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Housing market downturn could lead to a recession

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!bank_owned!
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Countrywide CEO says housing market downturn could lead to a recession, urges cut in Fed discount rate.

There is a "very serious situation going on" in the U.S. housing market, Mozilo said. "This environment is certainly not getting better."

http://money.cnn.com/2007/08/23/news/companies/countrywide_ceo_outlook.reut/index.htm?postversion=2007082312

This rocky road is only going to get rockier. HOLD ON TIGHT FOLKS!!!

August 23 2007 - US

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Aldreth
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Yea, and definitely don't listen to anything I have to say. :P

August 23 2007

Randy_H
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Actually the housing market isn't directly likely to lead to a recession. It's not the housing bubble that risks the consumption/savings ratio. It is the credit bubble, which many argue is the real bubble and housing prices are just a symptom of insanely under priced credit.

Americans have little savings. As far as GDP measures go, which is how recessions are measured, your house counts as savings, not investment. So Americans consume based on either direct credit as in credit cards, or indirect credit as in housing inflation cash-outs.

Interest rates aren't even that relevant, despite all the hoohaa. Rates can go down even while credit gets tighter -- this is already happening now. Tighter credit means less discretionary spending, means lower house prices, means even less discretionary spending.

That's the chance of recession. Or, to sum it up, when no one is willing to lend a fool money to buy stuff with, the fool can't buy any more stuff.

August 23 2007

Aldreth
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"It's not the housing bubble that risks the consumption/savings ratio. "

http://bp3.blogger.com/_8m7jYiLM_DI/RmhPXRmsCMI/AAAAAAAAAKU/vfAeG7HFVtc/s1600-h/savingrate.gif

http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif

OK yah, I definitely don't see a resemblance here. /sarcasm off

August 23 2007

Aldreth
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American's refi, that is where the majority of their cash comes from. Take away the REFI, you take away the credit. The bubble pops. boom bang owie.

The average american has 8k in credit card debt. Surely not enough to make anyone cringe. Yet the same average american owes the bank well over 100k for their house.

August 23 2007

klarek the realist
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No credit + no equity means less consumer spending. You know, the spending that kept our economy "alive" that everyone credits to Bush's tax cuts.

August 23 2007

Randy_H
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aldreth

Do you read more than the first line of anything before you reply? If you had you might have realized that I was agreeing with you but putting it into terms that will overcome what the perma-bulls will say (semantically correctly) in the mainstream media.

Follow my link and read a bit before turning on your sarcasm flag. Open discourse betters us all.

August 23 2007

Randy_H
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Here's another for you, which isn't just a regurgitation of the Shiller work. I took Shiller's data, interpolated HSBC "Froth Finding Mission" 2005 report data, and then narrowed it to a zip code in San Mateo county. The following is a statistically valid regression analysis:

http://randolfe.typepad.com/photos/uncategorized/housing_projection.jpg

August 23 2007

!bank_owned!
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Interesting...bottoming out sometime in 2011 w/ 43.5% in price reductions...that's a long time from now. I was always of the camp that estimated 30% reductions, and that the bottom would be reached in late 2008/early 2009. I think 2011 is a bit too long for this correction to drag on. Most times when the bubble pops the popping phase happens quickly (in relative terms) than it took to grow. Aldreth is predicting 50%, much more inline w/ your estimates.

August 23 2007

Kary L. Krismer, "Krismer"
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Kary L. Krismer, "Krismer"

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I was actually where I could watch CNBC for the past couple of days. What a waste of time!

Anyway, I saw that interview. I don't really find it shocking that he said what he said about recession. He wants to put pressure on for things to happen that will also benefit his company.

I also wasn't surprised he said his company wasn't any closer to bankruptcy than it was 6 months ago.

I did appreciate his calling out the Merril Lynch analyst for raising the bankruptcy issue--I do agree that was irresponsible given the state of the market at the time. I haven't checked, but he claimed the analyst had a buy rating two weeks ago. If that's correct, rather obviously the ML analyst has no special insight into Countrywide.

August 24 2007

aBT2B
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kary,

right now,

we are in the early stages of a major national credit borrowing equity loving home owner's bubble popping problem.

the numbers of foreclosures that are showing up right now is alarming.

but these are just the beginning.

it's like the movie titanic when the boat hit the iceberg.

the problem first shows up for the poor peoples at bottom of the boat first drowning them all.

then those deadly waters slowly rises to the top.

which, will ultimately, sink the entire ship...

it is happening kary.

and you will be next in line too, if you have a big equity/loan debt with no income coming any time soon.

August 24 2007

Kary L. Krismer, "Krismer"
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Maybe that's the way it will work out, or maybe things will adjust. Things adjust far more often than they collapse.

August 24 2007

aBT2B
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if by adjusting, you mean, losing your home, i'm sure it will adjust just fine.

August 24 2007

Kary L. Krismer, "Krismer"
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Not what I mean at all. What I mean is requiring higher credit scores, better documentation of income, etc.

The past loans will probably remain tainted, but the newer loans will hopefully be seen as better.

BTW, it's easy to make predictions. Most predictions are, however, wrong.

August 24 2007

aBT2B
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and by requiring higher credit scores,

i'm sure this market will be flooded with buyers.

good luck trying to find a qualified buyer.

August 24 2007

Kary L. Krismer, "Krismer"
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Depends on the market. Lower credit scores are mainly the lower end of the market, and for that they have state programs locally. And there's also the VA route, which presumably will become more popular again.

I am a bit worried about the jumbo market getting sorted out, but only because they apparently use the same number nationwide, which doesn't make much sense.

August 24 2007

aBT2B
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there is alot of things to be worried about.

it is time your virgin eyes gets ready for the horrible world we are about to face.

watch the news.

August 25 2007

Kary L. Krismer, "Krismer"
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jv0704,

If you ever see a news report on something you know about, you'll realize how little value the news has. I only watch it do know what people are being taught to think.

I think you said you were a software engineer or some such thing. Find a magazine review of a product you worked on, or at least are familiar with. Chances are you'll disagree with a lot of that review, and think that the person who wrote the article didn't really understand or know the product. It's the same with everything else the press covers. They are not experts at anything, and typically mis-quote (or quote out of context) the "experts" they do find, to create a totally distorted picture.

August 25 2007

aBT2B
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usually on the IT side, it is pretty much on the spot.

there is nothing to hide or disfigure.

because when it comes to benchmarks, numbers don't lie.

if we see a 3 month trend of something going down,

it means it's going down

August 25 2007

teardowns dotcom, "Teardowns.com"
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teardowns dotcom, "Teardowns.com"

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Of course, most people are sheep and follow what the media says and nothing else...

August 25 2007

aBT2B
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it's not the media.

it's a national phenomenom.

just go talk to one of your clients,

who probably are already foreclosing because they have been the ones who were hurt the most in the last 2 year or so.

but be warned, they probably really hate you about now...

August 25 2007

mikefarinha
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Hey Randy,

Interesting graph:
http://randolfe.typepad.com/photos/uncategorized/housing_projection.jpg

I would like to see the same graph with an overlay of interest rate trends, it might be a bit more informative.

August 26 2007

aBT2B
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wow

thats crazy

im almost at a loss of words right now

August 26 2007

Kary L. Krismer, "Krismer"
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You'd need to be rather gullible to have that graph impress you at all. I mean really. The underlying graph is extremely questionable, but then to just have someone draw a line projecting the future and be impressed, that shows something.

August 26 2007

aBT2B
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no,

but what it shows is that you are in constant state of denial.

stubborn could be a better word.

August 26 2007

Kary L. Krismer, "Krismer"
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aBadTime2Buy,

I'd suggest you go off and do whatever you do with computers, because it's possible you actually understand that. You clearly have no level of comprehension here. You're just a waste of bandwidth here.

August 27 2007

joannab3884866
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I really hate to sound like a broken record here (no I don't) but.....

http://www.nytimes.com/interactive/2007/08/25/business/20070826_HOUSING_GRAPHIC.html?ref=patrick.net#

Home prices are free-falling. Denial is rampant.

August 27 2007

Kary L. Krismer, "Krismer"
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Free-falling? You really like to exaggerate, don't you.

August 27 2007

Aldreth
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"Aug. 28 (Bloomberg) -- Home prices fell by a record amount in the second quarter as sales fell and mortgage lenders made it tougher to get a loan."

By a record amount, I would say free-falling is an accurate statement.

August 28 2007

Kary L. Krismer, "Krismer"
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aldreth, please start posting links:

http://money.cnn.com/news/newsfeeds/articles/prnewswire/NYTU06528082007-1.htm

BTW, in the Countrywide thread I think I guessed at the beginning that we were down 3%, so these numbers aren't terribly shocking. I wouldn't want to be a seller in Detroit, however!

BTW, did you notice the Seattle numbers? ;-)

August 28 2007

Kary L. Krismer, "Krismer"
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BTW, I think the stock market was off 10%, but at no point would I have described its state as "free-falling."

August 28 2007

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