Thursday, March 06, 2008

'Tis an ill wind*...

The stock market today is focusing on the growing wave of foreclosures in the housing sector. While many have been commenting on this for some time, I think "whistling through the graveyard" mindset made us look elsewhere just to prevent all-out panic.

Unfortunately, this phenomenon is getting hard to ignore.
U.S. mortgage foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable-rate loans walked away from properties before their payments rose, the Mortgage Bankers Association said today.

``We're seeing people give up even before they get to the reset because they couldn't afford the home in the first place,'' said Jay Brinkmann, vice president of research and economics for the Washington-based trade group.

New foreclosures jumped to 0.83 percent in the fourth quarter, the highest ever, from 0.54 percent a year earlier, the group said in a report today. About 40 percent of all foreclosures are homeowners with prime or subprime loans who couldn't make their payments before the reset, Brinkmann estimated in an interview.

Another 23 percent are borrowers who received some form of loan modification, typically a freezing or a reduction of their rate, and then default, he said.

``It comes down to an overstretching of buyers to get into homes they couldn't afford and an overextending of credit by lenders who were more willing to take risk,'' Brinkmann said.

The share of all home loans with payments more than 30 days late, including prime and fixed-rate loans, rose to a seasonally adjusted 5.82 percent, the highest since 1985, the bankers' group said in today's report. [More]
It is important to remember, however, there is another side to foreclosures that out of deference to those losing their homes seldom gets much play in the media.
If you're facing foreclosure, Treasury Secretary Henry Paulson wants to help. "If someone is willing to make a call to reach out," says Paulson, "there's a chance we can save their homes." But Paulson can't save these homes because the homes are not endangered in the first place. They stand to change hands, not to vanish.

None of these foreclosed houses is going to disappear. After a foreclosure, one family moves out, and another moves in. We see the sad faces of the people moving out, but we don't as often see the happy faces of the new homeowners moving in. Nevertheless, those happy faces are out there, and we should not discount them. [More of a short thoughtful essay]
We in agriculture have seen this before (at least us geezers) in the '80's. The second piece of ground I bought was from a foreclosure by an insurance company. I got it for $1600 when it had been selling for around $2500 just a few years previously. While even $1600 looked too high, it was something we could just afford with effort.

I do not discount the pain of losing a home, but at the same time without corrections or recessions, housing would have continued to outstrip incomes to crowd even more people out of the home ownership market. That has been painful for many as well. It may be about to turn.
"Significant price declines in some local markets have sharply and quickly improved local affordability conditions, and are inducing buyers to return to the marketplace," Yun said. NAR's housing affordability index is forecast to rise 14 percentage points to 127.0 in 2008. [More]
The tricky part is stopping the slide and beginning some period of relative price stability before speculative money re-enters the mortgage business. given the severity of the CDO washout, we could be buying a considerable breather before people want to play that game again.

Now farmland is another story altogether.
Land values roared 22% to 30% across South Dakota in 2007, according to the most recent quarterly survey of agricultural bankers in the state. That eye-blinking surge leads the pack of breath-taking gains reported across the upper Midwest for 2007 by the Federal Reserve Banks of Minneapolis and Chicago. The Fed banks survey ag bankers each quarter, asking them a host of questions concerning ag loans, credit conditions and land values. The most recent survey covers the period ending December 31, 2007. [More]
I'd say the "farmland affordability index" (which doesn't exit that I know of) is still viable, but heading downward.

* ’Tis an ill wind that blows nobody any good. Someone profits by every loss; someone is benefited by every misfortune.

“Except wind stands as never it stood,
It is an ill-wind turns none to good.”
Tusser: Five Hundred Points of Good Husbandry, xiii.

[Always wondered where that came from.]

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