bostonbubble.com

[JCK]

[admin]

Hey John P,

Your favorite graph (30 year fixed jumbo) broke above 7% this morning:

http://www.bankrate.com/ ...truncated...

- admin

[john p]

Woof.

Hey JCK:

www.federalreserve.gov/pubs/arms/arms_english.htm

Check out the diagram with the house outline. The Libor has really shot up in the past few years, and really really up just very recently due to the weak dollar and strong pound, so when you add the margin on top of that, I think the adjustment is even more pronounced. So that's a perfect storm for folks with the adjustable rates. Ouch.

here's a good one:

http://online.wsj.com/public/resources/images/ED-AD102A_reyno06282005175821.gif

http://www.urbandigs.com/mortgage-rates-graph-chart-nyc.jpg

This one is cool:

http://www.itulip.com/images/armadjust.gif

[john p]

This might be my best find of the week:

http://www.recharts.com/reports/CSHB031207/CSHB031207.pdf

[john p]

To the guy who is always asking "What does this have to do with housing?"

http://photos1.blogger.com/img/243/2888/640/Vic_cyc_macro_small.jpg

http://photos1.blogger.com/img/243/2888/640/vicious.jpg

[john p]

http://money.cnn.com/2007/08/19/real_estate/mortgage_luxury.fortune/index.htm?postversion=2007082006

Check out the chart of the "two rates diverged". My boy Karl Case thinks this will "take it's toll on the higher end".

[admin]

[john p]

With age, I'm starting to realize that the generation ahead of mine is lead by noise.

People think if you make noise, even if it is baseless, people will react. Sadly, it often works.

Investors learned that you could affect stock prices by affecting the volume of trading. People created their own ripples (noise) and people trade based on the technical noise (technical analysis).

Karl Rove makes the right type of noise. He creates sound bites that resonate. Too bad they couldn't field a team with competence, they wasted all of that political concentration.

The absurdity of today's economy is that the financial industry can pick and choose where the rain clouds are.

It's like this whole generation trades on the sizzle and not the steak.

http://chartingtheeconomy.com/USAHousingBubble12005.pdf

Admin: Are you using the CPI (less shelter)?

If you go back and listen to the Barney Frank / Ben Bernanke hearing, you wonder if they both had different definitions of the word "inflation"

I think that someone ought to ask Ben Bernanke what his definition of "inflation" is.

http://en.wikipedia.org/wiki/Inflation

[admin]

[john p]

Read the "Let them Eat Hamburger" (about 1/4 of the way down)

http://www.shadowstats.com/cgi-bin/sgs/article/id=343

I like your engineering analogy. I wonder what the FED's long term goal is. I'd like the FED to treat housing as an ends and not a means. Housing was the shock absorber for the stock market bubble, housing was used to draw equity to create a "wealth effect" and flood money into the economy.

You can define inflation from a top down or a bottom up approach. Bottom up: housing went way up, gasoline went way up, health care way up, prescription drugs way up, transportation costs way up, etc. etc. except wages. It's like how Mass Housing will tell you that Duxbury performs well in terms of "affordability"; the metrics they used to derive it are bogus.

This housing bubble has made this non-mechanic lift up the hood and study the situation; from what I see the next big thing down the pike is how our Government and banking industry base policy i.e. payouts for Social Security etc.

In my business before we design something we go through a phase called the "Basis of Design". It includes lots of things like what Code you are going to base the design on, what the project goals are etc. How we go about fundamentally basing these indices is the "Basis of Design". They need to be constantly benchmarked against the goals to make sure that the whole system doesn't drift away from its mission (the same way Chapter 40B is being abused today).

Before you go and condemn those who signed up for an adjustable rate mortgage ask you: Did prior generations have to deal with this? Wasn't this batch of folks just at the wrong place at the wrong time in terms of affordability? Wasn't it just 20 years ago where one earner had the buying power to pay the mortgage plus? This "basket of goods" went from a cost of living to a cost of survival like the article says. Greenspan decided that when the numbers didn't look good, he changed the number for steak and converted it to hamburger. Don't you think that changes things? Buying power eroded and the banking industry invented/ created wealth through unsustainable lines of credit and created asset bubbles and when one bubble ended they created another. Blaming the folks with the adjustable doesn't get at the entire cause. It is like they were walking along and fell into a catapult and got launched. I understand full well the risks as I rented about 10 years longer than the average buyer, but many don't know what the fundamentals are for affordability; groups like Mass Housing weren't raising any flags and the banks said it was ok so they were sharing the risk in the transaction right? This should be a wake up call for those ready to retire, watch these indices carefully. It's kind of like how we had a National Guard to defend the homeland and be available for national emergencies and be a reserve for the Military and how that has been twisted to them doing nation building for a country that hates us and being M.I.A. when we do have a national emergency (Katrina).

Because you don't discount housing from the CPI-NU, what affect do you think it may have on your charts?

[admin]

[john p]

Check out the last page. It would be nice to have this for Boston though...

http://www.cbo.gov/ftpdocs/82xx/doc8253/06-22-CPI.pdf

In light of the 15% delta between Warren and MAR, I think it makes sense that people start coming to standard terms of reporting. I mean they are putting the wood to the adjustable folks who have to remain in the penalty box, but regular Joe SixPacks who are extending themselves to find out the information can't get a clear answer from the MAR or Warren who are the "professionals". Why can these folks be wildly off while the non professional consumer needs to pay a steeeeep penalty for a miscalculation? The very very best economist in our country will give you the "I don't have a crystal ball" line, yet the folks who are getting catapulted with the adjustables are guilty for not being able to forecast the economic future. Shamefully, we don't even have the basis for the adjustments articulated anywhere. The guy with the adjustable who has a margin over the LIBOR needed to know how the LIBOR was going to behave? That's a joke. People will let these folks fry because they gambled. At least in a casino you know what your odds are. When I talk to people about how the National Guard got screwed this generation, people say "Hey they signed up for a risk". Well, when George W. Bush was in the Guard during Vietnam he didn't have to go and our country invested quite a bit in him to learn how to fly a plane to kill enemy combatants. He didn't kill anyone. There was a fundamental change in how our Country uses the Military and the Guard. The promise the regular citizens had with the Military was that we would use them as a last resort after all other options were exhausted. Now we use them for nation building so that oil companies can operate more safely in that region. Just like the properties of the fast set epoxy in the ceiling anchors function differently than the regular, the same is true in changing hamburger for steak. People have to pay attention. Further, blaming the glue manufacturer is like blaming the adjustable folks. Step back and ask yourself how did the housing bubble get so out of hand and how were regular folk using common coloquial sense so far off?

I started my house search in 2004 and even loved ones were pressuring me to buy a house (many with college degrees). They offered the whole don't throw money away renting stuff. It was really, really hard to hold the line and not fall for the "you'd better buy before house prices are out of reach". I had a friggin MBA and it was stressful. So what about the guy who doesn't have an MBA or even any business training or knowledge? Mortgage "professionals" told me that forget about PMI, in a year or two you could refinance at a higher appraisal because prices were going up so fast that you'd have your equity with the higher reappraisal when you refinanced in a year. I know that doesn't sound legitimate, but how is Joe SixPack going to know that? Wouldn't Joe SixPack think that there were limits to the amount of bullshit that a salesman could tell you? Wouldn't these "professionals" need to adhere to some professional code of conduct mandated by the Authority having Jurisdiction? Was Joe Six Pack supposed to know that it was "prison rules"?

Although I strongly don't believe in any bail out, I do think that the punishment that many will get is well beyond the "crime" they committed.

[admin]

[john p]

Further, the fundamentals for a refiance should be based on three things:

first: the credit worthiness of the borrower

In this scenario, more people are going under because the adjustment was so pronounced. If the adjustment was reasonable we wouldn't have this trouble.

second: the value of underlying asset being borrowed for

If the MAR say that things are rosey what basis do the banks have to assign this sort of risk for loss?

third: the cost of capital

Why can the Chinese government borrow at a lower rate than hard working Americans? Is a communistic government more credit worthy than an American worker?

http://dictionary.reference.com/browse/capricious

These wild, caprious adjustment should not be happy times for buyers waiting in line. We're throwing out the baby with the bathwater in many instances. If it was reasonable, the true lightweights would be shaken off the tree and the adjustment would happen in a healthy manner. Don't be happy to see this overreaction for it can cause a recession which will hurt everyone. Again, the adjustment/correction could either be a healthy adjustment or create a recession.

[john p]

This kid needs a new wardrobe.

http://en.wikipedia.org/wiki/Image:Casey_serin.jpg