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The big news about the housing market is if the prices fall, the equityis gone. Some of these guys think that the effects of 2004, 2005 and2006 are out the window. No, the economy has been riding on theseyears. Problem going forward is that old mother Hubbard is going to goto her mortgage lender, her Realtor and to her bank and find out hercredit cards are maxed out and her home equity account is overdrawn.
Remember,refinances are still running at a pretty high level. Rates are not lowrelative to any time in the past 6 years. At least not low enough tosoak up the roughly 2% of the mortgage balance it takes to refinancethe typical home with no points. I see the refinance index quite oftenand it isn't exactly flatlined. Maybe some of these people arerefinancing ARM's, but where is the equity to refinance ARM's. NO, Ithink they are taking their accountants advice and looking for 1 moretax write off and one more credit spending splurge.
This isn'ta subprime mortgage problem. It is a prime credit card problem and weare about to find that out. One of the 5 guys on CNBC tried to bringthat up, but was hooted down. At least he was hooted down before I camehere to type. Houses are still moving and my guess is the hold outsellers, the ones with the big equities are getting out now. They havean open door, in that they can undersell the market established by therecent buyers who have no equity. In fact, a recent buyer can't sell atlast years prices and only in areas where there was significantappreciation, the prices of 2 years ago. If I had a California home, Iwould sell and rent for a couple of years. That is if I could sell.
Youand I used to debate inflation/deflation Ras. There is a double edgedsword here. On the deflationary side of the coin, I think we are aboutto see the flow of credit get very difficult and I mean very difficultfor a long time. The mortgage game, which allowed all the rest of thisfinancing to grow up around us isn't ever going to be the come and getit game it was for about 8 years. I think the amount of spending oncredit cards is about to collapse. Remember we are probably seeing $200to $500 billion in credit card balances being paid off out of homeequity, either through refinances directly or the indirect refinance ofselling a home to another, taking the money and paying off debt andgetting another maximum mortgage.
The inflation side of thegame that suddenly the door might be open to come to America and cartoff everything that isn't tied down. This includes the foodstuffs wehave, the scrap, the gold, silver and everything else. This wouldpossibly collapse the dollar after all the crap was taken. The savinggrace on this side of the coin is that it requires the foreigners tocut off their nose to spite their faces. If they all dumped theirdollars, they would find no market for them and like most people, theydon't particularly like to create an intentional personal bankruptcy.
Ifthe financing goes, the trade deficits will go with it. The tight oilsupplies won't be so tight and producers will be competing for marketshare. The demand for Chinese manufactured goods will plummet, Wal Martwill swallow their gum and another retailer in the DJIA will sunsetalong with Woolworth. Then we will see the deflation I am speaking of.
Ithink Doug Noland put it very nicely the other day in one of his bestBulletins yet. What he said is that a system like we have developed isaddicted to more and more liquidity. History will say this is asubprime mortgage caused panic, but the truth is it was a Credit Bubbleno matter where you looked and one bad sparkplug was going to cause thevehicle to run off the road and kill all the riders. Hopefully the guysthat got rich off this mess lose every dime they made, either in courtor in collapsed asset values. Of course, that means the rest of us whohave been living in this financial wonderland will be in the same boat.
Remember,refinances are still running at a pretty high level. Rates are not lowrelative to any time in the past 6 years. At least not low enough tosoak up the roughly 2% of the mortgage balance it takes to refinancethe typical home with no points. I see the refinance index quite oftenand it isn't exactly flatlined. Maybe some of these people arerefinancing ARM's, but where is the equity to refinance ARM's. NO, Ithink they are taking their accountants advice and looking for 1 moretax write off and one more credit spending splurge.
This isn'ta subprime mortgage problem. It is a prime credit card problem and weare about to find that out. One of the 5 guys on CNBC tried to bringthat up, but was hooted down. At least he was hooted down before I camehere to type. Houses are still moving and my guess is the hold outsellers, the ones with the big equities are getting out now. They havean open door, in that they can undersell the market established by therecent buyers who have no equity. In fact, a recent buyer can't sell atlast years prices and only in areas where there was significantappreciation, the prices of 2 years ago. If I had a California home, Iwould sell and rent for a couple of years. That is if I could sell.
Youand I used to debate inflation/deflation Ras. There is a double edgedsword here. On the deflationary side of the coin, I think we are aboutto see the flow of credit get very difficult and I mean very difficultfor a long time. The mortgage game, which allowed all the rest of thisfinancing to grow up around us isn't ever going to be the come and getit game it was for about 8 years. I think the amount of spending oncredit cards is about to collapse. Remember we are probably seeing $200to $500 billion in credit card balances being paid off out of homeequity, either through refinances directly or the indirect refinance ofselling a home to another, taking the money and paying off debt andgetting another maximum mortgage.
The inflation side of thegame that suddenly the door might be open to come to America and cartoff everything that isn't tied down. This includes the foodstuffs wehave, the scrap, the gold, silver and everything else. This wouldpossibly collapse the dollar after all the crap was taken. The savinggrace on this side of the coin is that it requires the foreigners tocut off their nose to spite their faces. If they all dumped theirdollars, they would find no market for them and like most people, theydon't particularly like to create an intentional personal bankruptcy.
Ifthe financing goes, the trade deficits will go with it. The tight oilsupplies won't be so tight and producers will be competing for marketshare. The demand for Chinese manufactured goods will plummet, Wal Martwill swallow their gum and another retailer in the DJIA will sunsetalong with Woolworth. Then we will see the deflation I am speaking of.
Ithink Doug Noland put it very nicely the other day in one of his bestBulletins yet. What he said is that a system like we have developed isaddicted to more and more liquidity. History will say this is asubprime mortgage caused panic, but the truth is it was a Credit Bubbleno matter where you looked and one bad sparkplug was going to cause thevehicle to run off the road and kill all the riders. Hopefully the guysthat got rich off this mess lose every dime they made, either in courtor in collapsed asset values. Of course, that means the rest of us whohave been living in this financial wonderland will be in the same boat.
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