Frank the Financially Savvy Atheist - The F.S.A.

This is old, but still quite hilarious.

A pizza with the radius z and thickness a has the volume pi*z*z*a.

Thank you reddit

Wells Fargo Bank NA has filed a suit which includes...wait for it...Wells Fargo Bank NA. HT: CR. Oh man, as CR so snarkily puts it: our TARP money, hard at work.

Based on this post apparently it goes in these places (I had a hard time reading the infographic so I made a simple chart instead)

No surprise that housing takes the cake. It was a bit surprising to me the healthcare is above entertainment, but it is what it is.

For some time now, whenever the stock market had an "up" day after some negative economic news people would say that "things are getting less worse", or the "second derivative is turning positive". While I can understand that people are looking for an inflection point in the data to try and tease out when the economic recovery might be starting, I just don't buy this second derivative argument.

Case in point, the Case-Shiller home price index. There are several ways to look at the 20-city composite index. I will highlight three ways.

The first way is to show the price of the index itself, which says we are back to early 2003 price levels and represents a 33% decline peak-to-trough.

The other way people look at it, is the Year-over-Year (YoY) change in the index. So they look at that and say, oh look, it's getting less worse. The YoY change is flattening out.




And finally, they say, hey, the Month-over-Month (MoM) change in the index is definitely looking better now.




Things are getting less worse, stocks go up, everybody wins. Allow me to pour a dash of reality on this optimistic viewpoint:


First, the MoM change looks very seasonal to me, which makes sense because spring and summer are the peak selling seasons for homes. People are moving to try and get their kids into schools at the right time, here in the north it's warm and there isn't snow on the ground, so prices tend to be higher during this peak selling season.

Not only that, but keep in mind that right now we have an unprecedented amount of government manipulation (quantitative easing?) in the mortgage market. The Fed is actively purchasing mortgage-backed-securities and treasury notes in order to make the 30 year mortgage rate as low as possible. However, the jig is up and while early in their campaign they were successful, now mortgage rates have increased and they lack the firepower to make it much lower. What does this mean for housing? It means the government is artificially increasing demand which has worked, and one could argue that it took the worst case scenario off the table (or at least made it much less probable), but once rates rise to 6% or higher, then the marginal buyer will be out of the market and demand will continue to fall. Moreover, the first-time home buyers credit is set to expire later this year which also removes another marginal buyer from the housing market.

Plus, if things are getting less worse, that doesn't mean things are getting better anytime soon. Even if prices are going to stop falling now, that doesn't mean that we're going to go straight back to post-bubble levels. I would also argue that we won't be going back up to historical means either, because by most historical measures, housing is nominally "overly" affordable.

Lastly, there is more supply around the horizon in the housing market. While the Fed and the Administration are goosing demand right now (via the first time home buyers credit and lower mortgage rates), nothing can stop the supply coming down the pipeline. Foreclosures continue unabated as mortgage servicers realize that you can't modify loans for every single person who calls in with some story or another. In CA, Option Arms* recasts will be coming in 2010, and in general, more prime borrowers will be resetting. Moreover, unemployment will continue to rise and if you don't have an income, then how can you afford your home even if you can negotiate a lower payment?

Taken together, I forsee a continued drop in home prices and after that, a very flat environment before prices begin to increase. In addition, I would also expect that regional dynamics to start to play a more significant role and I would fully expect for some markets to recover faster than others. Until then, I am going to ignore the second derivative argument until I think it has some merit.


* Option Arms are especially troubling due to the fact that many of them are in CA, the epicenter of this housing crisis, and they have a Negative Amortization feature, where borrowers can make less than the principal and interest due and the difference is added to their existing balance. So talk about a double whammy, your house has depreciated significantly and your loan balance is greater than what you took out originally.

A few months ago with mortgage rates once again ridiculously low (thanks to government manipulation) we set out to try and refi our current mortgage. This required us to get a fresh appraisal on our property and needless to say, I wasn't feeling optimistic about it. In fact, it was worse than I feared and we are actually about $30-60K underwater. Sucks to be us.

I wonder if we should just walk-away, it seems to be the modus operandi now. However, even a godless atheist like me can't justify walking away. Don't get me wrong, from a rational point of view, I could improve my own personal situation by just forgetting about this house, but I signed on the dotted line and I gotta pay this thing back. Unfortunately, since our mortgage DTI is less than 20%, we don't get any help from the Obama plan either.

Damn it, what was I thinking with being responsible and not buying too much house. I should have know the government was going to step in and bail me out, I should have levered up when I could. Oh well. /sarcasm

So it kind of sucks. Underwater on the house, not being paid as much as I was expecting at work, working longer hours and having more responsibility. At least the stock market is trending upward...for some inexplicable reason.