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U.S. housing woes may bode ill for Canada (this one is for Canadian, but provides some bond buying insight)
http://www.theglobeandmail.com/servlet/story/RTGAM.20060501.webstmain29/BNStory/SpecialEvents2/home
CAROLYN LEITCH
From Saturday's Globe and Mail
People in cities all over North America have stories to tell about the jaw-dropping prices purchasers are paying to buy a house these days: One house hunter in Toronto last week found an appealing, traditional family home with an asking price of $1.9-million.
It was in the pleasant Lytton Park neighbourhood with a swimming pool in the leafy backyard, so she considered making an offer well below the list price, which even some real estate agents admitted was a bit rich. Before she had the chance, the house had sold for $2.15-million -- the first day it hit the market.
South of the border, the stories have a new twist: Now homeowners are shaking their heads at how long properties are languishing in markets that used to be blistering. Add in the economic data and it's pretty much official: The juggernaut housing market in the United States is faltering.
Despite a bit of a bounce in March, U.S. house sales have been weakening, and many economists think we're seeing only the beginning of a lengthy downturn.
But what really has economists concerned is not so much the decline in the market: Many are more worried about the evaporation of the "wealth effect" as homeowners on both sides of the border begin to realize that house prices don't move relentlessly up.
Indeed, the unprecedented runup in the North American housing market has produced a huge swell in assets on household balance sheets and led to a rapid rise in refinancing and home equity loans as homeowners have increasingly treated their houses as giant cash machines.
Housing-fuelled consumer spending has been a major force in North American and global economic growth over the past several years -- and poses a major threat if it dries up.
However, Michael Gregory of BMO Nesbitt Burns Inc. doesn't think Canada's real estate market is heading for a fall. But that doesn't mean this country will be immune to the effects of a U.S. downturn.
"Perhaps the more important part now of the housing sector is through the wealth effect," he says. "As consumer spending slows, that's going to pull down the whole U.S. economy, and of course Canada will feel that."
Last week, the United States saw stronger-than-expected reports on consumer confidence and existing home sales. Economists were further surprised on Wednesday when data showed that new-home sales rocketed up 13.8 per cent in March from February's number. While economists had expected a slight rebound after February's 10.9-per-cent drop, the jump was much bigger than expected.
The numbers indicated that U.S. house sales are slowing but the market is definitely not in freefall, Mr. Gregory says.
In Canada, housing starts in the first quarter of 2006 turned out to be the strongest in two decades as relatively low mortgage rates, a strong job market and the wealth effect kept people feeling bullish.
At Merrill Lynch & Co. Inc., chief North American economist David Rosenberg says better-than-expected U.S. new-home sales in March are partly a result of price cuts offered by builders.
Mr. Rosenberg sees many ominous signs: Over the past 12 months, actual sales are down 0.7 per cent in the United States, but the inventory level has ballooned 39 per cent and an astounding 85 per cent in the condominium market. This backlog of unsold inventory will only get worse before it gets better, he warns.
Meanwhile, spending on home renovations is slowing, mortgage applications have taken a dive in April, and a recent survey of home-buying intentions recorded the lowest reading since November of 2004.
Plans to buy appliances dropped to an eight-month low, says Mr. Rosenberg, who believes housing bubbles in many areas of the United States could turn to busts.
In Canada, says Craig Alexander, vice-president and deputy chief economist at Toronto-Dominion Bank, rising home prices have been a big reason why the net worth of Canadian households has grown by more than 20 per cent in the past few years.
But Mr. Alexander believes that the wealth that existing homeowners have accumulated is as safe as, well, houses. For most parts of the country, supply and demand will come into better balance and house prices will continue to rise -- if at a more moderate pace. The likelihood of outright declines is very slim, in his opinion.
"When we look across Canada, with the exception of Vancouver, we think what we've been seeing is strong fundamentals driving strong housing markets," Mr. Alexander says. "We don't think there's a bubble in Canada in any regard."
In Toronto, bidding wars are already less rampant as supply and demand come into better balance.
And while he expects markets to lose some steam in Central Canada and the Maritimes, house prices in Calgary will likely continue to climb, he adds.
Like most economists, Mr. Alexander is more worried about the United States where markets in parts of California, Nevada, the Eastern Seaboard and the South have swelled to potential bubbles.
But speculators and investors have been much more active in the United States, the economist says. If they start unloading properties as prices go down, the psychological impact on this side of the border could be significant.
"If you had speculators in the U.S. exiting the market because they discover that they can't make the money they had anticipated, that same message might get sent to Canadian speculators as well."
Mr. Alexander says British Columbia has a strong economy supporting house prices, but he sees signs the markets in Vancouver and Victoria have been driven higher by speculation as well.
"As an asset class, real estate has done extremely well," Mr. Alexander says. "So it isn't surprising that some people might be thinking about real estate as an alternative investment."
Weaker U.S. markets could do a lot to quell that enthusiasm and may even lead to a reversal in overheated West Coast markets, he says.
"At the end of the day, it probably won't alter buying behaviour for Canadians that are looking for homes as a principal dwelling. I think the bigger impact will be on individuals looking for an investment and double-digit returns."
In New York, Mr. Rosenberg's view is that higher interest rates, higher energy costs and a fizzled-out housing market are going to act as significant drags on consumer spending.
It is, he acknowledges, not a view that is widely shared on Wall Street, where investors are loading up on hard assets such as gold, silver and real estate.
Mr. Rosenberg says he is not buying this whole "hard-asset" view: He thinks the hardest asset of all -- the house -- is already rapidly deflating in price and resale prices will likely start to deflate this summer.
This will have considerable impact on consumer spending and saving behaviour, in his opinion, considering that U.S. households now hold real estate worth $20-trillion (U.S.), compared with just $10-trillion in equities.
His advice? Buy bonds.
"While this is not a popular call today, those who decide to start chipping away at this Treasury market with yields moving further above the 5-per-cent threshold may yet come out the winners when we tally the total annual returns by the end of the year."
He sees the current bear market in bonds as a good buying opportunity for investors with at least a one-year time horizon.
Mr. Gregory at BMO Nesbitt Burns still sees some risk in the bond market, but he says bonds could become more attractive in the next few months if the U.S. Federal Reserve Board keeps the brakes on the U.S. economy with interest rate hikes.
For stocks, the outlook is mixed: Lower bond yields are generally good for equities, but a U.S.-led slowdown in the global economy would likely drag down Canada's stock market with its heavy weighting in natural resources, he says.
He notes that some investors fear the Fed could overshoot on interest rates and that a lot of air could rush out of the housing market in a hurry. While he's not expecting the worst-case scenario of a global recession and a collapse in house prices, the risk exists, he says.
"I think it's a legitimate worry."
Foreclosures may jump as ARMs reset (why am I so bearish...)
http://news.yahoo.com/s/ap/20060619/ap_on_bi_ge/foreclosure;_ylt=AmzcAkNVU23ou458Grq.RgSs0NUE;_ylu=X....
By J.W. ELPHINSTONE, AP Business Writer
NEW YORK - In 2003, Anita Britten refinanced her two-story brick cottage in Lithonia, Ga. using a hybrid adjustable rate mortgage, or ARM. Her lender reassured her that she could refinance out of the riskier loan into a traditional one when her interest rate started to reset.
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Three years later, Britten can't get a new mortgage and her monthly payment has jumped by a third in six months. She can't afford her payments and may face foreclosure if her financial situation doesn't change.
As more ARMs adjust upward and housing prices begin to dip, many Americans like Britten can't refinance and are finding themselves trapped in too-high monthly payments. For those who can't make their payments, foreclosure -- the legal process by which the lender reposseses the house because the owner has defaulted on payments -- is the only way out.
Foreclosure figures just released by the Mortgage Bankers Association show that foreclosure activity fell in the first quarter of 2006 over the first quarter of 2005 for all loan categories except subprime loans. The MBA didn't specify how many of subprime loans were adjustable rate mortgages.
But while a strong economy helped hold down the foreclosure rate in the first quarter, homeowners and experts fear the market has turned and numbers are headed upward.
In the last several years, millions of Americans took equity out of their houses and refinanced when interest rates were at historical lows and housing prices were at record highs.
Many of them chose to refinance into hybrid ARMs that lenders were aggressively pushing. ARMs, which featured a low introductory interest rate that resets upward after a set period of time, were easier to qualify for than traditional fixed-rate loans.
ARMs are now starting to fall by the wayside as the difference in interest rates narrows. The average rate on a 30-year fixed rate loan in May was 6.60 percent compared to 5.63 percent on a one-year ARM, according to Freddie Mac. In 2003, rates on a 30-year fixed were at 6.54 percent, while ARMs carried a 3.76 percent rate.
This year, more than $300 billion worth of hybrid ARMs will readjust for the first time. That number will jump to approximately $1 trillion in 2007, according to the MBA. Monthly payments will leap too, many beyond what homeowners can afford.
For example, Britten's monthly payment jumped from $1,079 to $1,340 at the beginning of this year. It rose again on June 1 by another $104 and is scheduled to increase again in December. Britten, who is also paying off student loans, went to a credit counseling service to help her avoid foreclosure.
"I've gotten rid of all my credit cards and I'm not supposed to refinance for another year," she said. "All I can do is tread water right now."
"ARMs are a ticking time bomb," said Brad Geisen, president and chief executive of property tracker Foreclosure.com. "Through 2006 and 2007, I'm pretty sure we'll see a high volume of foreclosures."
Last year, foreclosures hit a historical low nationwide at about 50,000. But that number has more than doubled since then, according to Foreclosure.com.
And delinquency rates appear to be rising, as well. While delinquency rates fell for most types of loans from the fourth quarter of 2005 because of a stronger economy, delinquencies for both prime and subprime ARM loans increased year-over-year in the first quarter, according to the MBA.
The hardest hit states so far are those that have experienced the roughest times economically. Michigan, Texas and Georgia lead the pack, specifically around Detroit, Dallas and Atlanta, whose major employers have run into strikes, bankruptcies and industry downturns.
But as the housing market slows, experts expect foreclosures to skyrocket in those areas that have experienced the highest appreciation rate -- like California, Florida, Virginia and Washington, D.C.
"There is a direct correlation between foreclosure sales and market activity," said Dr. James Gaines, a research economist at The Real Estate Center at Texas A&M University. "If the rate of appreciation is not there, then there is an increase in foreclosure sales."
Gaines pointed out that although California's default notices are rising by the thousands, actual foreclosure sales remain in the hundreds. Because of California's still-active housing market, homeowners there can sell their properties before going into foreclosure.
On the flip side, in less active markets like Texas and Georgia, homeowners can't find a buyer in time and are forced into foreclosure.
But as the housing cools in these once hot markets at the same time that ARMs reset, many homeowners may be unable to dump their properties before going into foreclosure, Gaines predicts.
Additionally, Gaines pointed out that these same real estate markets also boasted a higher percentage of ARM originations, because most buyers could only get into their homes using an unconventional loan.
California, where the median home price reached $468,000 in April, leads the nation in the percentage of homes purchased with adjustable rate mortgages. Nationwide, ARMs account for 24 percent of all home loans.
"In our zeal to make mortgage lending more available to a greater number of people, it's normal to expect the foreclosure rate to go up," Gaines said.
Even investors in foreclosures are having a harder time finding good deals, as the housing market cools. Many homes that do end up in foreclosure auctions are saddled with more than one mortgage and have little or no equity -- so the investors take a pass.
Falling home values are also affecting homeowners' ability to refinance into a traditional 30-year fixed rate loan to avoid foreclosure.
In 2002, Christopher Jones, 32, refinanced into a hybrid ARM with plans to refinance again when the rate started to readjust. At the time, his downtown Atlanta house appraised for $108,000.
Now, his monthly payments have shot up, but Jones can't sell his house for more than $84,000 and he can't get an appraisal for more than $85,000.
The appraisal firm told Jones that the value of houses in his neighborhood have fallen victim to a cooling market. With no other options left, Jones has decided to pack it in and foreclose on the house.
"I'm just going to take the loss," he said. "That's all I can do."
Some homebuyers, especially first-time buyers, may not have fully understood the risk of ARMs. In the rush to close on a house sale, especially in the frenzied market of the past few years, many first-time buyers often failed to get the full details of their loan from their mortgage broker.
"Sometimes buyers are very optimistic of how much mortgage they can handle, especially in a strong housing market with aggressive marketing of riskier mortgages," said Suzanne Boas, president of Consumer Credit Counseling Services of Greater Atlanta.
When Dora Angel of DeSoto, Texas bought her first home in 2003, she paid $141,000 for the brand new three-bedroom, two-bath home. At the time, her mortgage payment was $1,400 a month.
DeSoto originally thought that she had a fixed-rate loan. But about five months ago, she noticed that her monthly payment kicked up to $1,900. She only made the monthly payments by sacrificing payments on her credit cards, which pulled down her credit rating.
Now, DeSoto can't continue paying $1,900 each month, but, because of her credit ranking, she doesn't qualify for a fixed-rate mortgage.
"I was a first-time buyer. I was blind. I didn't know what questions to ask," she said. "And the mortgage brokers are there telling you what you want to hear just to get you in the mortgage."
Unfortunately, during a runaway market, many buyers, sellers and mortgage brokers were more excited about making deals than making smart deals, and the fallout has just begun.
"We are on the front of this ARM problem. It will roll out over the next several years," Boas said. "Owning a home is the American dream, but losing one is the ultimate nightmare."
________
AP Business Writer Alex Veiga in Los Angeles contributed to this story.
TGPC +34.55%, from the Pulsing Stocks section. EOM
CLRI +17.47%, from Thursday's OTCCD Matrix. EOM
TXXN +21.05%, from Thursday's OTCCD Matrix. EOM
IGPG +17.78%, from Tuesday's OTCCD Matrix. EOM
Dollar weakness generally helps to increase most commodity prices given that non-U.S. dollar denominated countries account for just over half of total demand for key commodities such as copper and aluminum.
URME +32.31%, from Friday's OTCCD Matrix. EOM
ARET +17.65%, from Thursday's OTCCD Matrix. EOM
DBGF +25.07%, from Thursday's OTCCD Matrix. EOM
NNSR +23.08%, from Wednesday's OTCCD Matrix. EOM
TDSV +16.33%, from Tuesday's OTCCD Matrix. EOM
RMDX +15.45%, from Tuesday's OTCCD Matrix. EOM
FXSC +30%, from the Pulsing Stocks section. EOM
DBGF +26.55%, from Thursday's OTCCD Matrix. EOM
hum... I don't even know the name of this company...
Since when did you start doing DD? LOL
In WWAT at $0.26, not saying that it will bounce in this market condition FYI.
IPUR +35.71%, from the Pulsing Stocks section. EOM
DBGF +27.52%, from Thursday's OTCCD Matrix. EOM
RMSG +36.36%, from the Pulsing Stocks section. EOM
DBGF +17%, from the Pulsing Stocks section. EOM
LLTI +33.33%, from the Pulsing Stocks section. EOM
PAYD +28.21%, from Thursday's OTCCD Matrix. EOM
SGLS +15.45%, from Monday's OTCCD Matrix. EOM
The birdie told me that it's the World Cup sell off... ggg
I like the current volatility, very suitable for my trading style.
This time, I'm already long, both within three cents of the bottom of EWJ and IIF. Now I need both markets to go up tonight, I'm currently up 10%, hoping for another 10% from the gapup tomorrow, if the plan goes well.
Luckily, the gap was filled this morning to take out my overnight SPY.
It's a good trading day.
BTW, today is another TRT day. I had my biggest one day gain last time when it happens two weeks ago.
FSRT +20.75%, from Friday's OTCCD Matrix. EOM
NWWV +16.80%, from Monday's OTCCD Matrix. EOM
Hi Steve, yesterday was one of those bad days LOL
Shorted with the reliable signal, be discipline and cut the loss. Then bullish after the pullback to the trendline, trendline broken, and traded under my stop at $127. Then I shorted the market, and covered all my loss. However, I also went long at close, now the gap is killing my profit from yesterday...
I should have been more cautious, because lots of Asian markets are trading at support yesterday, and sure enough, they all broke the support today.
Stupid me. Most days would gapup lately, and I was greedy. Today, here comes a gap down, which also mean a potential bottom would be created.
If we are doing a measured move down, SPY is heading to $122... that would be nasty.
Dow is not stronger, just too few stocks in the composite JMHO. As long as we've started tracking the markets here, NASDAQ has been leading in all major direction change. A weak NASDAQ actually implies a crash is indeed coming... ggg