Subprime Auto Filling FIRE's MBS Void?

[flintlock]

Re: Subprime Auto Filling FIRE's MBS Void?

Not sure how it is where you are. Every time I see some teenager/early 20s bro driving a $50,000 vehicle I imagine it has NY or NJ plates and the kid's up here for college. It's far from a scientific sample, but it does seem that more often than not, I'm right. Daddy buys it. The vast majority who are younger with local plates seems to drive whatever's cheap and lying around.

Actually around here its just as likely to be the HS grad with a job who lives at home. The South has quite the pickup truck culture. Detroit keeps turning them out bigger and more powerful and these kids just lap it up. Doesn't everyone need a diesel crew cab 4x4 to drive to their job at Home Depot? I used to work with some of these guys. They might be behind on the child support but they'll have $4000 of wheels and tires. How else are they supposed to get the chicks?

[ProdigyofZen]

Re: Subprime Auto Filling FIRE's MBS Void?

Makes sense. More people are sleeping in their cars.


Not really FIRE though. Need some sort of acronym out of : finance, automobile, repossession, transportation sector, etc. Probably could put something in there about gas too.

Oh how FIRE loves the RE: Marketfield sees the first rise in mortgage debt outstanding since Q1 2009 as a SUPER Positive! For the Economy!

US Mortgage Debt Outstanding Q3 2013

The publication of the new Federal Reserve Financial Accounts Report for Q3 2013 (previously known as the Flow of Funds Report) showed, among other things, mortgage debt outstanding rising by $21.9 bln (0.23%) to $9,385.8 bln. This is something of a milestone since it represents the first rise in mortgage debt outstanding since Q1 2009 and only the second rise since Q1 2008, when the metric peaked at $10,669.6 bln. From 1960 to 2008, there were only two quarters in which mortgage credit shrank (Q1 1970 & Q3 1982) making the last five years a striking anomaly in modern times. We consider this turning point to be an important indicator for the housing market, indicating that the degree of recovery has now reached the point that mortgage credit can be expected to resume its traditional upward trajectory for the remainder of the cycle which has bullish implications for the overall housing market.

Back in 2007, we had used the chart below to argue that a period of mortgage de-leveraging was highly likely to occur since mortgage debt outstanding had at that point outpaced US M2 by $3.16 trln. We also expected to see a reaction by the Federal Reserve (which at the time was operating a very tight monetary policy) to boost M2 and it is fair to say that both metrics performed in line with our expectations (although we would be the first to admit that there have been many, many surprises along the way).

Of course, the small rise in mortgage credit last quarter was dwarfed by the $217.6 bln increase in M2, taking the gap between these two measures down to -$1.433 trln, itself a record. On a ratio basis, M2 is now 1.15 times greater than mortgage credit compared to 0.70 in Q3 2007 and this is the highest ratio since Q4 1993. In other words, local money supply is now highly supportive of further increases in mortgage debt and, while the pricing may be higher than it was a year ago, it is still historically cheap.

One of the tricky problems with monetary policy is that even when policy decisions are stagnant, the underlying conditions in the economy are not. We can now add mortgage credit to the long and growing list of metrics suggesting that the US economy at the start of 2014 is a very different place to that in place 5 years ago, while monetary policy is now if anything slightly looser today.

[jr429]

Re: Subprime Auto Filling FIRE's MBS Void?

Actually around here its just as likely to be the HS grad with a job who lives at home. The South has quite the pickup truck culture. Detroit keeps turning them out bigger and more powerful and these kids just lap it up. Doesn't everyone need a diesel crew cab 4x4 to drive to their job at Home Depot? I used to work with some of these guys. They might be behind on the child support but they'll have $4000 of wheels and tires. How else are they supposed to get the chicks?

At 1% interest rate, factory subsidies, and if the lender is mis-calculating residual due to the trend of increasing vehicle prices leases can be very inexpensive. The point again is all roads lead to the FED.

[jr429]

Re: Subprime Auto Filling FIRE's MBS Void?

Oh how FIRE loves the RE: Marketfield sees the first rise in mortgage debt outstanding since Q1 2009 as a SUPER Positive! For the Economy!

US Mortgage Debt Outstanding Q3 2013

The publication of the new Federal Reserve Financial Accounts Report for Q3 2013 (previously known as the Flow of Funds Report) showed, among other things, mortgage debt outstanding rising by $21.9 bln (0.23%) to $9,385.8 bln. This is something of a milestone since it represents the first rise in mortgage debt outstanding since Q1 2009 and only the second rise since Q1 2008, when the metric peaked at $10,669.6 bln. From 1960 to 2008, there were only two quarters in which mortgage credit shrank (Q1 1970 & Q3 1982) making the last five years a striking anomaly in modern times. We consider this turning point to be an important indicator for the housing market, indicating that the degree of recovery has now reached the point that mortgage credit can be expected to resume its traditional upward trajectory for the remainder of the cycle which has bullish implications for the overall housing market.

Back in 2007, we had used the chart below to argue that a period of mortgage de-leveraging was highly likely to occur since mortgage debt outstanding had at that point outpaced US M2 by $3.16 trln. We also expected to see a reaction by the Federal Reserve (which at the time was operating a very tight monetary policy) to boost M2 and it is fair to say that both metrics performed in line with our expectations (although we would be the first to admit that there have been many, many surprises along the way).

Of course, the small rise in mortgage credit last quarter was dwarfed by the $217.6 bln increase in M2, taking the gap between these two measures down to -$1.433 trln, itself a record. On a ratio basis, M2 is now 1.15 times greater than mortgage credit compared to 0.70 in Q3 2007 and this is the highest ratio since Q4 1993. In other words, local money supply is now highly supportive of further increases in mortgage debt and, while the pricing may be higher than it was a year ago, it is still historically cheap.

One of the tricky problems with monetary policy is that even when policy decisions are stagnant, the underlying conditions in the economy are not. We can now add mortgage credit to the long and growing list of metrics suggesting that the US economy at the start of 2014 is a very different place to that in place 5 years ago, while monetary policy is now if anything slightly looser today.

I'm surprised that's it. Every house in my area has increased at least 30% in value in the last 24 months. I would say the average price for a SFR in Irvine is now $1000k excluding heavy property taxes, the median household income is $117k - you do the math with only 16% of the households clearing $200k.... We're at another realestate bubble and this time the underlying conditions are much much worse.

[santafe2]

Re: Subprime Auto Filling FIRE's MBS Void?

U.S. car buyers borrow more as rates fall and standards loosen

Sometime around the time I joined there was a good thread here titled something like, how much should you pay for a car? The answer was basically whatever you can comfortably pay in cash.

[santafe2]

Re: Subprime Auto Filling FIRE's MBS Void?

I'm surprised that's it. Every house in my area has increased at least 30% in value in the last 24 months. I would say the average price for a SFR in Irvine is now $1000k excluding heavy property taxes, the median household income is $117k - you do the math with only 16% of the households clearing $200k.... We're at another realestate bubble and this time the underlying conditions are much much worse.

I think home mortgage debt may be a better measure of any possible issue than the hard cost of housing. Many current buyers are now buying for cash. Nationwide, mortgage debt is down over 10% since 2007. While prices here are only up slightly this year the number of cash buyers is higher than ever before. I suspect that is also the case in your area. Many people buying million dollar homes are paying cash.

See this FRED chart:
http://research.stlouisfed.org/fred2/graph/?id=HMLBSHNO

[flintlock]

Re: Subprime Auto Filling FIRE's MBS Void?

The term inexpensive is relative. Perpetual auto payments that run higher than many folk's mortgage is not usually in one's own self interest. We are slipping back into the "I want it now but can't really afford it" mode we were in before the recession hit. But then the nanny state is always there if we stumble I suppose.

[Slimprofits]

Re: Subprime Auto Filling FIRE's MBS Void?

Securitization is dead. Long live Securitization.

http://www.bloomberg.com/news/2013-1...nd-market.html

The size of the global securitization market plummeted in the aftermath of the 2008 collapse of Lehman Brothers Holdings Inc. Some 251 billion euros ($343 billion) of bonds backed by everything from auto loans to credit-card payments were issued in Europe in 2012, compared with a peak of 711 billion euros in 2008, according to data from the Association for Financial Markets in Europe. U.S. issuance totaled 1.5 trillion euros, down from a 2003 peak of 2.9 trillion euros, according to the data.

[don]

Re: Subprime Auto Filling FIRE's MBS Void?

Securitization is dead. Long live Securitization.

http://www.bloomberg.com/news/2013-1...nd-market.html

The size of the global securitization market plummeted in the aftermath of the 2008 collapse of Lehman Brothers Holdings Inc. Some 251 billion euros ($343 billion) of bonds backed by everything from auto loans to credit-card payments were issued in Europe in 2012, compared with a peak of 711 billion euros in 2008, according to data from the Association for Financial Markets in Europe. U.S. issuance totaled 1.5 trillion euros, down from a 2003 peak of 2.9 trillion euros, according to the data.

The drop in magnitude (good data - thanks!) is what FIRE calls tough times . . .

[don]

Re: Subprime Auto Filling FIRE's MBS Void?

Makes sense. More people are sleeping in their cars.

“In 1960, about one in four renters paid more than 30% of income for housing. Today, one in two are cost burdened,” according to a new study (ironically) by Harvard University. As Bloomberg BusinessWeek's Peter Coy notes, the availability of apartments, especially cheaper ones, hasn’t nearly kept up with demand, and the problem has worsened since the 2007-09 recession. Remarkably, the number or people with severe cost burdens (paying over 50% of income to rent) is up by 2.5 million in just four years, to 11.3 million; and as usual, the pinch is hardest on the poor. The share of cost-burdened renters increased by a stunning 12 percentage points between 2000 and 2010, the largest jump in any decade dating back at least to 1960.

Via Bloomberg BusinessWeek,




If you can’t afford to own, you can rent. But what if you can’t afford to rent, either? Millions of Americans are in precisely that situation, according to a study released today by the Joint Center for Housing Studies of Harvard University. The availability of apartments, especially cheaper ones, hasn’t nearly kept up with demand, and the problem has worsened since the 2007-09 recession, the study says.


“Cost-burdened” means you’re paying more than 30 percent of income for housing and “severely cost-burdened” means you’re paying more than half. “By 2011, 28 percent of renters paid more than half their incomes for housing, bringing the number with severe cost burdens up by 2.5 million in just four years, to 11.3 million,” according to the Harvard study, which was conducted with partial funding from the MacArthur Foundation.

The boom in housing prices made ownership unaffordable for many families, and the subsequent bust forced others into foreclosure. You would think that all of those foreclosed homes would make great rental properties, and they have. “Remarkably,” though, the study says, “soaring demand was more than enough to absorb the 2.7 million single-family homes that flooded into the rental market after 2007.”


The result of the spike in rental demand is a seller’s market: “From a record high of 10.6 percent in 2009, the vacancy rate turned down in 2010 and has continued to slide, averaging 8.4 percent in the first three quarters of 2013.”




Deterioration is another potential enemy of affordable housing. According to the center’s study, more than one in five mobile homes was removed from the housing stock from 2001 to 2011.

A Legacy of the Ownership Society . . .

[ProdigyofZen]

Re: Subprime Auto Filling FIRE's MBS Void?

I think home mortgage debt may be a better measure of any possible issue than the hard cost of housing. Many current buyers are now buying for cash. Nationwide, mortgage debt is down over 10% since 2007. While prices here are only up slightly this year the number of cash buyers is higher than ever before. I suspect that is also the case in your area. Many people buying million dollar homes are paying cash.

See this FRED chart:
http://research.stlouisfed.org/fred2/graph/?id=HMLBSHNO

Correct, but who is buying all cash, why and where is the cash coming from?

REITs/PE buying up property or international "investors" buying the majority of all cash deals?

[ProdigyofZen]

Re: Subprime Auto Filling FIRE's MBS Void?

Sometime around the time I joined there was a good thread here titled something like, how much should you pay for a car? The answer was basically whatever you can comfortably pay in cash.

http://www.itulip.com/forums/showthr...e-Zero-percent

For reference it is on the right hand side of the main page if you scroll down under "Most Popular"

That area is a sort of "roadmap" to some of the best articles/posts over the years.

[gwynedd1]

Re: Subprime Auto Filling FIRE's MBS Void?

Correct, but who is buying all cash, why and where is the cash coming from?

REITs/PE buying up property or international "investors" buying the majority of all cash deals?

I predicted this years ago. My comment was that cash would enter the system, but like the delta of the Colorado, it would be the saltiest. Dollar carry trade would flow into international equity like Brazil that was not so debt saturated, and I could only assume that cash would find its way back here in the very manner that we speak of now.

[ProdigyofZen]

Re: Subprime Auto Filling FIRE's MBS Void?

I predicted this years ago. My comment was that cash would enter the system, but like the delta of the Colorado, it would be the saltiest. Dollar carry trade would flow into international equity like Brazil that was not so debt saturated, and I could only assume that cash would find its way back here in the very manner that we speak of now.

Correct as the owners of these companies worldwide become flush with cash the first thing they do is buy "safe" assets in the US/Canada etc. They diversify into dollars.

This is what you saw for the first time ever in 2011 Brazilians spent 1 billion into the Florida/Miami economy.

[jr429]

Re: Subprime Auto Filling FIRE's MBS Void?

I predicted this years ago. My comment was that cash would enter the system, but like the delta of the Colorado, it would be the saltiest. Dollar carry trade would flow into international equity like Brazil that was not so debt saturated, and I could only assume that cash would find its way back here in the very manner that we speak of now.

The international buyers have been popular with MSM lately but most of the buying WAS done by PEs which basically had a lot of investor money to place. Frankly some of the models employed were questionable at best. The next rotation appears to be RE financing.

That said today in places like Irvine the international buying remains very strong as discussed in the CNBC article a few weeks back. If you actually go to one of the openings there's 30+ purchasers waiting in line, 75% foreign buyers, most ready to pay cash to pickup a $1000-$1500k property and pay $7000-8000/year in Mello Roos for 40 years. The Irvine company property mentioned in the CNBC article has been readjusted upwards three times already as they underestimated market demand despite this it being directly downwind (and line of sight) from a dump. But I guess this didn't stop milpitas or Fremont...