Author Topic: Another subprime housing crisis?  (Read 614 times)

jplee3

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Another subprime housing crisis?
« on: March 15, 2017, 11:19:27 AM »

tarheeldan

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Re: Another subprime housing crisis?
« Reply #1 on: March 15, 2017, 11:48:14 AM »
In terms of inflation-adjusted home prices we're not where we were yet:
https://www.advisorperspectives.com/images/content_image/data/dc/dc67c797b11ffdb08032bbc0daeb9343.png

Households are also not near as leveraged as they were:
https://fred.stlouisfed.org/series/TDSP

MBS and ABS outstanding are not as high:
https://www.dropbox.com/s/3bmsfw5zgfgfa5a/CDOs.png?dl=0
https://www.dropbox.com/s/v7um7akghygr0p9/MBS.png?dl=0

And, for now, we appear to be in the expansion phase of the business cycle, according to GS:
https://www.dropbox.com/s/sa472kv9isbcay6/Business%20Cycle.png?dl=0

On the negative side - there is also a subprime lending problem in auto loans with asset-backed securities (https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1815074&SctArtId=419448&from=CM&nsl_code=LIME&sourceObjectId=9944889&sourceRevId=1&fee_ind=N&exp_date=20270315-03:39:11) and the problem of student loan debt.

The big problem to me is that, structurally, nothing has improved and things are actually in some ways worse than they were before. The moral hazard problem has not been addressed and is actually exacerbated by the fact that the "too big to fail" organizations are actually larger now due to the consolidation that was government-brokered during the crisis (a bit old, but https://img.washingtonpost.com/wp-apps/imrs.php?src=https://img.washingtonpost.com/blogs/the-fix/files/2016/02/Banks_v2.jpg&w=1484). There remains no compartmentalization between retail and investment banking. Ratings agency incentives are still not aligned. Sure, Dodd-Frank grants authority that wasn't there before but that authority hasn't been used to reduce systemic risk really. And the new administration wants to walk back on these already weak measures.

TLDR: Not just yet. Maybe later.
« Last Edit: March 15, 2017, 12:12:39 PM by tarheeldan »

SwordGuy

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Re: Another subprime housing crisis?
« Reply #2 on: March 15, 2017, 04:02:32 PM »
So, based upon the two postings so far, we're either basically ok for now or rental property will be on sale for cheap.

Win-win in my book!

mishek01

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Re: Another subprime housing crisis?
« Reply #3 on: March 17, 2017, 10:07:08 AM »
In terms of inflation-adjusted home prices we're not where we were yet:
https://www.advisorperspectives.com/images/content_image/data/dc/dc67c797b11ffdb08032bbc0daeb9343.png

Households are also not near as leveraged as they were:
https://fred.stlouisfed.org/series/TDSP

MBS and ABS outstanding are not as high:
https://www.dropbox.com/s/3bmsfw5zgfgfa5a/CDOs.png?dl=0
https://www.dropbox.com/s/v7um7akghygr0p9/MBS.png?dl=0

And, for now, we appear to be in the expansion phase of the business cycle, according to GS:
https://www.dropbox.com/s/sa472kv9isbcay6/Business%20Cycle.png?dl=0

On the negative side - there is also a subprime lending problem in auto loans with asset-backed securities (https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1815074&SctArtId=419448&from=CM&nsl_code=LIME&sourceObjectId=9944889&sourceRevId=1&fee_ind=N&exp_date=20270315-03:39:11) and the problem of student loan debt.

The big problem to me is that, structurally, nothing has improved and things are actually in some ways worse than they were before. The moral hazard problem has not been addressed and is actually exacerbated by the fact that the "too big to fail" organizations are actually larger now due to the consolidation that was government-brokered during the crisis (a bit old, but https://img.washingtonpost.com/wp-apps/imrs.php?src=https://img.washingtonpost.com/blogs/the-fix/files/2016/02/Banks_v2.jpg&w=1484). There remains no compartmentalization between retail and investment banking. Ratings agency incentives are still not aligned. Sure, Dodd-Frank grants authority that wasn't there before but that authority hasn't been used to reduce systemic risk really. And the new administration wants to walk back on these already weak measures.

TLDR: Not just yet. Maybe later.

This is incredible information. How do you know all this (job or interest of yours,) because I am sure you didn't just look it up and some of the links are from a dropbox account? Very curious, because I would love to be able to figure out this kind of information. I am in Real Estate part-time.

tarheeldan

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Re: Another subprime housing crisis?
« Reply #4 on: March 17, 2017, 11:01:06 AM »
How do you know all this (job or interest of yours,) because I am sure you didn't just look it up and some of the links are from a dropbox account? Very curious, because I would love to be able to figure out this kind of information. I am in Real Estate part-time.

Hi! I'm an OTC commodities options trader, so the Dodd-Frank regulations are something that impact me professionally - but mostly it's just an interest and I'm no real expert.

The Dropbox is mine, and as part of my job I get a lot of market intelligence from other firms - mostly oil-related like Argus, Platts, OPIS, etc, but also from Goldman Sachs, BofA, etc. My academic background is in economics and I'm fascinated by market failures - especially these days where an extreme laissez faire viewpoint is espoused by people who don't seem to understand these issues (externalities, tragedy of the commons, moral hazard, etc.)

Capt j-rod

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Re: Another subprime housing crisis?
« Reply #5 on: March 17, 2017, 05:32:40 PM »
The lending regulations and rules are a little tougher, but they are getting easier by the day. My rentals are always purchased in cash. I get a better deal and I can buy houses that others can't. If it won't pass inspection, the bank won't lend the money. I stalk the houses that the seller wants out and doesn't want to or can't afford the improvements. Will there be another bubble? I think yes. There are a huge number of bank owned houses that are being slowly released... If they dumped them all at once it would flood the market. There are still a lot of people that are teetering on the edge pay check to pay check. I see it everyday. People can't afford a $750 hot water heater swap, furnace repair, or anything over $200 without a charge card. America is cash poor. As interest rates rise, so do the payments. The market is strange in Ohio right now... 3 bedroom 2 bath homes are hot. McMansions sit and rot. Small starter homes are very overpriced. If the house needs a roof, kitchen, or bath, no one will touch it. They barely have a down payment, and they want it perfect.... Our rental market is crazy. Not enough units to go around. Will it pop? Maybe. Did anyone learn anything from 2008? NOPE!