Just the Facts, Sir

Says Sgt. Joe Friday of that fine old TV cop show, Dragnet. So today I'll just stick to the facts as my "opinions" have been stated over & over and have not changed.

Apparently Barron's weekly reads this blog. As a reader commented over the weekend, that is NOT a badge of honor as having Ben Bernancke and Hank Paulson as readers, but it does reflect being such an opinion leader that the financial press takes cues from here for news stories. [ yes, that's a joke ;-) ]

The headline cover story in Barron's this week is "Home Prices Are About To Bottom". You heard that here first as a "theory" ... awaiting data confirmation, of course. So Barron's did some legwork for me and here are some data from the article.

1. Total inventories fell in May to 4.49 millin existing homes for sale, or a 10.8-month supply at the current sales pace, down from an 11.2 month supply in April.

2. Inventories of new homes are down 21% from a 2006 peak.

3. Home prices rose slightly in 8 of 20 markets from March to April. The pace of monthly declines is starting to slow in markets with declines.

4. Subprime housing is less that 10% of the total US housing stock, but accounts for a far larger share of current sales volume. Those sales are the ones that show the largest price declines, hence distorting headline indices.

5. Chip Case, a namesake of the S&P/Case-Shiller "is among those who think home prices may be near a bottom."

6. The article provides numerous examples that affordability ratios, viz., price to income ratios, have reverted normal levels.

7. "The performance of ABX indexes covering the fiour crummiest subprime vintages ... shows that the rate of early-stage, or 31- to 60-day, delinquencies has been falling for the past six to eight months."

8. Further, there is "a decline in the percentage of early delinquncies that advance to later stages."

"Both developments [ #7 and #8 ] tell him [the cited analyst] the cumulative-loss assumptions on these mortgages made by both the credit rating agencies and Wall Street could prove far too pessimistic." (OK, that's an opinion, not a "fact".)

9. "One can draw a similar conclusion from delinquency-inflow trends of other types of mortages, be they loans backed by home-equity lines of credit or second liens mortgages from the bubble years. Many have performed horribly, but the rate of inflow of new delinquencies suddenly has dropped in recent months.

10. "An ebbing tide of new delinquencies strongly hints that the worst may soon be over for the housing market, at least in terms of burdensome supply. The pig, in other words, is well along the python's alimentary canal."

"In hindsight, the housing bust hasn't been nearly as calamitous as depicted in the media, or as Wall Street's woes might suggest. Yes, people have lost their homes, but more than a few were mendacious [*see Word of the Day"] mortgage applicants and mere speculators, who eagerly sought out 100% margin loans, only to fold just as quickly when prices turned against them."

A table in the article shows that for a composite of 20 major markets, home prices are down about 17% from the peak around July 2006, but are up 72% from 2000 prices. So huge majorities of homeowners are well in the black. That "fact" is quite relevant a propos the fear-mongering about spreading defaults.

PS: Reading a newsletter my partner sent to me ... it's written by a hedge fund group that is a panic-monger. In the same sentence they fret about inflation and deflation. "While we remain concerned about the long-term inflation picture (3-5 years out), we are becoming increasingly alarmed about the near-term deflationary threat."

Words of the Day

"Mendacious" - adjective [$10] (this is a very old word of the day for me - the writing on my index card dates to high school years circa 1970).
Mendacious means 1. given to or characterized by deception or falsehood which is often not intended to genuinely mislead or delude; 2. lying, untruthful.
Sentence: See above.

"Protreptic - adjective or substantive [$1000]
Protreptic means (adjective) directive, instructive, didactic; (substantive) a book, writing or speech intended to exhort or instruct, an exhortation, instruction.
Sentence: Today's protreptic blog is a small effort to introduce some facts into a financial debate all too laden with fear-, panic- and opinion-mongering.

By the way, "protreptic and "paraenetic" [see a word of the day for last week] are closely related. Here is a sentence using both from the notes on a CD course on the Apostle Paul's writings: "2 Timothy has the form of a personal paraenetic letter ( a letter of advice) with elements of protreptic exhortation. This literary form was available to Paul."