Tuesday, February 27, 2007

Central "Subprime" Valley

From the Wall Street Journal:

Fears about defaults are slowing the gusher of investor funds going to riskier segments of the mortgage market. That means less money available for "subprime" loans to riskier borrowers, forcing lenders to focus more on borrowers who can afford down payments and have well documented finances. With fewer lower-income Americans able to buy homes, downward pressure on prices will probably increase.
In a recent report, Keefe, Bruyette & Woods analyst Frederick Cannon said "constraints on lending to first-time home buyers are likely to prolong the housing downturn" by limiting sales of entry-level homes, making it tougher for the owners of those homes to trade up.

Nationwide, 16 percent of the home-purchase loans issued in the first half of 2006 were subprime, the Mortgage Bankers Association says. The impact of the tightening likely will be bigger in markets that were more dependent on subprime loans. Such mortgages accounted for more than one-third of such loans in some California markets, including Stockton-Lodi, Modesto and Merced; in Richmond-Petersburg, Va.; and in Miami, according to First American LoanPerformance.

Nearly two dozen subprime lenders have been acquired or shut down in the past year, "with another dozen on the ailing' list," a recent Credit Suisse Group report says. Cumulative losses on subprime loans could exceed $10 billion over the next two years, the report says.

Reporting a loss for the most recent quarter, subprime lender NovaStar Financial Inc., said last week that it had raised the minimum credit score needed for loans with low down payments, among other tightening steps.

"We're probably reverting back to guidelines that were in place" four years ago, NovaStar President Lance Anderson says. The new guidelines wouldn't have allowed as many as 25 percent of last year's loans without more documentation or bigger down payments, he adds.
From the Merced Sun-Star:
Merced's median home price fell to $325,000, down from $363,000 during the same period in 2005. The median price peaked at $376,000 in the second quarter of 2006, according to NAHB statistics.

Merced County Association of Realtors President Scott Oliver called the price drop a sign that sellers of older houses are becoming more realistic about the competition they face from new housing inventory.

"The sellers have gotten the message now that they have prices a little high," Oliver said. "(They) fought reducing their prices for about four to six months."

As new subdivisions remain flooded with empty inventory, builders are offering more and more incentives to sell houses, Oliver said...In response, sellers of "resale units" -- houses that have been on the market before -- are finally lowering their asking prices, he said.


Sippn said...

Investment money coming out of the subprime market has to go somewhere ..... where?

Also money coming out of the stock market today will have to find a "home".

Perfect Storm said...

Freddie Mac (NYSE:FRE) today announced that it will cease buying subprime mortgages that have a high likelihood of excessive payment shock and possible foreclosure. The GSE said it will only buy subprime adjustable-rate mortgages — and mortgage-related securities backed by these subprime loans — that qualify borrowers at the fully-indexed and fully-amortizing rate.

Freddie following Fannies trail. Subprime will be history soon enough.

Cheers to the death of subprime liar loans.

Were on track for a 50% decline by 2009.

Housing Doom 2007.

lexi said...

Investment money coming out of the subprime market has to go somewhere ..... where?

Also money coming out of the stock market today will have to find a "home".

anti depressants would be a good
stock to invest in I think.:)

Perfect Storm said...

Hey Sippin watch gold hit $1600 an ounce in two years. This it the last thing Wall Street wants to hear.

Perfect Storm said...

Merced's median home price fell to $325,000, down from $363,000 during the same period in 2005. The median price peaked at $376,000 in the second quarter of 2006, according to NAHB statistics.

Ok for real now has anybody been to Merdead? $325,000 for a house in that crap hole, come on.

Jeff said...

Sippin, you've got to be kidding, right? You're insinuating that RE will reap the loses in the market. No way! This is not March of 2000. Investors aren't stupid, they want returns on their money. Prices are way too high to flip homes or have rentals. Take a look at the article posted today in Merced. It's the 3rd least affordable housing area in cities under 500K people. Do you really think investors will flee stocks to get into that market? You're crazy. Smart money will short the market or stay on the sidelines. I don't know ANY reputable investor or advisor telling people to run to RE for safety. That's a very irresponsible statement to make.

TheObserver said...

sippn seems to be sippn some Gin and Juice...

Some people, no matter how much the numbers make sense, can't accept the crash is here, and its far from over! So glad I am renting!

Diggin Deeper said...

tikgfThe London Times reported a couple of days ago that the US real estate market was in meltdown due to the subprime implosion. The talking heads on CNBC make subprime one of their key talking points daily. 22 subprime lending institutions have bellied up and HSBC has sidelined over $5 Billion in loan reserves to cover their losses and they're not sure if this is enough. Freddie Mac in effect wants to destroy the subprime prime borrower which would take one in four borrowers out of the market. All this doesn't account for all the hybrid loans made to the prime market that will continue to reset over the next several years. High Yield Bond funds have purchased $Billions of subprime collateralized debt in order to sweeten their portfolios. I wonder how many of the socalled quality rated Freddy and Fannie bond funds hold these debts as well. I wouldn't be surprized to see many either belly up or have their net asset values crater taking the unsuspecting investor with them.

And now is a good time to buy?

Sippn said...

Nope - didn't say that folks.

Was just wondering where the money will be invested now that the big money is flowing less to the subprime market, less to the stock market and less to gold as of yesturday (stocks and gold down 3%)

Didn't have any propaganda angle in mind.

Gwynster said...

I think there is lots of money that is just lost.

I will say that I think bio-med will jump even more. Perhaps the money will go there. My email is getting flooded by people looking for folks like me that have clinical trials and scientific research in their background. It's starting to feel a little like the tech boom again.

Jeff said...

Oh come on Sippin, you were hinting heavily that money would go to RE, why else would you have said that, especially since you put the word home on quotes. Smart money is no where near RE.