Seasons of Uncertainty Confronts all Aspects of Operations as We Enter 2010
By Mark P. Dangelo
Also published at the National Mortgage Bankers Association
What a rebound in markets and sentiments within a short 14 months – from Chicken Little (“…the sky is falling…”) to Mighty Mouse (“…here I come to save the day…”). Is the worse behind us, or yet to come in 2010?
It was just in July 2008, when the wheels started severely wobbling on the traditional finance and mortgage vehicles, and September 2008, when the axle came off causing a financial “pileup” not seen in nearly 80 years. Very recently, global and domestic central banking measures are being allowed to expire, or in some cases, wound down or withdrawn. Consumer beliefs in a rebound are bottoming out, and in some cases, moving positive once again.
The world is apparently reaching a new, constructive equilibrium, while undergoing a rebirth of social responsibility driven by worldwide wealth shifts – West to East. Sanity and risk-adjusted business practices have reached into all corners of finance and mortgage groups (FMG’s). This change has been not just domestically apparent, but globally, as evidenced by Libor inter-banking lending spreads, which have fallen back to 2007 basis point valuations. Last but not least, global commodity prices (e.g., oil, copper, steel) have stabilized, but they are at the mercy of “weed filled” economies, country agenda’s, and day-trade speculators.
Back in 2006, the Case-Shiller Housing Index reached its highest point with origination values exceeding $3 trillion, but since then, we’ve fallen nearly 40% across both indices. Moreover, the once heralded home ownership percentage has beaten a hasty retreat from over 72% nationally to just over 67% in just over two years.
Additionally, receiving widespread coverage last month was a prediction by Deutsche Bank that the worst may be yet to come – nearly 50% of homeowners will owe more than their homes are worth by 2011. Even more dire are increasing economic predictions of a very long and protracted recovery if not another recessionary dip (e.g., a “W” or double bottom).
Foreclosures are still at historic highs, and our own government very recently has predicted millions of additional foreclosures in 2010. Downward pricing pressures on homes are widespread as federal, state, and local governments supported by servicers try to “modify” the legacy of housing’s irrationality against a shell-shocked consumer. The commercial markets are foretelling an unpleasant nightmare yet to come, and per capita household debt is the highest in history – even after rebasing (not including the U.S. Federal deficit obligation of nearly $700,000 per household).
Nationally, it appears unemployment is going to break or hover near 10% for the foreseeable future, and the investment markets needed for lending might be ahead of the fiscal reality, which is still playing out. We’re happy and encouraged by the “news not being as bad as it has been.” We hope never to see this situation again in our lifetimes. Indeed, we are an optimistic lot.
Most recently, as government officials advertized a 17% return on $70 billion invested. I wonder if during the 2010 mid-term election year, if we will have a touted return on the other $2 to $4 trillion portfolioed in the Fed’s balance sheet and the multitude of Treasury programs?
Or, will it merely be a footnote on the $13 trillion in Federal debt (equaling current U.S. GDP and including $5.5 trillion in Fannie and Freddie guaranteed debt) already clogging the books, and the clouding judgment of foreign creditors? What will FHA add to the mix of woes in the coming years?
So, with trillions in capital equity still to be raised, but currently equaling the market value of all FMG’s (approximately $2 trillion USD), what can be done? Where should business and technology investment’s be made in a Western world still full of uncertainty, record deficits, and a falling dollar?
Are we peering into a West versus East recovery that will produce very, very different economies and consumers as we enter the next decade? Is the shine permanently off the housing apple — to be picked up by new entrants supported by new methods?
As we peer forward on a new decade, there are many stories yet to be written, and many roadmaps in need of navigating.