORM (Worn-Out Reactionary Media) acronym. Spread the word.

Bizzy’s AM Coffee Biz-Econ Links (011806)

  • “Warm” Earth Can Host More — yet another counterpoint to the alarmist dingalings discussed at this post.
  • More CO2 is good? — These guys says so (HT Ace’s Laura W), and believe it’s needed: “it is clear that we are going to need all of the extra atmospheric CO2 we can get in order to not have to usurp all remaining land and freshwater resources to produce the food that will be needed to feed our growing numbers in the years and decades ahead.”
  • Some Default on Post-Riot (Cincinnati 2001) Loans — The Cincinnati Enquirer’s definition of “some” is clarified in the article’s first two words: “Almost half.”
  • Toyota North American plants post record year — While GM and Ford were down (complete list for all major automakers is at this link), Toyota produced 1.55 million cars and trucks last year, up from 1.44 mil in 2004.
  • Science Marches on, Seagate shipping vertically arranged hard drives — looks like an immediate 25% capacity increase in the same space, with much more to come. Bring ‘em on.
  • Freakonomics did a really interesting fact-check on one of Frey’s Lies — The investigation method was novel, the result not surprising.
  • Media Downplay Ideology of Wal-Mart Foes – Papers ignore ties to union groups and socialized medicine advocates — I am SOOOO suprised.
  • Magnetic Levitation (“Maglev”) Elevator to Be Ready in 2008 — Wow. But I’ll let someone else try it first. Either that, or the company CEO gets on with me.
  • Yahoo management: Pigs at the Trough — Kevin at PunditReview, who should consider a career as a stock analyist, questions the actions, particularly the insider sales made by Yahoo! management, against their rosy pronouncements. So do I.

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