Archives: 2007 October

The National Association of Home Builders (NAHB) is looking forward to a modest housing market recovery for 2008. The NAHB forecast is quite a bit more optimistic than the 2008 future that I see for the US housing market.

Keep in mind that the speakers at the NAHB conference are probably paid by or are working for the NAHB in some way. It probably wouldn’t be in their best interest to be too gloomy. My own opinion is that the speakers are being far too optimist about the consequences of the spread of the toxic waste mortgages from the sub prime mortgage disaster. For example, Merrill Lynch just reported a $8 billion Dollar loss from its mortgage loan portfolio.

The problem is that it is not just the sub prime market loan category that is experiencing problems. The loan packages that financial institutions purchased from investment bankers have proven to be far more risky than anticipated. Now no one wants these loan packages. It is hard to place a value on billions off dollars in mortgage packages that no one wants to purchase. These investments have become about as liquid as a rock.

No one knows just how many additional “Merrill” like situations are out there but you can be sure that there will be further massive writedowns and losses in the worldwide financial community. I seriously doubt if the NAHB forecast will be accurate. My own believe is that home builders and the US economy will take a major hit in 2008.

The ripple effect of subprime mortgage loans has a long way to spread with greater troubles to follow. The fact that “vulture” investors are still for the most part staying away from the troubled mortgage loans is a sign that they have further to fall according to CCN News.

The fact is no one wants to touch these loans now and there is little to no liquidity in the sub prime housing mortgage market. Even worse the ripple effect is effecting credit and credit ratings right across the board.  Huge losses are being reported by market participants, like Merrill Lynch, that has reported losses of almost $8 billion of mortgage and related assets.

$8 billion is one hell of a loss to absorb, even for a financial industry giant like Merrill Lynch. The big question now that overhangs the mortgage loan market is how many more Merrill like situations are there still unreported?

Meanwhile, the vultures wait while the ripples spread through the financial world.

The bad news continues for a weak housing market. The number of vacant homes for sale rose in the third quarter, according to the latest government report that casts a harsh light on the weakness of the housing market nation wide.

The Census Bureau report puts the number of vacant homes for sale at 2.07 million in the third quarter, up about 2 percent from the second quarter, and 7 percent above year ago levels.

“It’s really striking how high that is compared to historic levels,” said Dean Baker, co-founder of the Center for Economic and Policy Research. “It’s a lot of homes sitting there vacant. It’s very hard to see how we’re near a bottom, when you have that much excess supply.”

In addition, Baker said that “owners trying to sell the vacant homes are going to be very motivated sellers, since it’s difficult to carry the cost of a home that isn’t having any use. That will drive down home prices and values for all homeowners. The problem is likely to get far worse as the problems in the mortgage markets could cause problems if foreclosures increase as expected.”

Over the years home owners and real estate investors have been brainwashed to believe that real estate values can only go on way, up. That may be true over long periods of time but history shows that there are time periods when real estate values can decline 40% to 50% amd more and take decades to recover value.