patrick.net

Very possble. Who knows, they may be heavily invested in mortgage/RE and any number of related fields.

Sure...sorta going by "gut feelings" and articles detailing corporate growth based soley on RE interests. Personally, I think we'll be shocked (in retrospect) at how much money was thrown at residential RE.

Since this is an FNM thread, how might reporting favorably about FNM (in spite of its troubles) benefit the media outlet, for example?

It probably has to do with where the media outlet has their money tied up. I have seen news stories about large corporations where the anchor "discloses" that the corporation is owned by the parent company of the news outlet. I am sure that they only report on misdeeds by the company when it is no longer possible to keep it under wraps; and then you can be sure that the story is kept as non-descript as possible.

As far as cronyism goes, I'm thinking it's probably a case of "you scratch my back, I'll scratch yours." I'm positive that there are publicists that work with most politicians who try to "leak" stories of various spins. Political reporters probably learn early that staying on the good side of most politicians will allow them to get a juicy tidbit from time to time.

Duh, I forgot about the leak scenario. I guess if you have THE story, you get the ratings……Thanks for a jounalist’s perspective!

I think I am more of a cynic than a journalist these days. ;)
I did learn a lot from my brief time in the industry though. It's unfortunate but working in the media takes away a lot of a person's idealism. Funny don't you think? An industry that should be about honesty and objectivity is one of the most cynical, calculating businesses I have ever worked in.

An industry that should be about honesty and objectivity is one of the most cynical, calculating businesses I have ever worked in.

Which industry still has honesty and objectivity? Hmm...

How about the RE appraisal industry? ;)

Which industry still has honesty and objectivity? Hmm…

Ummmm.......That'll take some thought.

Other than truths and lies, we still have spins.

big business is the absence of regulation.

Or... big business is too much favorable regulation

Truth: when your house floats, chances of getting a HELOC are gone. Spin: he doesn’t make them aware that they won’t be able to sell that home to pay the loan off.

Truth: after we get your business in refinancing, we do not care if you can never pay back. Our mandatory credit counseling unit and bankruptcy legal service unit may be able to help.

Well, straying OT from the other OT topics, here's a nicely written article, with a smattering of data, regarding current mortgage situation & possible future ramifications:
http://www.inman.com/inmannews.aspx?ID=48166

Here's a tidbit:
"Three years ago, interest-only mortgages comprised about 2 percent of the market, Don Bisenius, senior vice president, credit risk management, Freddie Mac, has told Inman News.
Today, this once-fringe financing vehicle – originally meant for high-net-worth clients desiring investment liquidity – is up to 15 percent (in some high-priced areas, like California, that number is reported to be 50 percent)."

15% of the national mortgage market seems high...looks like everyone's following California's "progressive" lead.

Ramifications? I suggest we as a society to take a step back from blindly promoting homeownership. It is seriously overrated. (Jack, even great things can be overrated, so forgive me.)

Random walk theory is as good as natural order and financial astrology.

The trouble is the theory is well supported emperically. It only applies to day-to-day price changes. But, I assure you daily price changes abide by the properties of Brownian Motion.

Ramifications? I suggest we as a society to take a step back from blindly promoting homeownership. It is seriously overrated.

Are you implicating general owernship of private property? I'm not so sure asset ownership is all that overrated, homes included.

Are you implicating general owernship of private property? I’m not so sure asset ownership is all that overrated, homes included.

Not general ownership of private property, but debt-financed homeownership for the sake of homeownership itself.

The trouble is the theory is well supported emperically. It only applies to day-to-day price changes. But, I assure you daily price changes abide by the properties of Brownian Motion.

True enough. Was it emperically determined using daily price information?

But, I assure you daily price changes abide by the properties of Brownian Motion.

Except when there is a 10-sigma event. ;)

I call it home debtorship.

Exactly. It should not be promoted with such emotional fervor at the government level.

looking into overseas work opportunities

I am sure there are lots.

Is it October yet?

Just wait, will you.

11-sigma event in November and 12-sigma event in December. Calm and peaceful in January.

Except when there is a 10-sigma event. ;)

First, high sigma events are not precluded by Brownian Motion or random-walk theory; they are just rare.

Second, don't rely on high sigma events for prediction too heavily. Very few high sigma events hold up after careful analysis because (a) variance measurements depend upon the central tendency being properly determined. This relies upon the thoroughness of accounting for all the variables...often in post-event analysis new variables are discovered. (b) central tendency requires that the phenomena has been studied long enough to account for the true "likelihoods" of "unlikely" events. Sometimes we just don't know how common the uncommon is until it happens. Weather and earthquakes fall in this category.

Second, don’t rely on high sigma events for prediction too heavily.

It is worse to rely on ignoring high sigma events for risk management, isn't it? ;)

Well I will be having to buy three more houses in the next 4 to 8 years for my three daughters, so I hope you fellas are right about this crash thing so that the kids can be housed in the manner in which they have become acustom.

No wonder they say daughters are expensive. ;)

Well, if prices do not come down I am sure you are wealthy enough to handle three more houses.

what in friggen hell is a sigma event

I am not a finance person but a sigma refers to one standard deviation away from the norm. If an event with many sigma is very rare because it is way deviated from the norm.

I believe sigma comes from statistics.

Randy, you can explain better than me.

Sadly, where I (and surferx) live housing costs are far beyond the vast majority of young people. I’ll be happy to keep them close.

How about a triplex for all three?

How old are your daughters? Maybe we can work something out. :)

I won't worry about anything beyond 3 sigmas. If a 10-sigma event happens, well, all I can say is, shit happens.

Standard Deviation (or "sigma", the greek letter that is used by statisticians to denote std dev):

For a normal distribution ("normal" is the key word here; the mound shaped "bell curve"):
68% of all observations of a sample with an underlying normal distribution will occur within 1-sigma;
95% of all obs within 2sigma
99.7% of all obs within 3sigma

a 10sigma event should occur about 1:1x10^alot

This is called the "Emperical Rule"

By the way, this is all statistics, not finance. Often in basic finance classes they'll use a normal distribution to APPROXIMATE an underlying population of events, like stock prices.

In intermediate courses these assumptions are changed and the asset prices are assumed to be log-normal, which means the Emperical Rule has a different interpretation.

In advanced courses the underlying distributions are assumed to be min/max-extreme, beta, or exotic (a newer area of study). Exotic distributions are basically multiple distribution types merged into a larger distribution. For example, prices may be beta or lognormal, but at the thresholds become exponential, log, or worse.

There is emerging controversy about the use of statistical methods for financial analysis, although it is generally accepted as useful and accurate for "normal" (no pun) times. But at the margins, either for an individual asset or for aggregates, statistical methods tend to not work as well. These are the "gut feel" or behavioral finance variable(s).

**disclaimer, I know a quite a bit of stats, but I theoretically consider the discipline a bit of black magik. When applied to real-world decisions about finance, it is very useful for everyday stuff, but pretty useless for marginal event prediction

ok finance people. what in friggen hell is a sigma event?

If these guys want anybody else to understand, much less contribute to these threads, they could provide some form of glossary for all these terms....no?

glossary for all these terms

Trog afraid of book, book bad.

"Which industry still has honesty and objectivity?"

Engineering. (Not the marketing thereof.)

Nothing keeps you more honest than the threat of imminent catastrophe caused directly by your actions or neglect.

Cheers,
prat

So it really DOESNT matter if the affordability index goes to zero then, does it?

It doesn't affect the affodability index in aggregate. Wealth, no matter how it is come by, is included (at least in the indices I count as valid). Anyways, most economic treatments of home ownership equate it to a rent formula since home equity accumulation is not considered investment activity by economists.

Jack, this is why I do not talk about affordability any more. The argument is too prone to MIRAGE attacks.

P/E ratio and cap rate arguments are more robust. "Intangibles" is the only "known" attack.

I had made the argument that significant numbers of family members were buying houses for thier kids, and that these situations may not show up on some of the standard stats…

The reason RE equity is not investment activity is because it's really equivalent to savings. Moreso because Americans tend to consume their homes by selling them or dying and willing them to someone who sells them. The amount that's not reinvested into new home equity is consumed or saved elsewhere. I won't go into the reason that individuals actually rarely ever invest (as defined by economics) unless they are owner-operators of going-concern businesses. What you call investment is just a form of savings with greater risk-return.

You raise an interesting question about market stats, with the idea of homes purchased by family members for use by other family members. I doubt that this is a big factor.

I have two sisters who each have modest incomes (under $30,000) and between them 6 kids. One is divorced (with no support) and the other is a widow. I help them out by letting them live in homes that I own for almost no rent. Each lives in a 3 br home in a coastal community. In their cases the price or value to income is more than 20 to 1. My income is not in the local calculations.

Big bounce on FNM today. The stock was up 7.6%.

In one day it recovered most of what it had dropped the day before.

I guess we should have bought some Fannie yesterday.

However, I expect it will slip a little tomorrow.

Big bounce on FNM today. The stock was up 7.6%.

Yep. A bit unexpected. Day/swing traders would be very disappointed.

I expected it to bounce 3-4% only.

FNM reminds of microstrategy.

Remember what poppsed the dotcom bubble? There was a prelude before the grand play got on stage, with microstrategy being that prelude. It got some kind of accounting problems, got investigateed, lost 15% or something like that, but the investors chose to shurg it off after the stock price was a bit depressed for a while.Then came that famous Barron's article which had a summary of how many months of operating cash each dotcom has left. That was the article that sealed the deal. I offloaded all my options and stocks the day that article hit the street, and was lucky enough to get out in one piece.

We are still at the microstrategy phase right now, should be a few months away if property market acts just like the stock market.

You are a good man Zephyr, to support your sisters so.

Owneroccupier

You make some interesting points. It seems to me the housing bubble is becoming part of the public consciousness, especially since the media is now putting out so many stories about it. So while the FNM story gets the public's attention-- additional stories that weaken public perceptions about RE/mortgage industry giants might end up being the tipping point.

I think we are very close to (or have just past) the tipping point. Just a feeling.

On the other hand, FNM appears to have lots of downside momentum in it still. I will continue to watch.

(Not investment advice)

ScottC, thanks for the excellent insight.

ScottC

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