Beat Down: 10 Year Treasuries
Chuck Ponzi June 12th, 2007
The most recent selloff in the market is due to a correction of sentiment related to the FED’s next move. Previous to last week, it was widely believed (incorrectly) that the central bank’s next move would be a move down.
If you ever wanted to see a credit even happening in real-time, this just might be it. And it doesn’t bode well for the housing market in affordability-crunched housing markets like Socal.
To put it in perspective, this is the 10 year 5 day chart:
It doesn’t get much scarier than that in the bond market. All risk is being repriced. Which makes me wonder why I’m still seeing advertisments like this one on Yahoo finance.
Is it just that they had already allocated the advertising dollars?
However, just as importantly, the news out on the street is that the foreclosure numbers for California could be as high as 3 times the amount last year: A stake through the heart of the bubble apologists. Total nationwide, they are up 90% from last year.
But, to hear it like the MSM tells it, there is a balanced story in all cases:Â Brian Wesbury from First Trust Advisors squares off against Nouriel Roubini.
Foreclosures were up 19% in May from April and up almost 90% from May 2006, though First Trust Advisors Chief Economist Brian Wesbury thinks foreclosures won’t have much of an effect on the housing market.
He said the peak in the housing market already occurred in the fourth quarter of last year, as there was a 1.2% subtraction from gross domestic product.
“I think the worst is behind us,” Wesbury said.
However, RGEMonitor.com chairman Nouriel Roubini thinks the worst is actually ahead of us.
He said that foreclosure is only one channel of four that puts pressure on home prices.
The other three, he mentioned, are the credit crunch subprime that causes demand for new homes to fall, falling of home prices that causes people to sell homes, and maturity of adjustable rate mortgages at higher interest rates, which people won’t be able to afford.
Nevertheless, Wesbury thinks that “we can absorb these losses. It’s going to be painful, and there’s still some losses to come, but it’s not the kind of thing that will drag the entire economy down.”
While Mr. Wesbury may be right for the overall economy (I wouldn’t hold my breath), it certainly cannot be the case in our real estate centric economy of SoCal.
Any way you look at it, Wesbury sums it up: “Rates are still low” and “it’s going to be painful”. Roubini says: “There is a credit crunch in subprime.” You decide what is going to happen in the future. Neither of them were bullish on housing, just a question of the overall economy.
Which, once again, begs the question, what should we call this summer. Since I already used the term “Spring Smackdown ‘07″ which included a Subprime meltdown, a bond meltdown, and a stock market schizophrenia, the Summer of ‘07 needs a catch name.
Any suggestions?
Subprime meltdown? By my understanding, close to one in 100 homes have been affected by this “meltdown”. Foreclosures up 90%? So does that mean two in 100 homes? Statistics can be used to paint whatever picture the painter wants, depending on the painter’s context and motivation. Maybe this is the tip of the iceberg, or maybe it is simply the effect of loose lending policy. Certainly, subprime lenders are having a tough time making money right now.
Should we call it, “Moderate and predictable Summer ‘07″? Or maybe “Real Estate is a long term investment so paying attention to short term numbers is being a speculator - Summer ‘07″? To be serious, I am not fortune teller. If we are talking residential then buy for the tax benefits, for the lifestyle, for the cash flow, but not for the appreciation for the next few years. I will leave the future to the psychics.
Rarely do we see someone so willingly and naiively push back from saving money.
Oh well… you can lead a horse to water, but…
If you think it’s impossible to see the future, what do you make of my 2 years of predictions, and my future predictions that the housing market will not bottom until 2010 or 2011? All lucky guesses? The endgame is clear to see if you’re willing to take a closer look.
You’re right about one thing… taking headlines for fact without a filter is suicide. But, it appears your filter is rose-colored. There is most certainly a beatdown happening. In times of crisis, little girls run and hide. Let the real leaders profit from it and stay out of our way.
Chuck Ponzi
I had a similar experience with my next door neighbor whom I do not know very well. His family is buying in North Rancho Cucamonga– a new house. He got “a good deal” presumably because he got some incentives on the quality of certain upgrades. I’m happy for him that he has the delusion that he is doing a favor for his family. I’m not sure how they can afford it, but what really strikes me is his statement that “housing always goes up… someday those houses are going to be worth MILLIONS! You just need to be willing to stay somewhere for a long time to realize the profits.” He also thinks our area where you can barely have a conversation because of freeway noise is a “nice area.” Ummm, really?
Yeah, ok. Umm, who is going to buy the (albiet nice) tract home on a 10,000 square foot lot with minimal back yard in 30 years when everyone else wants to sell the same house with a slightly different address for MILLIONS of dollars.
Are we all truly expecting the median income to be hundreds of thousands of dollars to afford all these expensive houses.
I think there is another gimick going on…. there is an auction of 7 houses highly advertised in our local paper coming up next weekend. They are houses on one street that they basically stopped work on. They are big, almost done, but are being sold as is. Shoddy workmanship with poorly kempt garbage filled property across the street. Minimum bid 695,000. It will be very interesting to see what happens with these silly ways builders are trying to move property. I, for one, hope no one shows up.
Buy for the tax benefits? I don’t care how much tax I save if I LOSE WEALTH over the long term. The tax benefits should be considered, of course, but when I look at the numbers in my price range, the tax savings doesn’t come close to sway the rent vs buy equation. Houses are still WAY overpriced in Rancho Cucamonga. Funny how the real estate section slants things. Last week it suggested that real estate agents are having to suggest lowering prices and that there is “some resistence” to doing this. No S***! Prices have plateaued in some bogus hope that we’ve hit bottom and guess what people, ALMOST NOTHING IS SELLING! Lots of needlessly thirsty horses…
LOL those unfinished shacks are worth maybe $200-250k. If anyone buys one, they will probably end up foreclosed in a couple years.
OT-Seven Sizable Summer Slide
I like OT-Seven Sizable Summer Slide, but how about Slip ‘N Slide Summer ‘07
If you are interested in seeing another dead canary, check out bike trader (or any other trader) magazine. They are getting extremely thick. This means the toys are being sold to lighten the ship. Check out your local carwash (except in Newport beach) — not as many brand new cars.
how about “Summer When I Should Have Unloaded This Overpriced Albatross But Didn’t and Now I’m Stuck With it for the Next 5-7 Years ‘07″… too on the nose?
Chuck,
This could easily go a heck of a lot longer than 2010-2011.
The Second wave of that Credit Suise chart goes on into 2010 and has been building with the last remains of the funny money.
The legislature has been proposing changing lending standards.
There is a significant possibility for population to begin decreasing.
Also based on the last couple of bubbles the pricing continued dropping for a long while in to an overshoot.
Not to mention the overall larger credit effect you have been watching for.
The population effects could be the big killer. Bubble of boomers into retirement starts increasing and doesn’t stop till 20 years from now.
I am really looking at real estate as a bad investment for 20 years.
I recently became a regular reader of this site after being tempted by concessions builders are giving. However, my gut was telling me to be patient because this was just the tip of the iceberg. I have found this site a great source for balanced info and commentary.
Here’s a question. Based on everything I’ve read, the dollar will continue to weaken in real terms. I have cash for a down payment that I have invested in various stocks and index funds (heavy on international equities) until housing prices fall back down to earth. Any other suggestions on protecting my hard-earned money from the falling dollar? Unfortunately, I believe protecting yourself against inflation is not enough now.
doing the same thing. In metals, look up these funds on yahoo finance or wherever you do finances.
Gold = GLD
Euro = FXE (appreciation + 2.25 interest)
Gold & Silver = CEF
Gold stocks = GDX
British Pound = FXB
Aussie Dollar = FXA
That should get you going.
How about we call it the “Summer Slam”!!
Boy that rate reset is going to be UGLY.
What a shock that this thing is playing out just in time for the toxic loans to go non-linear.
Blockbuster Summer Show!!!
When third quarter numbers are in and only a few win, the end is really starting to begin. I have forecast the possibility of 50% price drops to my clients for the past two years and I still believe unfortunately that the figure could get even higher than that with rising interest rates.
If you check what prices were before the bubble and adjust from there at 4% annually, prices may go from $500k to $200-250k
It’s the Summer of 2007…
You are now entering…
“THE TWILIGHT ZONE”