It seems like it should have been obvious that these kinds of trouble were going to appear: Greenspan says that Fannie Mae and Freddie Mac have expanded the portfolio of loans their financing too far ($4 trillion) — so far that the risks could not be adequately hedged in the event of a financial crisis. They’ve been able to do this because, as government sponsored entities, they’ve been give better terms because many believe the government would bail them out in the case of trouble. However, this has never been stated and may not be true.
It seems like this might start mortgage rates heading north — that money that seemed so easy to make on mortgage refinancing may not turn out to be so easily made.
Tom Peters has a list of 16 hard truths about off shoring. I found the list thought-provoking. These two were my favorites:
9. Big Companies are off-shoring/automating almost exclusively in pursuit of efficiency and shareholder value enhancement. (This is not new or news.)
10. Big companies do not create jobs, and historically have not created jobs. Big companies are not “built to last;” they almost inexorably are “built to decline
There are also some quotes at the end that are worth a read.
Greenspan has taken a look at the health of the average household balance sheet — He likes what he sees.
Decades of low interest rates and extra cash from refinancing have given people flexibility to better manage their debt, the Fed chief said in a speech to a credit union conference.
While elevated bankruptcy rates in the past several years are troubling because they highlight the difficulties some households experience during economic slowdowns, Greenspan said that “bankruptcy rates are not a reliable measure of the overall health of the household sector because they do not tend to forecast general economic conditions and they can be significantly influenced over time by changes in laws and lender practices.”
Most importantly, I guess, the share of income devoted to paying interest+principal on household debt has remained relatively stable over the past couple years, despite increasing debt loads.
Home mortgage refinancings and a solid rise in home values helped to bolster consumer spending during economic hard times as well as during the recovery, Greenspan said.
“Over the past two years, significant increases in the value of real-estate assets have, for some households, mitigated stock market losses and supported consumption,” Greenspan said.
Last months housing numbers are out; looks like housing prices are still rising.
In the San Francisco Bay area, the median price paid for a home in January was $443,000, up 9.7 percent from last year and down 3.3 percent from December.
Year over year price increases have been running around 10 percent since October, DataQuick reported.
So prices were down from the prior month, but that likely reflects a seasonal affect. The rate of increase has been down to 10% from the 15% of previous years for the last three months. I’d be curious to know how much of that 10% accrued in the early months of the preceeding year.
The article also points out that mortgage interest rates have actually decreased in the last couple months. So, that is still providing fuel to the housing increases.
CNN.com has a story about how some rental markets are down significantly from last year, despite rising house prices.
In areas where the rental market has really taken a beating, such as Atlanta, Denver and San Francisco, landlords are desperate. Not only are they making concessions on rent, they’re offering freebies — DVD players, televisions, vacation packages, even the chance to win a year’s free rent.
In 2003, rents in the San Francisco Bay area fell 6 percent, according to M/PF Research and Torto Wheaton Research. In Atlanta, rents declined 4.5 percent, and in Denver they’ve come down 4.3 percent.
Private Mortgage Insurance is insurance that you have to buy when you cannot put down a minimum percentage of the house price as downpayment. Obviously, people who offer PMI are going to be keenly sensitive to house price futures as that determines their worst case should the buyer default on the loan.
The East Bay Business Journal has an article about the Q4 rise in the PMI Risk Index. A rise indicates increasing likelihood that house prices will fall. Overall, the rise looks fairly mild. Here’s the reasoning:
But PMI analysts reported that despite continued home price appreciation, a lack of significant job growth or a premature tightening of monetary policy by the Federal Reserve could hinder future economic growth. Despite strong economic growth, businesses have not started to strongly engage in the hiring process. Employment growth has disappointed the expectations forecasted by economists.
With a rising government budget and trade deficit, an expanding U.S. economy, a devaluating dollar, and increasing commodity prices, many economists are suggesting that the Federal Reserve will tighten monetary policy in the future.
An article in the San Mateo County Times discusses the main trade off many Bay Area house buyers make — commute vs. cost. It seems like crime and schools are the other two big factors, at least in the Oakland/Berkeley area.