'Accounting Games' Mask True Financial Pain, Says Housing Seer Rosner

Until the average home price is 2.5 times the average salary the housing industry will not recover.

Joshua Rosner is right on target. The financial entities are still holding back too much in the "closet",just to soothe their clients, investors and wall street in general. It will all eventually come out publicly, but in the meantime, you better be careful where you put your money, and how much. Right now it is strictly a game of "Roulette". Even I recognized this when the problems of Countrywide,popped up. If you like to gamble,with the odds stacked against you, now is the time. Jim

I'm curious... Is Mr. Rosner a certified 'housing seer,' or just a freelance one... Better hurry to get on the doom wagon before it's too late. Whatever happened to the recession????

Duane: you are absolutely right. Home prices are still out of whack with incomes, I have been saying since 2004 that price-income disparity is out of control and has to be brought in line. I say once we get to 2.5-3 times income max we might be getting to a turn around. Until then....

Duane B., you are correct. The sales price should be in the range of 2.5 times your salary, and the monthly payment should be in the range of 25% of take home pay.

This is a longer bottoming process (local economy driven), that will take 12-18 months. Get an incredible deal if you can get a loan! Stick to your guns and low-ball the crap out of these banks.

NOT ROULETTE, RUSSIAN ROULETTE. ONLY NOT WITH A REVOLVER, BUT AN AUTOMATIC

AMBAC and MBIA are doing a good job in cracking open CDO-ABS-RMBS containing about 84,000 fraudulent loans for book remediation. They could also sell CDS and policies on toxic waste to buttom feeders for capital/delever ratio strategy.

AMBAC and MBIA are doing a good job in cracking open CDO-ABS-RMBS containing about 84,000 fraudulent loans for book remediation. They could also sell CDS and policies on toxic waste to buttom feeders for capital/delever ratio strategy.

Duane- Your thoughts on the relationship between wages and housing prices is a bit short sighted. Builders are for profit companies so while you may think housing prices should be 2.5 times wages, the reality is raw materials costs have skyrocketed and no longer make that proposition realistic. Average wages are somewhere around $45,000 there are not a lot of $112k homes out there that can be built for a profit given the materials cost. Prices and realtionships change folks, it part of the open market system. If you really think historical valuations are significant then, based on PE ratios, the Dow should be closer to 7500 than 12,000

It's funny how you assume that there "should be" some set ratio of home value to salary. The fact is that the U.S. has been exporting its wealth to China and OPEC for the past few decades, and that wealth has been distributed via inflation to everyone's bottom line. Americans simply can't afford the same luxuries as before. In order to pay only 25% of take home pay or 2.5 times annual income, Americans need to set their sights on much smaller houses. The material costs alone of an "average" sized house far exceed those ratios. The only alternative to nationwide downsizing of assets and expenses is nationwide upsizing in savings and production, which simply isn't likely anytime soon. The Saudis and the Chinese are going to have to come over here and buy our larger houses, or they'll simply languish like the grand Victorians of the past golden age.

Love this guest, not necessarily because he is bearish about financials but because he pinpointed the wall street game of the last few quarters.

It's funny how you assume that there "should be" some set ratio of home value to salary. The fact is that the U.S. has been exporting its wealth to China and OPEC for the past few decades, and that wealth has been distributed via inflation to everyone's bottom line. Americans simply can't afford the same luxuries as before. In order to pay only 25% of take home pay or 2.5 times annual income, Americans need to set their sights on much smaller houses. The material costs alone of an "average" sized house far exceed those ratios. The only alternative to nationwide downsizing of assets and expenses is nationwide upsizing in savings and production, which simply isn't likely anytime soon. The Saudis and the Chinese are going to have to come over here and buy our larger houses, or they'll simply languish like the grand Victorians of the past golden age.

Anybody know what the charge-off rate on credit cards is? Wait til those show up on the bank's desk. What is the debt, about 1 trillion, unsecured? And you all know that these people were making their house payments w/ cards BEFORE they foreclosed.

I have to laugh the banks know exactly where this crisis is and why Credit has become big business the "mortgage & credit card" industry have run rampent with new innovative ways to lure in consumers when they ran low on new customers they just relaxed there credit standards opening the door for a whole host of new customers, banks make money of the customers who carry high balances on credit cards, take those "risky" mortgages because they have no other choice, the love these types if they fail to meet there obligations so what to them they at least took what ever they could in fees, intrest and payments, there job is to keep you in debt as long as possiable and when we have the market the way it is now, we will end up bailing them out.

Move to Austin, Texas, south of the river, in Bubbaland. It's a gold mine. Anything there will only appreciate.

Yes, this recent Merrill Lynch / Lone Star - SCA deal does look more and more like smoke and mirrors as time passes and I'm grateful to Yahoo Finance for highlighting the story (and very sorry indeed for an extremely vulgar and discourteous posting by me at that time). Any financial wizards out there able to put some reasoned flesh on my intuition that in fact we can't afford just to let the sub-prime market go. I suspect that must be so if the supply / demand imbalance is ever to be made good again.

I would have to say there is no such thing as a proper housing cost to income ratio. It really depends on where you live. It's just plain cheaper to live in the Midwest than it is to live in California. I would still choose to live in California. Over here in Northern California you can get a good contractor to build a reasonable house for you for about $100/s.f. I'm not sure if the cost of land and permits is included in that. So if you make 30k/year, you can afford a 900 s.f. house maybe. Nowadays it seems people feel they are entitled to these big huge ghastly McMansions, but if you look in the older neighborhoods you will see plenty of 900s.f. houses. People used to build according to what they could afford.

Yo gator, you missed the point underlying Duane's observation regarding price / income ratios. 80% of home sales are bought with mortgages, according to ushousingmeltdown.org. I think that number's probably low, but let's use it for now. ALL mortgage lending is continuing to contract, with credit score requirements rising, ltv's being reduced and general underwriting guidelines for things like dti (debt / income) being tightened as well. People who would have qualified 4 months ago do not now, with Fannie Mae's new, more stringent guidelines. Housing inventories are at 11 months, twice what they should be, and that's with no builder in the past 12 months laying a brick that's not paid for in advance. Foreclosures will continue to rise for 6 - 12 months despite Congress' clamoring which will continue to exert downward price pressure. 3 - 5% annual property appreciation has been the norm for 75 years in the U.S. The pullback from the 30 - 40% annual climb over the past 5 years will continue to be a large, unpleasant hangover after the party. I am a mortgage broker and am on the front lines of the seismic changes going on in the industry. Prices will still come down in nearly all markets for 12 - 18 months, with the 4 worst ones (FL, AZ, CA, NV) taking longer still.

I love when when analysts try to play "accountant". The AMBAC example above is ridiculous. AMBAC provides bond insurance to cover losses on certain bond classes. In the case of Citi... it was insurance on portfolio of CDO bonds. AMBAC paid Citi $850 million to terminate the insurance policy on the CDOs. AMBAC had a loss reserve of approximately $1 billion for losses it expected to cover on this portfolio (meaning they previously took $1 billion of losses through the P&L in prior periods). They (AMBAC) are no longer "on the hook" for these losses upon termination of the contract by Citi. So I ask you, if AMBAC has fully realized the loss by converting it to $850 million in cash... is it "inappropriate" to reverse its $1 billion reserve and recover the $150 million of previously recorded losses through the P&L? Seems reasonable to me. Now Citi should be recording significant write-downs on the CDO portfolio, since they are no longer insured. From Citi's perspective, the $850 million "gain" realted to the cash payment would undoubtedly have been significantly if not fully offset by the CDO write-downs they took when they revalued the CDO portfolio. Sorry to seem sore on this topic... but I am tired of people screaming "foul accounting" without even understanding what they are talking about nor respecting the fact that organizations accounting departments go to great lengths to get the accounting right. Further, public company quarterly results are reviewed by their external auditors... believe me, they take this job very seriously in this environment.