Comments on: IMF Paper: US Housing Overvalued by 14%, Likely to Overshoot on Downside http://www.nakedcapitalism.com/2008/07/imf-paper-us-housing-overvalued-by-14.html Sun, 22 Nov 2009 11:45:14 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Anonymous http://www.nakedcapitalism.com/2008/07/imf-paper-us-housing-overvalued-by-14.html#comment-12006 Anonymous Sat, 26 Jul 2008 06:18:00 +0000 http://www.nakedcapitalism.com/2008/07/imf-paper-us-housing-overvalued-by-14-likely-to-overshoot-on-downside/#comment-12006 And what drives the inventory to sales ratio? And what drives the inventory to sales ratio?

]]> By: David Merkel http://www.nakedcapitalism.com/2008/07/imf-paper-us-housing-overvalued-by-14.html#comment-12002 David Merkel Sat, 26 Jul 2008 06:05:00 +0000 http://www.nakedcapitalism.com/2008/07/imf-paper-us-housing-overvalued-by-14-likely-to-overshoot-on-downside/#comment-12002 Yves, here's the link.<br/><br/>http://www.imf.org/external/pubs/ft/wp/2008/wp08187.pdf<br/><br/>The caveats that I would point out are inflation arresting the slide in nominal terms but not real terms, that we are dealing with averages, that land scarcity does lead to some upward change in land prices in real terms, and that we could get an undershoot. Economic systems rarely return to equilibrium.<br/><br/>Aside from that, he is in the right ballpark. Yves, here’s the link.

http://www.imf.org/external/pubs/ft/wp/2008/wp08187.pdf

The caveats that I would point out are inflation arresting the slide in nominal terms but not real terms, that we are dealing with averages, that land scarcity does lead to some upward change in land prices in real terms, and that we could get an undershoot. Economic systems rarely return to equilibrium.

Aside from that, he is in the right ballpark.

]]> By: Rick http://www.nakedcapitalism.com/2008/07/imf-paper-us-housing-overvalued-by-14.html#comment-11986 Rick Sat, 26 Jul 2008 02:09:00 +0000 http://www.nakedcapitalism.com/2008/07/imf-paper-us-housing-overvalued-by-14-likely-to-overshoot-on-downside/#comment-11986 Is there a link to the actual article? <br/><br/>The generic "X% drop in US home prices" is fairly meaningless, except in continuing to inflame anxieties and additional generic statements. The average home price may be meaningful, but so might the median home price. So might the ratio of houses under contract to listings, and days to sale, etc etc. Maybe the article does discuss all of this...<br/><br/>Since all real estate is about location (location location), to either a homeowner or a mortgage creditor (other than the US govt) the relevant data is that which is local and specific. <br/><br/>For example, in "Silicon Valley" (nee Santa Clara County) in California, there are dozens of of defined (by the local realtor ass'ns) "Areas". Some, such as the Los Gatos/Saratoga Area have seen next to no decline in prices, and have seen something of pick-up since May of this year in houses under contract. Other "Areas" of the county (Alum Rock, South Almaden, Morgan Hill?) have seen prices plummet >30-40%, and the "average" house price decline for the Silicon Valley is of no help (nor interest). And all this variance is within one county of one state. <br/><br/>In any case, just by discounting with updated (and potentially upcoming) increased interest rates - without any change in supply/demand factors - "drops" the value in "national" home prices, so I would submit that the stated overvaluation measure is neither particularly accurate (probably far too conservative), nor particularly meaningful - except of course to the extent the US taxpayer is picking up the tab for FNM and FRE's (necessary) recapitalization. <br/><br/>(However, isn't there a conundrum within the valuation problem once "risk free" (US Treasury) capital is being used to underwrite the assets? Should the value of the REO owned by the US govt be calculated using a discount equal to the risk-free rate, or at the rate corresponding to the originator who has offloaded the asset, or at a rate corresponding to the potential buyer? (But if the Buyer uses a GSE sponsored/gtee'd loan, what discount rate applies?)<br/><br/>(NB the quotes around "risk free"... NAB has already weighed in with its assessment, and the continuing decline in the value of the dollar supports a modification to that longstanding assumption...)<br/><br/>R in NY Is there a link to the actual article?

The generic "X% drop in US home prices" is fairly meaningless, except in continuing to inflame anxieties and additional generic statements. The average home price may be meaningful, but so might the median home price. So might the ratio of houses under contract to listings, and days to sale, etc etc. Maybe the article does discuss all of this…

Since all real estate is about location (location location), to either a homeowner or a mortgage creditor (other than the US govt) the relevant data is that which is local and specific.

For example, in "Silicon Valley" (nee Santa Clara County) in California, there are dozens of of defined (by the local realtor ass'ns) "Areas". Some, such as the Los Gatos/Saratoga Area have seen next to no decline in prices, and have seen something of pick-up since May of this year in houses under contract. Other "Areas" of the county (Alum Rock, South Almaden, Morgan Hill?) have seen prices plummet >30-40%, and the "average" house price decline for the Silicon Valley is of no help (nor interest). And all this variance is within one county of one state.

In any case, just by discounting with updated (and potentially upcoming) increased interest rates – without any change in supply/demand factors – "drops" the value in "national" home prices, so I would submit that the stated overvaluation measure is neither particularly accurate (probably far too conservative), nor particularly meaningful – except of course to the extent the US taxpayer is picking up the tab for FNM and FRE's (necessary) recapitalization.

(However, isn't there a conundrum within the valuation problem once "risk free" (US Treasury) capital is being used to underwrite the assets? Should the value of the REO owned by the US govt be calculated using a discount equal to the risk-free rate, or at the rate corresponding to the originator who has offloaded the asset, or at a rate corresponding to the potential buyer? (But if the Buyer uses a GSE sponsored/gtee'd loan, what discount rate applies?)

(NB the quotes around "risk free"… NAB has already weighed in with its assessment, and the continuing decline in the value of the dollar supports a modification to that longstanding assumption…)

R in NY

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