The Endgame Is Getting Nearer: Beginning in a boom in financials.

[scriabinop23]

Banks run the show:

1) They hold the assets (REO foreclosures)

2) The decide to make the loans to sell those assets.

Now if you were a bank owner, with cost of borrowing near zero, why would you ever make a loan to sell the asset at a loss, at the bottom of the market (if you don't have to, which is now the case)?

This is going to supress the supply side and keep foreclosures from weighing to heavily on prices - prices will stabilize higher. The banks actually have incentive to make qualification to borrow difficult until prices are high enough to move latent supply without locking losses.

I see massive write ups once this gains some momentum, combined with fiscal stimulus and more dilution of the dollar. Money printing is on the banks' sides. This will reverse the damage to past dilution.

caveat: bank stocks may be worth a lot of dollars, unfortunately those future dollars likely won't be worth as much as today.

 

[Susannah]

A couple of things I see wrong with what you're saying (although you make good points!): the inventory controlled by Fannie and Freddie aren't in the control of banks, and also, keeping houses on the books of a company isn't a free proposition, there are property taxes to be paid. In Texas that's usually 2-3%, so waiting for years for an asset to recover value might not be feasible. There are also other costs accrued if you just let a house sit there.

 

[peilthetraveler]

Quote from scriabinop23:

Banks run the show:

1) They hold the assets (REO foreclosures)

2) The decide to make the loans to sell those assets.

Now if you were a bank owner, with cost of borrowing near zero, why would you ever make a loan to sell the asset at a loss, at the bottom of the market (if you don't have to, which is now the case)?

This is going to supress the supply side and keep foreclosures from weighing to heavily on prices - prices will stabilize higher. The banks actually have incentive to make qualification to borrow difficult until prices are high enough to move latent supply without locking losses.

I see massive write ups once this gains some momentum, combined with fiscal stimulus and more dilution of the dollar. Money printing is on the banks' sides. This will reverse the damage to past dilution.

caveat: bank stocks may be worth a lot of dollars, unfortunately those future dollars likely won't be worth as much as today.

It seems like it. I mean say the banks have a 400k house from 2007 and at .25% interest they are paying on, They can sell that house for 200k at 5.5% interest and still make a small profit on the loan. As long as they keep the loan, they are good, they just wouldnt be able to sell that loan.

 

[scriabinop23]

Quote from Susannah:

A couple of things I see wrong with what you're saying (although you make good points!): the inventory controlled by Fannie and Freddie aren't in the control of banks, and also, keeping houses on the books of a company isn't a free proposition, there are property taxes to be paid. In Texas that's usually 2-3%, so waiting for years for an asset to recover value might not be feasible. There are also other costs accrued if you just let a house sit there.

fair enough. I think a large enough margin exists with a liquidation that a bank is still incentivized to hold. $100k difference on a $400k house is enough to pause and maybe invest a few years into property taxes and minimal upkeep, over 50000 houses. With that said, bank bailouts (to those who sit on the properties) are actually municipality bailouts (since prop taxes are paid as carrying cost).

 

[lrm21]

valid points for signaling a bottom in real estate

I don't think housing prices will fall much more at this point

I also think real estate is now being driven by local factors some markets will slowly thaw others may have years of inventory


I don't see a recovery in financials

Where is the future growth to justify valuations

Many of these institutitions are partially nationalized
Onerous regulation incoming

Financials are becoming utility companies

Bottom in real estate likely
Boom in financials nope

 

[FanOfFridays]

Quote from lrm21:
I don't see a recovery in financials

Where is the future growth to justify valuations

Many of these institutitions are partially nationalized
Onerous regulation incoming

Financials are becoming utility companies

This may be the case for U.S. companies (although I have my doubts about it, certainly if you're suggesting this is the case for all or most of them) but look at Canada if you want an example of an industry that will eventually get back to making big money.

 

[Renegen]

How? All the canadian banks do is retail banking, low risk loans and getting rich off of fees. It's a steady business but nothing explosive.

 

[scriabinop23]

The boom I suggest will not be in earnings, but will be in book values. So I see a major move up to a valuation level much higher, then after that probably not as compelling an investment.

 

[FanOfFridays]

Quote from Renegen:
How? All the canadian banks do is retail banking, low risk loans and getting rich off of fees. It's a steady business but nothing explosive.

How what? I was saying that in the past xx years Canadian banks have been consistently profitable. They've all either approached or exceeded a billion in profit/year until the past while, and they'll get back to it.

I was responding to the idea that financials are partly nationalized and will be like utilities. Canadian banks are not partly nationalized.

Canadians like to own their bank stocks.

 

[sumosam]

i don't think Japanese real estate went up when the interest rates there dropped near zero....plus, the population there is old...like we are becoming. Less need for housing.

somehow, i don't see immigration to north america as a big plus right now....so, stable population size (except for mexicans, i guess)