Here are a few basic datapoints on the homebuilders as it pertains to the big Calf Bubble market. First unlike last year, there is nothing out there below 5.0% now. IO's are 5.875, 30 years are 5.75%, 7 years are 5.54, 5 years are 5.25, 3 years are 5.0, even a six month is 5.0%
mlcc.ml.com
Secondly using the affordibility index,
Message 21066279
only 5.4% of households in San Diego, 6.2% in LA/Long Beach, and 7.9 in Orange County can afford the median price house there, and that was last year when rates by and large were one percent lower than now. Additionally I think the lenders have already shot their wad on teaser rates. They will increasingly eat shit on them, and increasingly the borrowers will eat shit as well. Why would anybody even leave a dime at a bank or in a money market now, when you can get close to 3.0% on a six month T-bill. I expect bank deposits to steadily empty out, forcing them to have to offer much high CD rates to keep them. Meanwhile here's the 2/10 spread this morning: 3.54-4.28= 74 bps. Is that really a profitable lend or carry trade?
Here's the current ARM reset rates on 1 year Libor and CMTs: 3.51% Libor plus 2.25 margin = 5.76, 3.12 1 CMT plus 2.75 margin = 5.87. It's getting expensive, especially with 400-500k mortgages and, and really defies gravity. I still haven't been able to get good figures on the number of Calf mortgages that reset in 05, but I'm guessing about 10% of total mortgages? In 2002 the 3 year ARM was the most popular. Plus there is heavy use of Helocs, which immediately adjust to every prime rate increase.
I can only conclude that we are seeing a final stage silly season short squeeze right at the moment when fundamenatals for the whole finance, housing Bubble are getting increasingly distressed. |
