Interest Rate Roundup

Monday, October 08, 2007

Monday morning quick hits

I am sore as heck after spending several hours working the yard this weekend. But mentally, I'm thoroughly refreshed this Monday morning. So what "quick hits" are worth highlighting?

* Subprime mortgages that were bundled and sold as bonds in the first half of this year are performing worse than any other "vintage" in U.S. history, according to Moody's Investors Service. About 6.3% of the loans bundled together in the first half of 2007 were seriously delinquent (at least 60 days late or caught up in foreclosure) just four months after they were securitized. That's up from 4.2% in 2006 and above the 4.5% SD rate of 2001, a time when the U.S. economy was in recession.

* New home builders have moved from throwing "cash on the hood" to cutting base prices on homes, according to the Washington Post. Here's an excerpt from the piece:

"Craftstar Homes recently had a "Luxury Home Clearance Sale!" where customers could win a vacation and up to $110,000 off an already-built house. Buy a Ryan Home and get "employee pricing," or 10 percent off the purchase price up to $35,000. At the Sterling at the Metro, a condominium community in North Bethesda, buyers got $50,000 off the price or toward closing costs last weekend."

I've talked about this dynamic before. The fact is, inventory is through the roof and prices are still way out of whack with median incomes even after the declines we've seen to date. So I think we'll see plenty more wheeling and dealing in the months ahead.

* The stock market has had one heck of a run from its August low, thanks to a hyper-injection of easy money and excess liquidity from global central banks. But it seems options traders aren't convinced the worst is behind us.

In fact, Morgan Stanley notes that investors are paying the most ever, relatively speaking, to insure themselves against the possibility of a stock market crash. Put options (which you buy to protect yourself from a market decline -- or profit from it) cost about 8 percentage points more, on average, than call options (a bet on rising stock prices). Downside protection is more costly now than it was during July 2001, when the economy was slumping sharply and the dot-com bubble had burst. Interesting reading.

* Lastly, the restructuring continues at St. Joe, a major developer in my state of Florida ... and analysts at Stifel, Nicolaus & Co. say that the downturn in housing and consumer credit quality is still in its early stages. Their conclusion: Home prices should fall at least another 10%.


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