More Housing/Lending Statistics

The majority of the coming statistics I am about to share with you are from Bloomberg:

New housing starts are down 14.3% in January. That's an annual rate of 1.408 million. That's the lowest it has been since since 1997. The predicted starts for 2007 were supposed to be around 1.6 million.

The amount of banks tightening lending standards for home loans in the final three months of 2006 than in any quarter since the early 1990's.


The risky sub-prime lending market makes up approximately 13% of the $10+ trillion lending market. Some 20% of the $1.2 trillion dollars in sub-prime loans given out in the last 2 years will end in foreclosure.

More than 20 sub-prime lenders have closed down shop in the last 3 months. The lenders that remain are tightening down lending standards and throttling back on the volume of loans given out.

New Century Financial Corp., the second largest sub-prime lender, expects loan volume to drop by 20% in 2007.

Delinquencies on ARM loans rose to a 3-year high of 3.1% in the third quarter of 2006. That number is up from 2.3% the same time a year ago. Also, approximately $800 billion dollars of ARM's are going to reset higher this year.


Analysis:

Remember, all of these foreclosures and delinquent payments, are coming when the job market is strong and the unemployment rate is at a 6-year low. Also, the risk of the sub-prime market, is often funded by the prime market lenders: Citibank, Morgan Stanley, etc. The prime market is getting rocked through this mess too, because when the sub-prime lenders default, the losses are then taken on by the prime lenders.

These "new" tougher loan standards will continue to hurt the housing market. New, is in quotations, because we are actually just going back to the original lending standards before the era of easy money. With a huge inventory in the housing market already pushing prices down, we will see more downward pressure on prices as lending standards make it tougher for folks to obtain a new/old home.

We also haven't seen the effect on foreclosures due to the resetting of ARMs. Like I said $800 freakin billion dollars of ARMs are going to reset this year, and that's a conservative number. I have seen numbers as high as $1.5 trillion. That will cause more foreclosures and will be the equivalent of throwing gasoline onto the fire.

Now the talking heads on Fox News, MSNBC, and CNBC, refuse to acknowledge any of this. I was watching CNBC the other day and an analyst said that we are heading for a credit crunch. The other analyst called him an extremist and laughed at him. If you've been reading up to this point, I would consider calling the current conditions of the market a credit crunch as an optimistic view.

The most important aspect about this whole post and the housing/lending market is going to be the effects it has on consumers (refer to my previous post regarding the feedback loop). We haven't begun to experience the true effects on consumer spending, and consumer spending makes up 70% of our GDP. Government and independent organizations are all cutting their predicted GDP for 2007. The housing debacle is just like an ice berg. I hope that we can learn our lesson better than the Titanic did. Remember, you can only see the tip of an iceberg making up about 10% of its total mass. Well, we have only seen the tip of the housing/lending/credit iceberg.