HOME PRICES CONTINUE TO PLUNGE IN OCTOBER
Clear Capital released their monthly Home Data Index Report today and it showed continued deterioration in national home prices. Prices are now off -6.8% from their August peak. It looks to me like the housing double dip is here and Ben Bernanke rolled out QE2 just in time to prepare for massive MBS purchases in 2011 when the banks hit another rough patch (via MarketWire):
Report highlights include:
- Micro Market Analysis: The Washington, D.C. MSA bucked negative national home price trends, posting positive quarterly and yearly price changes.
- Metropolitan Statistical Area (MSA) drilldown: Local markets exhibited wildly differing sensitivities to the current housing climate: some in the South and Midwest regions are in double-dip territory, while bright spots emerge on the East Coast.
- National/Four Region Overview: National home prices have changed -5.0% quarter-over-quarter. In fact, looking at national home prices since their mid-August peak, price declines are even more dramatic, changing -6.8%.
- Home prices as a nation remain 7.7% above their 2009 lows, but six of the largest local markets are presently experiencing a home pricing double dip (defined as prices dropping below their record lows experienced at the worst of the housing market crash).
“Although nationally, price trends are showing significant decreases, it is critical for policy makers, investors, and other users of home price data to understand that price dynamics at local levels differ significantly from the macro trends,” said Dr. Alex Villacorta, Senior Statistician, Clear Capital. “Our Home Data Index is unique in its ability to provide timely insight across price tiers — at both national and local levels.”
“For example, all six major metropolitan areas in California are out-performing both national and West region numbers in terms of yearly gains,” added Villacorta. “Conversely, four of the top markets in Florida are either in or very near double-dip territory, even though national prices remain nearly eight percent above 2009 lows. So, while national home price trends gauge overall home price movement, regional, metro and local housing markets will continue to respond differently to distressed inventories and national policy.”
Cullen,
One question I have is why/how is Bernanke “bailing out” the banks by paying them overnight reserves (in exchange for Tsys) when lending isn’t reserve-constrained to begin with, as you, Mosler, Mitchell, et al. assert? In other words, how do the excess reserves help the banks in the event of looming asset write-downs?
Thanks,
Scott
Removing MBS from the bank balance sheets is a proactive step in avoiding another credit market debacle.
They don’t. This dude is just making up crap as he goes along. There is no evidence that banks are toast next year although there is the possibility but only very slight. It’s just jerking from one conspiracy theory to another.
No one said the banks were “toast” next year. Do you think home prices will have no negative impact on the bank balance sheets? I think it’s pretty obvious that lower home prices will negatively impact the banking sector. I am simply connecting the dots. Clear Capital says prices are double dipping. Do the math. There’s no conspiracy in this at all.
As long as the gov’t continues to allow banks to hold non-performing loans at historic valuations instead of marking them to market (wiping out the capital they use for reserves) AND the gov’t continues to subsidize bank earnings through a 0% interest rate subsidy allowing capital to flow into banks income statement, everything is hunky dory.
If the governments subsidy were to stop and real estate marked to market banks would be worthless.
Time will tell.
My favorite aspect of Hussman’s piece this weekend was the political reminder that by buying MBS or any non-treasury asset, Bernanke is knowingly (per his comments suggesting Japan do the same) side-stepping Congress to actively conduct his own fiscal policy, an act of unconstitutionality.
This is what Beck and Palin should be harping on, because it’s very relevant to their audience.
Different subject…you see the blow out in Euro spreads/CDS again this morning; my favorites are the Spanish/Italian ramps, both of which are at highs not seen since early July/mid June when global equities were withering.
Coupled w/ the recent precious metals decoupling from the dollar, it looks like a big Euro news event is almost, shall we say, imminent.
It really is amazing that we continue to see the markets higher while the number one asset of the normal American drops rapidly in price. I was talking with some clients a few months back and said we will see if housing is as big a part of our economy as I think it is. Well so far I am dead wrong if the market is the barometer. But I also respect the lag affect and think in a few more months, we will be in a very difficult position.
Cullen, your belief that QE2 is a backdoor bank bailout seems very likely.
I feel like a genius – no matter what I go long I immediately get paid.
Un-stop-a-bull.
Until the party is over I might even venture to use the word ‘impossible’ when describing the likelihood that the market goes down, and I’m a believer we are deep in a structural bear market.
Weird, weird times.
just a stupid question, when Bernake is buying MBS, is FED ever going to admit their losses on this paper?
“Then there is the issue of exit policy. The more we engage in a policy of asset purchases that moves us further out the yield curve—and the more we laden our balance sheet with price-sensitive assets—the greater the likelihood of realizing a loss on our holdings. One can model out some of this risk and conclude that the coupon stream of the securities we will be holding will protect us against capital loss under reasonable price-reversal scenarios. But if unreasonable scenarios prevail, I shudder at the prospect of the Chairman or any other members of the FOMC appearing before the House Banking Committee in 2012 to report that the central bank of the United States has generated a loss of X billion dollars.”
Richard W. Fisher, president, Dallas Fed
Remarks before the Association for Financial Professionals
San Antonio, Texas
November 8, 2010
http://www.dallasfed.org/news/speeches/fisher/2010/fs101108.cfm
Personally, I believe this is one of the reasons they are buying all these Treasuries. The overt reason is lower yields, QE, yada yada, but a covert reason is they are legally set up as a corporation that needs to show profits, however small.
Bingo. I expect low rates for the near term, probable continued financial troubles in Europe, to be followed by rising rates in the not too distant future. Accordingly, I am long stocks, short treasuries, short the Euro, and long the dollar. I don’t have much in the way of commodity exposure beyond a few energy stocks. I am busy buying rental houses while rates are low.
I will probably lighten up on stocks and short PMs for the near term, and hopefully have a chance to
TPC you have not said the banks were toast next year, but Chris Whalen has. He has said they are already losing money just managing the housing inventory on their books now. William Black ha also said that BOA is insolvent and should be taken over by the government now and restructured. This is probably why Bernanke has come out with QE2, to avoid several of the big banks failing.
TPC – Bill, honestly, I don’t know if there is anyone out there smart enough to understand these bank balance sheets and I certainly am not pretending to be smart enough….
What’s going to happen to all the worthless MBS the Fed takes on to its balance sheet to save the banks? Can they ever unload it? To whom? When? Will they “ex nihilo” it as they did the cash to buy it?