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Shadow Inventory stalling housing recovery.
invite response
2011 Aug 2, 4:01pm 10,932 views 54 comments
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Um....
I'm taking tts's side here.
Fed Funds rate is the rate that most banks borrow from. Granted now it is quite low if you brought things back to the late 70's early 80's it dictated what would be the lowest rate across the board. Of course a bank needs to make money so no one will pay Fed Fund rate..the open market window is open to all but I don't think any individuals actually received direct funds
http://en.wikipedia.org/wiki/Federal_funds_rate
Now if you mean banks lending to each other then that invokes Libor but that's not what is being argued.
The Fed Funds rate is what everyone watches when the Fed has a meeting. It goes up, down or stays the same. If it isn't that then it's the Beige Book.
http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html
I still can't believe the rates are as low as what they are.
One might try to say that the 30 year t bill is what mortgages are based on...but the 30 year so called long bond was actually discontinued for awhile. Treasury secretary o'neil was pretty pissed off when it was leaked out accidentally. Even when the long bond was gone people still went out and got mortgages.
tatupu70
2011 Aug 5, 4:36am
Nope its dead on, go google any chart if don't like mine. The Fed Fund rate is the tide that raises all boats, the 10 yr is like the individual waves on that ocean. Its sheer pedantry to focus on those and then to ignore the Fed Fund rate.
Here you go. Fed Funds rate vs. 30 yr. mortgages.
http://www.azmortgageguru.com/mortgage-rates-not-related-to-the-federal-funds-rate/
As you can see, there is no direct relationship. Generally they move together because they are affected by the same forces.
Here are a few more links for you:
http://www.behindthemortgage.com/2008/10/fed-funds-vs-mortgage-rates.html
http://www.behindthemortgage.com/2008/03/fed-cuts-rates-will-mortgage-rates-rise-as-a-result.html
http://www.getrichslowly.org/blog/2008/01/31/are-mortgage-rates-tied-to-the-federal-funds-rate/
On that last link, the 2nd graph is most interesting. It looks like the mortgage rate affects the Fed Funds--not the opposite. Mortgage rates drop first, then the Fed drops the Fed Funds rate--implying that the market sees the slowdown before the Fed acts.
I don't think that the banks are intentionally holding houses off of the market to put a crimp on supply. If they are, they are fools since properties rapidly degrade without constant maintenance,
uomo_senza_nome
2011 Sep 6, 3:26am
f they are, they are fools since properties rapidly degrade without constant maintenance,
you've obviously not read the news link below:
Banks are destroying houses instead of actually letting the market discover the price.
tatupu70
2011 Sep 6, 3:49am
I don't think that the banks are intentionally holding houses off of the market to put a crimp on supply. If they are, they are fools since properties rapidly degrade without constant maintenance,
you've obviously not read the news link below:
http://www.csmonitor.com/Business/Mises-Economics-Blog/2011/0729/Banks-bulldoze-houses-despite-millions-being-homeless
Banks are destroying houses instead of actually letting the market discover the price.
Not sure that article disputes blair's point. These are homes that pretty much won't sell for any price.
TMAC54
2011 Sep 8, 12:25am
All of that only to realize Interest rates are influenced by DEMAND. NO BUYERS-NO INTEREST.
HOW can we force the banks to kick down ? WE (taxpayers) own that shadow inventory. It's MY inventory and I want it NOW !
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Dark blue: loans that are 12 months past due and foreclosures
Light blue: REO (bank owned homes – foreclosure process completed)
Yellow line: Loans sold each month
Such a huge inventory overhang and the banks have not cleared these on the market. So we literally have a tsunami of houses about to hit the market sometime in the future (near?).
Now I know that RE is local so we cannot really make any claim on how the trends will play out in specific cities.
But let's take a few examples where housing has taken a serious hit: Las Vegas, Phoenix and Miami. In Phoenix, for example -- prices of homes are actually increasing because there is supply shortage.
For instance, See this LINK.
"We're in a shortage situation," said Brett Barry, a real-estate agent in Phoenix. "It's a very artificial, 'Twilight Zone' kind of feeling, because we know there's a lot of homes out there." The bottleneck in bank foreclosures has contributed to that situation. In the past year, banks have been accused by federal and state officials of circumventing legal procedures when foreclosing on homeowners. To correct those problems, banks are moving more cautiously when repossessing a home.
Nobody knows how this supply shortage situation will play out. And I don't know anywhere on the web where city-wise shadow inventory data is being tracked. In my mind I see one reason (other than the law suits the banks are facing due to fraudulent documents), which is that the banks are hoping for a recovery and hope they can unload these inventories as the market picks up.
See this LINK. As Always, Drhousingbubble hits the nail on the head:
The market is desperately trying to find lower prices. It is the banking system and the government that ironically tries keeping home prices inflated even though many American families cannot afford to purchase homes with their current incomes.
Any body here who thought the first-time home buyer tax credit was great for the recovery needs to think again. Any body who thinks that the Government spends the tax payer money in a manner that leads to healthy economic recovery NEEDS TO THINK AGAIN.
On the other hand, it could also be looked like the banks are actually creating an artificial supply shortage . This obviously won't last very long given there is no proper economic recovery at hand, unemployment rate remains stubbornly high, consumer spending has decreased and we have a serious nation-wide debt crisis at hand. To me it looks like the deflationary forces on housing prices are much stronger.
How do you guys see the impact of this shadow inventory on the housing trend play out?
#housing