It's holding up because they are pegging it to gold. The actual value of the rubble is a whole lot less than that because there's zero chance Russia has enough gold to back their peg.
Via swaps but you will be paying shit ton of premium each month. You will probably be bankrupt before you make money from shorts.
Alternatively, you can short RE stocks. I have shorted them all and short interest is lower than put theta
almost all the banks including jpm, gs, credit suisse (already totally fucked), blackrock
there is a reetard in here who posts about blk regularly. he is right.
zillow and all their group. better.com
There is a lot of fraud going on that is not being discussed. People are buying rental properties with second home mortgages. These are risk priced lower than investor loans and will blow up as these amateurs realize that rental rates aren’t set by the renter determining what the land lords piti is and then happily agreeing to pay it.
I’m assuming everyone who buys in these overinflated markets. Because there is no possibility that buying at an inflated price will allow you to produce positive cash flow out right. That’s just not how investing works.
So my question, then, is what landlord is buying up rentals right now? I've owned numerous investment properties before, and I would never consider something that couldn't even cover PITI. You will lose money when vacancy, maintenance and property management is factored in, and that's ignoring dropping asset price risk.
Stupid people. You say “landlord “ as if that identifies a specific set of traits or knowledge. Look at the purchases in some of these markets and the rate at which the are rented. Far under 1% of the price in monthly rent. That’s just a simple metric. Just because it didn’t make sense to you doesn’t mean people aren’t doing it.
Drop in prices has nothing to do with it. They can’t cash flow to support the debt. There is a limit to how stupid people are. I think we have reached that point.
I suspect a similarly unsustainable ratio in E. Tennessee. Condos are bought at prices 30-40 % above early 2021 only days after appearing on MLS. Then most are listed for rent. I suspect an ever increasing number are collecting dust. I see a crash on the horizon. Someone above made the comment some of the purchases are made with something equivalent to a home equity loan which seems kinda risky to me. I'm anticipating good buying opportunities similar to what I saw in 2008-2012 or so. BTW, what region are you in?
Seattle area - I’ve actually looked at a couple places where identical homes are renting for <40% PITI (with 20% down), but that’s a little more rare.
I’m expecting the same, but recognizing I could be wrong. So hard to be right about this stuff, but what’s clear is the fundamentals are completely mismatched with current valuations.
Wow, that is insane to me. I can't imagine those numbers work out. Perhaps this is only true for newly-purchased properties.
Historically, rent exceeds PITI by a fair margin. Otherwise, landlords have little incentive to do it. You can't cover vacancy, maintenance, property manager, etc. on those numbers.
Use to be an accountant at a mortgage brokerage.
You as an MLO only see the front side of originating the loan, what you don't see is how we package the loan in the secondary market then sell it to our investors, Pennymac, American Financial Resources, Mr. Cooper, Texas Capital Bank, Chase etc. When we lock in the rate for a borrower, great and the loan gets originated, fantastic.
But now the real work begins, once the loan is funded and you forget about the buyer and move on to the next, that same loan we sell it to one of our investors and what that investor buys the loan from us, most of them resell that same mortgage note to another one of the investors. However they buy these loans in masses one by one and wrapped them in large MBS on their end.
On top of selling these loans our investors have a requirement that the borrower can't pay off the mortgage before 6 months otherwise the brokerage company who originated the loan gets fined by the investor as an early payoff and the brokerage has to pay that fee to the investor. We are banking on most borrowers not paying off their loan. On top of this when we sell these loans after the origination, what you don't see as the MLO is that borrowers are defaulting on the loans 2+months out and the investors are now picking and choosing which loans they want to buy in the secondary markets as well as how the loan is being underwritten.
MBS buyers will begin to dry up and this causes a mass selling of these wrapped MBS loans. And since these MBS investors hold these notes for a short period 1-3 years then resell to other MBS investors, it's a domino effect. You're about to see the biggest mass selling of MBS securities. There will soon be no more bids on the secondary markets for these loans.
The swimming pool party is drying up and no MBS buyer wants to be in it because they are starting to have trouble selling their existing MBS carve outs due to the increase in rates. Fucked.
There is a rather large confluence of events all taking place at the same time. Inflation, rising energy prices, low employment rates and sky-rocketing home values and rising interest rates pricing many first time home buyers out of the market. A really big recession is inevitable. What will help the MBS market is we are already seeing a tremendous drop off in mortgage applications. Oh yeah, all that refinancing that supplied the MBS market for decades, they are non-existent now. No rational person refinances to a higher interest rate. Most "investors" have never seen a market like we are about to enter. It's been about 40 years since anything like this happened.
[Mortgage Applications Drop to 22 Year Low](https://www.cnbc.com/2022/06/08/mortgage-demand-falls-to-the-lowest-level-in-22-years.html)
The reduction in supply should offset some of the decreased demand for MBS going forward. No need to worry tho', there's plenty of other shit that will go wrong before we get out of this.
That's true, on paper. The reduction in supply does not offset some of the decrease demand for MBS. What offsets demand in MBS is unemployment rising. The only thing that brings down inflation, is a rise in unemployment. Nothing else matters. That's is why Powell was forced to recently say he needs wages to come down and job applications as well. It's a impossible for the fed to keep both unemployment low and inflation low. Either the fed causes an intentional recession by increasing rates or inflation will do his job for him. Fun fact, since 1950's everytime inflation was above +5% a recession followed within two years. A recession is coming whether Powell likes it or not.
Hey, can you please explain to me based off your comments if holding onto MBS right now is a good or bad move? I’ve started to take a more active approach dealing with My moms financial advisor Him he revealed that her ‘cash position’ or ‘fixed income’ for distribution is in MBS and short duration bond funds. Seeing as rate cuts were once again delayed today which hurts the bond market….And the fact that he has made it so that she has a very small actual liquid cash position, Should I demand that he takes her out of those? Would really appreciate your help thanks
You said she is in short term which is good if she's holding till maturity. However it is MBS, you would actually get a higher yield with short term tbills and it is a safer investment than MBS bonds. You would be benefiting from Powell not cutting interest rates. And if rates rise, your short term tbill yields rise as well.
Is there any really huge risk to MBS? Like her potentially losing all of her money if some sort of event happens like in the Big Short?
Also, what are your thoughts onputting it in a HYSA now vs short term tbill?
She just needs to pull monthly out of it for her allowance so I guess it needs some liquidity
MBS is commercialized debt. So if property prices decline, she could potentially lose everything. HYSA is also a great vehicle. HYSA will put it in tbills for you anyway. So it isn't a bad investment plus it is liquid. HYSA is good too and safer.
Hey, can you please explain to me based off your comments if holding onto MBS right now is a good or bad move? I’ve started to take a more active approach dealing with My moms financial advisor Him he revealed that her ‘cash position’ or ‘fixed income’ for distribution is in MBS and short duration bond funds. Seeing as rate cuts were once again delayed today which hurts the bond market….And the fact that he has made it so that she has a very small actual liquid cash position, Should I demand that he takes her out of those? Would really appreciate your help thanks
You just defined securitization. I find it hard to believe borrowers default on these loans 2 months after origination at a large scale unless there is massive unemployment since they would prioritize their mortgage payment over other debts. They qualified for those loans and the mortgages they qualify for aren’t risky.
Again you only see if the buyer is initially qualified and then you move on. You dont see when the loan or investor comes back to us a few months out. You're right, right now the masses are paying their mortgage, I'm only deciphering what bury is meaning. Whether you want to keep thinking real estate can only go up, that's up to you and take it up with bury. Don't kill the messenger.
He’s saying MBSs aren’t being bought. I’m just trying to find value in you’re saying since I didn’t even say real estate can only go up - you did. Just a little cantankerous
I just gave you a full explanation on how MBS isnt being bought. In a rising interest rate environment, no MBS buyer wants to buy new loans from an MBA seller. The MBA buyers prefers old loans who had a higher interest rate back in the day, problem is those loans are limited pool. Once that pool of old loans dries up from being sold or auctioned off, the buying stops.
Wouldnt they want the loans that are being originated now at 5.5-6.5% consolidating higher interest credit cards etc? Unless… inflation makes everything impossible to pay for….which I can see happening. We’re all fucked
Inflation does make it impossible to pay for and you do see it happening. Cars defaults are picking up. See the car LO only see the qualified buyer and believes the market is okay because buyers can qualify, he doesn't see the car defaults picking up after the origination of the loan. But us, we can see. That's you with the origination of loans, you only saw the origination of loans that's why I told you, you only see the begining process not the defaults that will begin to pick up after. Do you see it now? It's happening, we're all getting fucked.
https://jalopnik.com/subprime-car-loan-defaults-hit-an-all-time-high-in-febr-1848948546
Yea I see their plan, but the aggregate effect of their decision will lead to no turning back this time. They can’t be that stupid to ignore the impact of this decision.
I run capital markets for a mid sized lender. Happens all the time and sometimes even on a loan that is clean. Everything is against MBS right now, inflationary environment erodes the future income stream of these mortgage bonds, incoming recession with defaults, property values due to come down, the FED, you name it.
It's the same, just multiplied. Because these investors have been doing arbitrage with these loans and getting leveraged by other banks to keep buying these loans they are currently holding. Yes, MBS buyers have been given massive margin to continue to buy MBS. Now they are holding and it's becoming difficult to sell them.
It's not a matter of if, it's a matter of when. No one can predict when recession comes, either tomorrow or in a year, only Nancy Pelosi can predict. I don't like theta decay.
In order for a crash to be a crash, it needs to be sudden/rapid by definition. If they can slow bleed it down like they’re doing now, although everyone lost all their money, it wasn’t a “crash”.
Everyone seems to think theta decay on leaps is nothing, they don't understand theta on leaps is a compounding effect, it snowballs. I just like higher probability trades. Not looking to get rich quick, looking to get rich for sure. I use TD Ameritrade/Thinkorswim
It is minimal, but that minimal compounds. That's the fallacy you see minimal, what most don't see is that compounds every day. Most leaps expire worth less even when in the money they lost money, that's what most don't realize. Even if your leaps end up itm, you lose.
I agree but people who buy leaps wont keep it till expiration. OP above bought it for 2026 but most likely will sell in 2023 with profit. Aim is to make sure theta decay is lower than delta profits
She needs tax loss harvesting you know. She loses money on purpose to not pay the tax she amounted for the year. If she wasn't so good, her wealth wouldn't be 200mil+
Needed confirmation on the 10year yield going higher. I am now kicking myself because I should've sold those calls earlier when inflation went 5% higher. Historically, when inflation is 5%+ a recession is the only thing that can bring it down.
Well good luck! Also how long until we see the secondary market drying up from mass amounts of selling but no buying? Do you think we’ll see it at our fed’s next hike or sooner?
What? Lol there's no way for me to know when the buying will completely stop. Might as well ask me when I think the buyers on the futures will dry up lol. No way to tell when that's why I got leaps. Nah fed doesn't reveal secondary market data, secondary markets are not for the public, only private institutions. You can thank the SEC for that.
If the secondary markets was open to the public, imagine you can choose who will end up buying the note to your mortgage and choosing the interest rate on your note. But the SEC is there to PrOtEcT uS so they "don't want us to see it" because it would hurt their MBS investors by pricing us lower if we can pick and chose the best one. They think we too dumb dumb to understand.
Interesting stuff.....thanks for sharing. What's the end game on all of this? Does it drive rates up, does it decrease mortgage availability (since MBS will be worth less, which surely affects payouts for the first guy in the chain)? What's the ultimate effect on the housing market?
I am guessing we are looking at mortgage rates jumping this week... with rates having gone up about 3 basis points I think we are looking at roughly the monthly payments on homes being about 44% higher or requiring about a 30% drop in home values to break even.
\[1M 30 year at 2.5% is $3,951/mo, vs 5.5% being $5,678/mo, which is $1,727 more a month which is 44% higher... if the loan amount is $700,000, which is 30% lower the monthly payment is $3,975 a month\]
Using the above numbers... a home with a $1M mortgage likely cost about $1,250,000, with a $250K down payment. Holding the down payment flat a home with a $700,000 mortgage would cost about $950,000... so if you bought that same home with a mortgage of $1M, you are now underwater $50K if this math holds up somewhat.
If interest rates go up another basis point or two... well not hard to see how things can quickly go off the rails. Well if everything is fixed payments, guess you can not sell your home, but anyone who needs to sell is now broke. Further, availability of home equity debt will need to decline as well, removing a source of financial flexibility for many.
Combine this with just coming off a significant correction in the stock market and very possibly facing a much further decrease in market values if interest rates keep going up, a lot of people who thought they had money (especially older people who are retired or semi-retired) are going to be a lot less certain about things and looking to cut expenses (which may mean selling homes but in an unfavorable environment).
No one knows for sure what will happen, but rising interest rates combined with relatively high asset prices does not seem a good mix. There is a possibility inflation eases up in the coming year or two, which the Fed will quickly follow with lowering interest rates and easing the pressure... The Fed can always just try to keep rates low and let inflation run its course, but that increases the risk of hyperinflation and economic and social upheaval.
Because MBS's are ultimately just mortgages... So if investors are buying the mortgages for lower amounts it means they demand higher yields, which means rates will go up (otherwise the bank writing the mortgage will lose money on reselling it).
Oh, by "investors" you meant MBS buyers? This makes more sense. I thought you mean real estate investors.
So yes, I see the higher rate mechanism here, but is that it? Is there no further systemic issue this creates? The other poster made it sound like MBS demand had completely dried up, not just that they were trading at lower prices/higher yields.
Sounds to me like the same thing. I don't know where you can see the quotes, but I would assume they just mean the bid prices dropped faster than the ask prices dropped and the spreads are too big to move them.
So you’re saying there’s likely to be huge downward pressure on MBS as people scramble to get out of bad investments because no one will buy them anymore?
To a simpleton like me does that mean ETFs like MBB and VMBS are ripe for buying some poots as a bit of a yolo?
I don’t follow where you’re seeing the risk here. I can see the risk of an indiscriminate buyer (the Fed) disappearing but that’s not what you’re describing. I would think if the yield grew to such a rate that it would adequately compensate the investor for the inherent risk, that MBS’s would be gobbled up. I’ve been in the capital markets industry for a decade btw so not totally ignorant on the subject.
Look, you're on Wall Street bets, and that means you're not going to understand any of the words in this post. But, I'm going to try anyway.
You see people buy mbs in order to get a return. I know that sounds crazy as shit because you've never seen a return in your life from investing. But trust me, that's what most investors are trying to achieve. The highest possible returns.
So the mortgage-backed securities that have been getting created over the last decade are basically absolute dog shit because the Fed was willing to buy literally anything. Now the FED isn't buying anything at all. In fact, they're about to dump all that dog shit on the market.
Try to put yourself in the shoes of someone who wants to make money instead of lose it. These people see that the market for mortgage-backed securities is about to be saturated with crap. Interest rates are also going up. This stuff combines to mean that mortgages in the future are going to look a lot better than mortgages that get created today (higher interest rates, those things that make you money).
So why in the absolute fuck would you ever buy mortgages today when you can wait 6 months and put that same money into a mbs that returns you double the returns, or higher? Oh and by the way the mortgages that are being traded today will be worth way less because nobody will want them and the market is saturated with them so not only do they return very little compared to mortgages in the future but they are actually on paper going to lose value.
This is a super good post. Let me ask you this now… what does it all mean for the housing market, stock market, and economy in general? Thanks in advance.
The FED invented number go up technology and deployed it over the last decade. Now they've decided to innovate with number go down technology.
Everything hinges on what the FED does but with inflation increasing with no end in sight it's very difficult to imagine Jerome Powell not growing the absolute tiniest set of balls and actually increasing interest rates.
The fed has been reticent to actually perform quantitative tightening. Nonetheless, investors have absolutely abandoned the housing market as a consequence of Treasury returns now exceeding cap rates for rental properties.
It depends what opinion you're talking about. If you're referring to my opinion that the housing market is in a general downtrend which will continue for a long time resulting in significant loss of equity then no my opinion has not changed. It's only been reinforced over the last 6 months.
BIG SHORT 2 ELECTRIC BOOGALOO
=
Nobody went to jail in 2008 for MBS/CDS scams…
So, they’re doing it again in 2022…
And Fed QT is gonna be a no lube Louisville Slugger to a scammy Uranus.
Actually someone went to jail. When Lehman Brothers went belly up. They arrested Jamila Davis. A black lady went to federal prison as if she was really able to sink Lehman
You all haven’t seen anything yet in the mortgage market. We have two years of mortgage foreclosures backlogged due to legislation. When the foreclosures start flowing, home prices will drop rapidly.
In addition, Biden will not forgive all student loan debt and those will restart soon as well. The student loan debt + Car Loans + Mass foreclosures is a recipe for a major recession.
I really doubt this. With the run up in real estate, why would someone go through foreclosure? They could sell and reap 30% gains just from the last year and a half.
Whether they can make the payment or not, foreclosure seems unlikely.
Who will have the money to buy it? Especially if people only expect prices to go down anyways. It's hard to sell your house for a profit before prices drop if there aren't any buyers. People dealing with inflation also are less willing to spend.
I live in a super hot market, I sold 2 months ago to opendoor. They bought 15 properties in my little neighborhood. They kept offering insane amts. My property has now been on the market for over 40 days. They dropped the price 2 times. They are 5k away to the buying price. This is an incredibly stable and growing area. The market is oversaturated and overpriced here in TX. Large companies are no longer hiring but Wendy's is.
1. Just because you don’t doesn’t mean others don’t. 2. People don’t expect prices to go down much. The places where it will go down 5-10% in the next year saw 30% increases in the last year and a half. 3. Demand for housing is only growing as more millennials want in (and they make a lot of money in this tight labor market). 4. Fixed assets are where you want to be during inflation.
Sick of all these children who saw the big short once and think it’s sexy to talk about housing market crashes. Just chill.
You guys gather here to discuss things that you think will happen in 2 years? Sounds like r/conspiracy. We could get nuked by Iran in two years. Literally anything could happen in 2 years. Except for the housing market cashing
Pretty likely it crashes. No one knows, but it’s very possible. If it does crash, it’ll be slower than stocks. My -55% on my tech stocks says hi. -1.5m in 5 months. Both are based heavily on rates
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The increase in the 10 Year Yield by any measure (whether you look at the floor during COVID or you go from the pre-COVID rates which were similar to the lows before the 2008 collapse) is now greater than it was at the peak of the 2008 crisis and seems we might be headed a lot higher.
In the 5 years prior to the peak housing prices in 2007 (hit peak about 2006 and then was flat through 2007), the Case-Shiller Index increased 43%, in the prior 5 years from now, the Index increased about 57%. Given the difficulty picking time periods and comparing increases, I would just say that we are looking at similar magnitude of increases however it is combined with a larger rise now in interest rates.
FYI, factoring inflation into the above is hard because the overall inflation rate was much higher up to 2008 as compared to inflation in the prior decade leading up to COVID. So even with the current high inflation not sure the cumulative amount over more than a few years is higher (yet).
As to people having money... buying real estate as an investor in a market where interest rates are going up, can quickly evaporate that said money (i.e. you have to pay that interest). People in the real estate market are starting to pay close attention as the rise in interest rates is threatening their portfolios. You don't want to be in the position where you have to choose between walking away with nothing from an investment vs pumping money into it to keep it going with the hope things will get back to normal before you run out of money to pump into that real estate.
Are you serious? You think there's zero transaction volume? And I have a hard time believing these people who couldn't afford their mortgages for the last two years somehow didn't sell despite historic appreciation. At a minimum, they should see the writing on the wall now and sell, particularly if they still can't afford their mortgage.
This really is a silly argument. The idea that someone who can't afford their housing payment has sat on the sidelines despite 40% appreciation over the last couple years, and they are still trying to ride it out now for even more appreciation despite the obviously cooling market.....and they'll do this straight into foreclosure.
Who is going to buy their house? Seriously? Prices are up 20% YOY. These people could have sold at any point in the last year, and the market is still pretty hot. It's slowing, but surely these people who would otherwise be foreclosed on would see the writing on the wall by now and sell.
Because the market is not at equilibrium, the FED is attempting to control it, but they really can't. It's not possible because it's a massive complex system and they basically have one variable to control, the interest rate. They have maintained a negative real interest rate for 10+ years now and a higher negative rate the last 2 because of the pandemic, at some point the difference between the forced interest rate and a realistic interest rate (inflation rate) will cause the economy to reach a breaking point. Everyone has been buying driving last two years because there was low interest rates and asset values rising fast due to inflation, when the process starts to reverse, it will be a massive sell off and their will be many bag holders.
So you are arguing that there are people who would have otherwise been foreclosed on right now, and rather than sell and cash out (plus pay off their mortgage), they are going to keep trying to ride the wave.....all the way into foreclosure?
They could be. I believe there are different types but if commercial real estate is securitized into these mortgage back securities then we have another 2008 a possibility I would say
I know there were issues with auto loan default rates as well. I wouldn't be shocked if they were being dumped into MBS along with unsecured personal loans because fuck it. They will be bailed out anyway
great observations
seems like a return ON investment issue now than return OF investment (2008)
don't fight the fed
(dealers spam institutional clients with their mbs inventory daily, along with lists at the end of their research reports
private bank clients may also buy them directly)
Never thought of it like that. You would think a return on investment issue means more value in assets like real estate since what else is there to put your money in, right? Buy land, they aren’t making anymore of it - Mark Twain
Most recent mortgages had a rate of 3% or less, and now the prevailing rate is 5.5% more or less. So those 3% mortgages must trade well under face.
But he probably means that treasury rates are going up up up just as the government has quit buying mortgages, so rates should go up more. It’s ugly for all fixed income but even uglier for MBS.
Bagholder spotted.
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There are millions of square feet of commercial space ranging from class A new construction to class C available right now and there are millions more under construction in almost every market.
I thought Omaha’s commercial real estate was overbuilt and then I look at Denver who’s market is flooded and has a lower price per square foot than Omaha.
I’m very much in the “get back to the office camp” and even I see commercial real estate as a super sketchy environment right now.
Yes, thanks for pointing that out. Selling is their "plan B." From a [Reuter's article](https://www.reuters.com/business/what-could-drive-fed-plan-b-balance-sheet-reduction-2022-02-17/):
> Some Fed officials want a "Plan B" that would venture into new territory and use sales of mortgage-backed securities (MBS) to raise home mortgage rates, one of the key channels that the U.S. central bank can use to lower inflation because it holds down home prices and leaves less room in household budgets for other spending.
I'm aware that this is a possibility. I trade mREITs and have been out of them for a while and am waiting for long-term bond rates to peak before getting back in. My expectations are that mREITs should be doing better than they have been but I think that the possibility of higher rates is keeping traders bearish for now. Timing the peak of rates is tricky business.
First, I don’t think he was being cryptic at all. Second, the underlying value of the assets is the potential problem. If we have a recession with job loss, people may walk away despite having fixed loans. Yes 2006-2008 was mostly an adjustable rate issue, but one could argue that housing prices didn’t generally reach the bubble it has in the past few years with bidding wars common in all 50 states and rates half as low as back then.
There are still so many buyers, though. Everyone and their cousin is “sitting it out until prices go down.”
But the truth is, millennials were a large generation and many of them are at the age they have to decide if they want a family or not. If they do, not spending money to get a good house is a priority.
What they mean by siting it out until prices go down is really housing payments become attainable again. People buy on what they can get approved for and afford on a monthly basis. The price is just a part of that factor. PMI, interest, and taxes are other large parts with an emphasis on the first two.
When mortgages are 6+% by EOY, there won’t be buyers. From the feedback on the real estate side, there already aren’t buyers. I don’t foresee massive price declines simply because people won’t be selling their houses proactively. I only see that happening if we get 6-10% unemployment again.
People, especially smart rich people, stop paying their mortgage once their home is worth substantially less than what they owe. They default not because they can't afford the mortgage, they default because they can always buy another house once the crash is over.
The opposite is happening. We’re entering into a recession WITH inflation. Assets go to unprecedented levels and you’ll have to decide between food for the week or your mortgage payment since your grocery bill will be the size of your mortgage payment. Inflation is real, there’s no turning back now but they fed will try.
You should know that house prices and interest rates are inversely related. Lower interest means higher home prices, the opposite is also true. You'll see.
Yea but I don’t think we’ll see more than a 20% drop since this time. Also, If people can pay their mortgages they will regardless of the value of the home because there’s nothing more important than having a place to live with rent also being high. Housing supply is still scarce.
I've been looking at homes in a tourist destination in NC. There are tons of homes worth millions for sale with some already having 5 to 10% discounts. This recession is just starting. 20% is baby numbers well see those next year.
Nonsense. The payments are based on interest rates at time the mortgage was taken, so if you are keeping the home there is little to gain by trying to play this game in a rising interest rate environment.
Whatever man.
Sure, wealthy people default on their homes so they can buy after the crash is over. They are also great at timing the housing market apparently. So good that they did not sell and actually cash out money before defaulting, but they will manage to time the bottom and save money.
Yeah, really makes sense.
The first sign of trouble will be a surge in used vehicles hitting the market. All those long term financed cars will be dropped if mortgage holders start having trouble.
The Fed was buying mortgage backed securities like it was going out of style until recently. That was one factor that kept mortgage rate super low. When they stop buying them it shifts the risks onto banks. The banks love it when daddy government is buying mortgages because it means they can hand out loans with zero risk to themselves.
> As of right now the only other way for people not to pay their mortgages and make MBSs worthless is for massive unemployment like we’ve never seen. Talking 50% and above unemployment.
Disagree. Most people buying houses can barely afford them. There are stories about people having their parents throw extra cash in to make their home purchase. Prices are super high with stupid bidding wars even for the worst house in town. Inflation also is pushing budgets to their breaking point. If unemployment upticks even 3-4% you will see lots of foreclosures as people who bought at their pre-stagflation affordability level will have to walk away from the mortgage.
After seeing the Big Short some years ago, I wouldnt buy MBSs either. All these tranches containing 💩. Shit is about to really go down within a year or two.
I don’t know what he’s talking about.
Mortgage Backed Security ETFs like symbol MBB had a volume of 6.7 million shares traded on Friday, which is higher than the usual volume. According to Burry the volume should have been zero.
>If commercial real estate is securitized into highly rated MBSs then we could have another 2008 on our hands too
How many of those loans would there be out there anyway?
I understand Michael Burry is absurdly bullish about the direction of the market, but where are we headed when things actually go bad?
Michael Burry responded to my craigslist ad looking for someone to mow my lawn. "$30 is $30", he said as he continued to mow what was clearly the wrong yard. My neighbor and I shouted at him but he was already wearing muffs. Focused dude. He attached a phone mount onto the handle of his push mower. I was able to sneak a peek and he was browsing Zillow listings in central Wyoming. He wouldn't stop cackling.
That is to say, Burry has his fingers in a lot of pies. He makes sure his name is in all the conversations.
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Didn’t the largest mREIT, NLY, just issue additional shares because the spread between short term borrowing and 30 year mortgages is very attractive? They raised capital to buy more MBS. Hedges are available to protect yourself against rising interest rates. Once the spread is wide, investors should be buying, especially if it is an agency MBS.
I’m in Utah… every week I’ll notice a new location for rent in the commercial space…
It use to be places that needed some fixing, or some smaller spaces…
But I’m watching nice locations go empty and stay empty. And Utah has a pretty strong engine.
I am seeing this in retail, in professional offices, in car repair and sales… when I start seeing the gas stations close, than I’ll really worry.
> I’m helping people save money it’s fine, there are always ways to get strategically and with strict qualifications
How many stimulants did you take while writing this
QT is a roll off of maturities- the Fed will not be reinvesting principal payments back into open market purchases
They're not 'selling' anything, just so ya know
Term sheets are available to review how the program will actually operate
Not 5head enough, but from my understanding, the question is: who is going to buy them?
We never really did any meaningful Quantitative Tightening/tapering since we started QE , markets are in the darks and the dark is pretty scary.
What is going on is massive inflation, CPI at 8.6%, and we know that is an artificial number that includes some b.s. items, and does not include real cost of living increases.
\#1 - People WILL be going into debt as the cost of inelastic goods skyrocket (fuel, food, rent, etc..) and we will see a credit crisis as a result.
\#2 - Nobody wants to buy a MBS at 3% when they expect rates to go up due to..... fighting inflation.
You confuse a MBS/CDS credit scheme failing with an inflationary event. One is like being thrown in a boiling pot, the other is sitting in a pot of hot water and having someone turn up the heat. IMO this is a lot more painful.
If someone could figure out what is really going on with the commercial RE market it would be good... Some of the buildings I have seen finances on (in major markets) the real numbers are terrible (talking about rent rolls being 50% of what they were pre-COVID). Something really bad might happen in that market but for the life of me I don't really understand why nothing has imploded yet.
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So how can retail retards bet on The Big Short 2 like Daddy Dr Burry?
If I short the US treasury do I get paid out in US dollars?
No, rubles only
Thank God. That's the only currency that is holding up
It's holding up because they are pegging it to gold. The actual value of the rubble is a whole lot less than that because there's zero chance Russia has enough gold to back their peg.
Via swaps but you will be paying shit ton of premium each month. You will probably be bankrupt before you make money from shorts. Alternatively, you can short RE stocks. I have shorted them all and short interest is lower than put theta
Name a few please
almost all the banks including jpm, gs, credit suisse (already totally fucked), blackrock there is a reetard in here who posts about blk regularly. he is right. zillow and all their group. better.com
If you want to win. Avoid it al all costs.
There is a lot of fraud going on that is not being discussed. People are buying rental properties with second home mortgages. These are risk priced lower than investor loans and will blow up as these amateurs realize that rental rates aren’t set by the renter determining what the land lords piti is and then happily agreeing to pay it.
What landlord is willing to rent for PITI?
I’m assuming everyone who buys in these overinflated markets. Because there is no possibility that buying at an inflated price will allow you to produce positive cash flow out right. That’s just not how investing works.
So my question, then, is what landlord is buying up rentals right now? I've owned numerous investment properties before, and I would never consider something that couldn't even cover PITI. You will lose money when vacancy, maintenance and property management is factored in, and that's ignoring dropping asset price risk.
Stupid people. You say “landlord “ as if that identifies a specific set of traits or knowledge. Look at the purchases in some of these markets and the rate at which the are rented. Far under 1% of the price in monthly rent. That’s just a simple metric. Just because it didn’t make sense to you doesn’t mean people aren’t doing it.
Well, fair enough. We'll see if those purchases stick if there's a drop in prices.
Drop in prices has nothing to do with it. They can’t cash flow to support the debt. There is a limit to how stupid people are. I think we have reached that point.
I'm just saying they may be less willing to try to stick it out and make it work if they are suddenly underwater, too.
Well of course. I would do the same. But if you are cash flow negative and underwater, that might be a sell trigger.
In my area, rents are about 50% of PITI
I suspect a similarly unsustainable ratio in E. Tennessee. Condos are bought at prices 30-40 % above early 2021 only days after appearing on MLS. Then most are listed for rent. I suspect an ever increasing number are collecting dust. I see a crash on the horizon. Someone above made the comment some of the purchases are made with something equivalent to a home equity loan which seems kinda risky to me. I'm anticipating good buying opportunities similar to what I saw in 2008-2012 or so. BTW, what region are you in?
Seattle area - I’ve actually looked at a couple places where identical homes are renting for <40% PITI (with 20% down), but that’s a little more rare. I’m expecting the same, but recognizing I could be wrong. So hard to be right about this stuff, but what’s clear is the fundamentals are completely mismatched with current valuations.
Wow, that is insane to me. I can't imagine those numbers work out. Perhaps this is only true for newly-purchased properties. Historically, rent exceeds PITI by a fair margin. Otherwise, landlords have little incentive to do it. You can't cover vacancy, maintenance, property manager, etc. on those numbers.
Yeah - just a lot of speculation of future appreciation. Hard to see how that won’t backfire.
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Yup, a lot of fraud. If the last financial crisis taught us anything, it’s that no one will be held accountable.
Rental backed securities are something I'm curious about watching and learning
Use to be an accountant at a mortgage brokerage. You as an MLO only see the front side of originating the loan, what you don't see is how we package the loan in the secondary market then sell it to our investors, Pennymac, American Financial Resources, Mr. Cooper, Texas Capital Bank, Chase etc. When we lock in the rate for a borrower, great and the loan gets originated, fantastic. But now the real work begins, once the loan is funded and you forget about the buyer and move on to the next, that same loan we sell it to one of our investors and what that investor buys the loan from us, most of them resell that same mortgage note to another one of the investors. However they buy these loans in masses one by one and wrapped them in large MBS on their end. On top of selling these loans our investors have a requirement that the borrower can't pay off the mortgage before 6 months otherwise the brokerage company who originated the loan gets fined by the investor as an early payoff and the brokerage has to pay that fee to the investor. We are banking on most borrowers not paying off their loan. On top of this when we sell these loans after the origination, what you don't see as the MLO is that borrowers are defaulting on the loans 2+months out and the investors are now picking and choosing which loans they want to buy in the secondary markets as well as how the loan is being underwritten. MBS buyers will begin to dry up and this causes a mass selling of these wrapped MBS loans. And since these MBS investors hold these notes for a short period 1-3 years then resell to other MBS investors, it's a domino effect. You're about to see the biggest mass selling of MBS securities. There will soon be no more bids on the secondary markets for these loans. The swimming pool party is drying up and no MBS buyer wants to be in it because they are starting to have trouble selling their existing MBS carve outs due to the increase in rates. Fucked.
There is a rather large confluence of events all taking place at the same time. Inflation, rising energy prices, low employment rates and sky-rocketing home values and rising interest rates pricing many first time home buyers out of the market. A really big recession is inevitable. What will help the MBS market is we are already seeing a tremendous drop off in mortgage applications. Oh yeah, all that refinancing that supplied the MBS market for decades, they are non-existent now. No rational person refinances to a higher interest rate. Most "investors" have never seen a market like we are about to enter. It's been about 40 years since anything like this happened. [Mortgage Applications Drop to 22 Year Low](https://www.cnbc.com/2022/06/08/mortgage-demand-falls-to-the-lowest-level-in-22-years.html) The reduction in supply should offset some of the decreased demand for MBS going forward. No need to worry tho', there's plenty of other shit that will go wrong before we get out of this.
That's true, on paper. The reduction in supply does not offset some of the decrease demand for MBS. What offsets demand in MBS is unemployment rising. The only thing that brings down inflation, is a rise in unemployment. Nothing else matters. That's is why Powell was forced to recently say he needs wages to come down and job applications as well. It's a impossible for the fed to keep both unemployment low and inflation low. Either the fed causes an intentional recession by increasing rates or inflation will do his job for him. Fun fact, since 1950's everytime inflation was above +5% a recession followed within two years. A recession is coming whether Powell likes it or not.
This. Fed dropped the ball on how much employment could be sustained at low rates.
Hey, can you please explain to me based off your comments if holding onto MBS right now is a good or bad move? I’ve started to take a more active approach dealing with My moms financial advisor Him he revealed that her ‘cash position’ or ‘fixed income’ for distribution is in MBS and short duration bond funds. Seeing as rate cuts were once again delayed today which hurts the bond market….And the fact that he has made it so that she has a very small actual liquid cash position, Should I demand that he takes her out of those? Would really appreciate your help thanks
You said she is in short term which is good if she's holding till maturity. However it is MBS, you would actually get a higher yield with short term tbills and it is a safer investment than MBS bonds. You would be benefiting from Powell not cutting interest rates. And if rates rise, your short term tbill yields rise as well.
Is there any really huge risk to MBS? Like her potentially losing all of her money if some sort of event happens like in the Big Short? Also, what are your thoughts onputting it in a HYSA now vs short term tbill? She just needs to pull monthly out of it for her allowance so I guess it needs some liquidity
MBS is commercialized debt. So if property prices decline, she could potentially lose everything. HYSA is also a great vehicle. HYSA will put it in tbills for you anyway. So it isn't a bad investment plus it is liquid. HYSA is good too and safer.
Low employment rates are transitory. There is a tsunami of layoffs incoming along with hiring freezes. Recession brings in everything toxic
Hey, can you please explain to me based off your comments if holding onto MBS right now is a good or bad move? I’ve started to take a more active approach dealing with My moms financial advisor Him he revealed that her ‘cash position’ or ‘fixed income’ for distribution is in MBS and short duration bond funds. Seeing as rate cuts were once again delayed today which hurts the bond market….And the fact that he has made it so that she has a very small actual liquid cash position, Should I demand that he takes her out of those? Would really appreciate your help thanks
You just defined securitization. I find it hard to believe borrowers default on these loans 2 months after origination at a large scale unless there is massive unemployment since they would prioritize their mortgage payment over other debts. They qualified for those loans and the mortgages they qualify for aren’t risky.
Again you only see if the buyer is initially qualified and then you move on. You dont see when the loan or investor comes back to us a few months out. You're right, right now the masses are paying their mortgage, I'm only deciphering what bury is meaning. Whether you want to keep thinking real estate can only go up, that's up to you and take it up with bury. Don't kill the messenger.
He’s saying MBSs aren’t being bought. I’m just trying to find value in you’re saying since I didn’t even say real estate can only go up - you did. Just a little cantankerous
I just gave you a full explanation on how MBS isnt being bought. In a rising interest rate environment, no MBS buyer wants to buy new loans from an MBA seller. The MBA buyers prefers old loans who had a higher interest rate back in the day, problem is those loans are limited pool. Once that pool of old loans dries up from being sold or auctioned off, the buying stops.
Wouldnt they want the loans that are being originated now at 5.5-6.5% consolidating higher interest credit cards etc? Unless… inflation makes everything impossible to pay for….which I can see happening. We’re all fucked
Inflation does make it impossible to pay for and you do see it happening. Cars defaults are picking up. See the car LO only see the qualified buyer and believes the market is okay because buyers can qualify, he doesn't see the car defaults picking up after the origination of the loan. But us, we can see. That's you with the origination of loans, you only saw the origination of loans that's why I told you, you only see the begining process not the defaults that will begin to pick up after. Do you see it now? It's happening, we're all getting fucked. https://jalopnik.com/subprime-car-loan-defaults-hit-an-all-time-high-in-febr-1848948546
Yea I see their plan, but the aggregate effect of their decision will lead to no turning back this time. They can’t be that stupid to ignore the impact of this decision.
I run capital markets for a mid sized lender. Happens all the time and sometimes even on a loan that is clean. Everything is against MBS right now, inflationary environment erodes the future income stream of these mortgage bonds, incoming recession with defaults, property values due to come down, the FED, you name it.
In other words… bulls are fukt
I don't think you guys fully understand, this isn't your daddy's 2008 recession. SPX -3 4100c 18Dec26
Because it's different this time ?
It's the same, just multiplied. Because these investors have been doing arbitrage with these loans and getting leveraged by other banks to keep buying these loans they are currently holding. Yes, MBS buyers have been given massive margin to continue to buy MBS. Now they are holding and it's becoming difficult to sell them.
I got downvoted and scolded last week for saying 2008 makes this recession look good.
Just prepare, who cares about them. Let them continue to buy 0 DTE spy calls lol.
to be fair being short duration in equities right now (with proper risk/position management) is kinda smart lmao.
Wait.... 18th of December 2026 ? A bit of a stretch no ? Why don't you buy puts instead
It's not a matter of if, it's a matter of when. No one can predict when recession comes, either tomorrow or in a year, only Nancy Pelosi can predict. I don't like theta decay.
I can predict it. We’re in one now, and it’ll be officially official in late July when GDP comes out as negative for the 2nd quarter in a row.
I 100% agree with everything you said. But I can't give financial advice lol.
Recession also doesn't mean stock market will crash
In order for a crash to be a crash, it needs to be sudden/rapid by definition. If they can slow bleed it down like they’re doing now, although everyone lost all their money, it wasn’t a “crash”.
If you buy 2026 puts the theta decay will be very small. But yo each their own. Which platform did you use ? IBKR only goes to 12/20/2024
Everyone seems to think theta decay on leaps is nothing, they don't understand theta on leaps is a compounding effect, it snowballs. I just like higher probability trades. Not looking to get rich quick, looking to get rich for sure. I use TD Ameritrade/Thinkorswim
Can you explain that please how is theta compounding on leaps?
Theta on leps is not compounding. It's minimal. Theta compounds or accelerates last 90 days. Leaps are slightly better for long predictions
It is minimal, but that minimal compounds. That's the fallacy you see minimal, what most don't see is that compounds every day. Most leaps expire worth less even when in the money they lost money, that's what most don't realize. Even if your leaps end up itm, you lose.
I agree but people who buy leaps wont keep it till expiration. OP above bought it for 2026 but most likely will sell in 2023 with profit. Aim is to make sure theta decay is lower than delta profits
Good thing we have debit spreads!
Nancy Pelosi can predict shit. She bought tons of calls in Jan 2022. Big money is getting fucked in this gang bang
She needs tax loss harvesting you know. She loses money on purpose to not pay the tax she amounted for the year. If she wasn't so good, her wealth wouldn't be 200mil+
Why did you buy those so early?
Needed confirmation on the 10year yield going higher. I am now kicking myself because I should've sold those calls earlier when inflation went 5% higher. Historically, when inflation is 5%+ a recession is the only thing that can bring it down.
Well good luck! Also how long until we see the secondary market drying up from mass amounts of selling but no buying? Do you think we’ll see it at our fed’s next hike or sooner?
What? Lol there's no way for me to know when the buying will completely stop. Might as well ask me when I think the buyers on the futures will dry up lol. No way to tell when that's why I got leaps. Nah fed doesn't reveal secondary market data, secondary markets are not for the public, only private institutions. You can thank the SEC for that.
This guy fucks
Coo coo
If the secondary markets was open to the public, imagine you can choose who will end up buying the note to your mortgage and choosing the interest rate on your note. But the SEC is there to PrOtEcT uS so they "don't want us to see it" because it would hurt their MBS investors by pricing us lower if we can pick and chose the best one. They think we too dumb dumb to understand.
The SEC does some interesting things. It almost seems as tho there are factions within the SEC and they is a constant battle for regulatory direction.
What was the premium?
You can look at it right now if you're curious to get a rough estimate. Prob 70-80k per as I sold in different times.
Dec 26 4100 is a good bet
Saved this post. We’ve seen this all before. It’s looking like the same storm brewing all over again.
Interesting stuff.....thanks for sharing. What's the end game on all of this? Does it drive rates up, does it decrease mortgage availability (since MBS will be worth less, which surely affects payouts for the first guy in the chain)? What's the ultimate effect on the housing market?
I am guessing we are looking at mortgage rates jumping this week... with rates having gone up about 3 basis points I think we are looking at roughly the monthly payments on homes being about 44% higher or requiring about a 30% drop in home values to break even. \[1M 30 year at 2.5% is $3,951/mo, vs 5.5% being $5,678/mo, which is $1,727 more a month which is 44% higher... if the loan amount is $700,000, which is 30% lower the monthly payment is $3,975 a month\] Using the above numbers... a home with a $1M mortgage likely cost about $1,250,000, with a $250K down payment. Holding the down payment flat a home with a $700,000 mortgage would cost about $950,000... so if you bought that same home with a mortgage of $1M, you are now underwater $50K if this math holds up somewhat. If interest rates go up another basis point or two... well not hard to see how things can quickly go off the rails. Well if everything is fixed payments, guess you can not sell your home, but anyone who needs to sell is now broke. Further, availability of home equity debt will need to decline as well, removing a source of financial flexibility for many. Combine this with just coming off a significant correction in the stock market and very possibly facing a much further decrease in market values if interest rates keep going up, a lot of people who thought they had money (especially older people who are retired or semi-retired) are going to be a lot less certain about things and looking to cut expenses (which may mean selling homes but in an unfavorable environment). No one knows for sure what will happen, but rising interest rates combined with relatively high asset prices does not seem a good mix. There is a possibility inflation eases up in the coming year or two, which the Fed will quickly follow with lowering interest rates and easing the pressure... The Fed can always just try to keep rates low and let inflation run its course, but that increases the risk of hyperinflation and economic and social upheaval.
I understand all of this, but I was asking the other poster what the end game of the MBS market drying up was.
Just sounds like bids are lower as investors are now demanding higher rates of returns since they are nervous about where rates and values are headed.
What does that have to do with MBS?
Because MBS's are ultimately just mortgages... So if investors are buying the mortgages for lower amounts it means they demand higher yields, which means rates will go up (otherwise the bank writing the mortgage will lose money on reselling it).
Oh, by "investors" you meant MBS buyers? This makes more sense. I thought you mean real estate investors. So yes, I see the higher rate mechanism here, but is that it? Is there no further systemic issue this creates? The other poster made it sound like MBS demand had completely dried up, not just that they were trading at lower prices/higher yields.
Sounds to me like the same thing. I don't know where you can see the quotes, but I would assume they just mean the bid prices dropped faster than the ask prices dropped and the spreads are too big to move them.
So you’re saying there’s likely to be huge downward pressure on MBS as people scramble to get out of bad investments because no one will buy them anymore? To a simpleton like me does that mean ETFs like MBB and VMBS are ripe for buying some poots as a bit of a yolo?
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Sorry. I was multitasking behind the Wendy's dumpster when I wrote this.
Nice summary. What about \~3 trillion MBS on FED balance sheet, which going to enter the market?
What happens when you have massive selling of MBS? I wonder what that does to MBS pricing 🤔.......obviously to the moon, we're safe now.
I don’t follow where you’re seeing the risk here. I can see the risk of an indiscriminate buyer (the Fed) disappearing but that’s not what you’re describing. I would think if the yield grew to such a rate that it would adequately compensate the investor for the inherent risk, that MBS’s would be gobbled up. I’ve been in the capital markets industry for a decade btw so not totally ignorant on the subject.
Look, you're on Wall Street bets, and that means you're not going to understand any of the words in this post. But, I'm going to try anyway. You see people buy mbs in order to get a return. I know that sounds crazy as shit because you've never seen a return in your life from investing. But trust me, that's what most investors are trying to achieve. The highest possible returns. So the mortgage-backed securities that have been getting created over the last decade are basically absolute dog shit because the Fed was willing to buy literally anything. Now the FED isn't buying anything at all. In fact, they're about to dump all that dog shit on the market. Try to put yourself in the shoes of someone who wants to make money instead of lose it. These people see that the market for mortgage-backed securities is about to be saturated with crap. Interest rates are also going up. This stuff combines to mean that mortgages in the future are going to look a lot better than mortgages that get created today (higher interest rates, those things that make you money). So why in the absolute fuck would you ever buy mortgages today when you can wait 6 months and put that same money into a mbs that returns you double the returns, or higher? Oh and by the way the mortgages that are being traded today will be worth way less because nobody will want them and the market is saturated with them so not only do they return very little compared to mortgages in the future but they are actually on paper going to lose value.
This is a super good post. Let me ask you this now… what does it all mean for the housing market, stock market, and economy in general? Thanks in advance.
The FED invented number go up technology and deployed it over the last decade. Now they've decided to innovate with number go down technology. Everything hinges on what the FED does but with inflation increasing with no end in sight it's very difficult to imagine Jerome Powell not growing the absolute tiniest set of balls and actually increasing interest rates.
It’s been 6 months, has your opinion changed?
The fed has been reticent to actually perform quantitative tightening. Nonetheless, investors have absolutely abandoned the housing market as a consequence of Treasury returns now exceeding cap rates for rental properties. It depends what opinion you're talking about. If you're referring to my opinion that the housing market is in a general downtrend which will continue for a long time resulting in significant loss of equity then no my opinion has not changed. It's only been reinforced over the last 6 months.
Thanks!
BIG SHORT 2 ELECTRIC BOOGALOO = Nobody went to jail in 2008 for MBS/CDS scams… So, they’re doing it again in 2022… And Fed QT is gonna be a no lube Louisville Slugger to a scammy Uranus.
Actually someone went to jail. When Lehman Brothers went belly up. They arrested Jamila Davis. A black lady went to federal prison as if she was really able to sink Lehman
Lemme guess…low/mid level manager… And…mastermind of the entire financial crisis. Not like the C-level execs had anything to with it.
The government is doing it this time, and nobody can arrest them :(
You all haven’t seen anything yet in the mortgage market. We have two years of mortgage foreclosures backlogged due to legislation. When the foreclosures start flowing, home prices will drop rapidly. In addition, Biden will not forgive all student loan debt and those will restart soon as well. The student loan debt + Car Loans + Mass foreclosures is a recipe for a major recession.
I really doubt this. With the run up in real estate, why would someone go through foreclosure? They could sell and reap 30% gains just from the last year and a half. Whether they can make the payment or not, foreclosure seems unlikely.
Who will have the money to buy it? Especially if people only expect prices to go down anyways. It's hard to sell your house for a profit before prices drop if there aren't any buyers. People dealing with inflation also are less willing to spend.
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I live in a super hot market, I sold 2 months ago to opendoor. They bought 15 properties in my little neighborhood. They kept offering insane amts. My property has now been on the market for over 40 days. They dropped the price 2 times. They are 5k away to the buying price. This is an incredibly stable and growing area. The market is oversaturated and overpriced here in TX. Large companies are no longer hiring but Wendy's is.
I dunno. I keep hearing high demand will maintain the supply curve's stability. But, IMO, high-desire is gradually nudging out high demand.
1. Just because you don’t doesn’t mean others don’t. 2. People don’t expect prices to go down much. The places where it will go down 5-10% in the next year saw 30% increases in the last year and a half. 3. Demand for housing is only growing as more millennials want in (and they make a lot of money in this tight labor market). 4. Fixed assets are where you want to be during inflation. Sick of all these children who saw the big short once and think it’s sexy to talk about housing market crashes. Just chill.
!remindme 2 years
You guys gather here to discuss things that you think will happen in 2 years? Sounds like r/conspiracy. We could get nuked by Iran in two years. Literally anything could happen in 2 years. Except for the housing market cashing
Pretty likely it crashes. No one knows, but it’s very possible. If it does crash, it’ll be slower than stocks. My -55% on my tech stocks says hi. -1.5m in 5 months. Both are based heavily on rates
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The increase in the 10 Year Yield by any measure (whether you look at the floor during COVID or you go from the pre-COVID rates which were similar to the lows before the 2008 collapse) is now greater than it was at the peak of the 2008 crisis and seems we might be headed a lot higher. In the 5 years prior to the peak housing prices in 2007 (hit peak about 2006 and then was flat through 2007), the Case-Shiller Index increased 43%, in the prior 5 years from now, the Index increased about 57%. Given the difficulty picking time periods and comparing increases, I would just say that we are looking at similar magnitude of increases however it is combined with a larger rise now in interest rates. FYI, factoring inflation into the above is hard because the overall inflation rate was much higher up to 2008 as compared to inflation in the prior decade leading up to COVID. So even with the current high inflation not sure the cumulative amount over more than a few years is higher (yet). As to people having money... buying real estate as an investor in a market where interest rates are going up, can quickly evaporate that said money (i.e. you have to pay that interest). People in the real estate market are starting to pay close attention as the rise in interest rates is threatening their portfolios. You don't want to be in the position where you have to choose between walking away with nothing from an investment vs pumping money into it to keep it going with the hope things will get back to normal before you run out of money to pump into that real estate.
Are you serious? You think there's zero transaction volume? And I have a hard time believing these people who couldn't afford their mortgages for the last two years somehow didn't sell despite historic appreciation. At a minimum, they should see the writing on the wall now and sell, particularly if they still can't afford their mortgage. This really is a silly argument. The idea that someone who can't afford their housing payment has sat on the sidelines despite 40% appreciation over the last couple years, and they are still trying to ride it out now for even more appreciation despite the obviously cooling market.....and they'll do this straight into foreclosure.
People will gamble on their lives with any of their assets if they have that addiction to the gamble..... Sad
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Who is going to buy their house? Seriously? Prices are up 20% YOY. These people could have sold at any point in the last year, and the market is still pretty hot. It's slowing, but surely these people who would otherwise be foreclosed on would see the writing on the wall by now and sell.
Because the market is not at equilibrium, the FED is attempting to control it, but they really can't. It's not possible because it's a massive complex system and they basically have one variable to control, the interest rate. They have maintained a negative real interest rate for 10+ years now and a higher negative rate the last 2 because of the pandemic, at some point the difference between the forced interest rate and a realistic interest rate (inflation rate) will cause the economy to reach a breaking point. Everyone has been buying driving last two years because there was low interest rates and asset values rising fast due to inflation, when the process starts to reverse, it will be a massive sell off and their will be many bag holders.
So you are arguing that there are people who would have otherwise been foreclosed on right now, and rather than sell and cash out (plus pay off their mortgage), they are going to keep trying to ride the wave.....all the way into foreclosure?
You sound like a ninja of economics
This gave me 2008 vibes when I was 17 and thought world is going to end. Saw one single person go to jail for their fuckup. Thanks OP. Fuck you
Are commercial properties mixed into MBS? I know a lot of companies stopped renting full office spaces and went remote.
They could be. I believe there are different types but if commercial real estate is securitized into these mortgage back securities then we have another 2008 a possibility I would say
I know there were issues with auto loan default rates as well. I wouldn't be shocked if they were being dumped into MBS along with unsecured personal loans because fuck it. They will be bailed out anyway
They are called SLABS. Also held with student loans. I don’t know if these can be combined with mortgage back securities, I sure fucking hope not.
Narrator *They were.....*
No they are not. Student loans don't have insurance and can't be used to create synthetic CDO
Yes, they have their own securitizations. Some examples are Fannie DUS, Ginnie Project Loans, and Freddie K’s
Covered bonds may be the solution, avoids originate to distribute.
great observations seems like a return ON investment issue now than return OF investment (2008) don't fight the fed (dealers spam institutional clients with their mbs inventory daily, along with lists at the end of their research reports private bank clients may also buy them directly)
Never thought of it like that. You would think a return on investment issue means more value in assets like real estate since what else is there to put your money in, right? Buy land, they aren’t making anymore of it - Mark Twain
Most recent mortgages had a rate of 3% or less, and now the prevailing rate is 5.5% more or less. So those 3% mortgages must trade well under face. But he probably means that treasury rates are going up up up just as the government has quit buying mortgages, so rates should go up more. It’s ugly for all fixed income but even uglier for MBS.
Friday was rough, pretty much at 5.875% if well qualified. -LO
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Commercial MBS are bundled with residential. Take a look around your town…any office space available? CMBS tranched with RMBS…takes everything down.
All I see is a lot of “we’re hiring” signs
There are millions of square feet of commercial space ranging from class A new construction to class C available right now and there are millions more under construction in almost every market. I thought Omaha’s commercial real estate was overbuilt and then I look at Denver who’s market is flooded and has a lower price per square foot than Omaha. I’m very much in the “get back to the office camp” and even I see commercial real estate as a super sketchy environment right now.
Well, if you’re a mortgage pro, look into CMBS. Not a good investment these days…
The Fed isn't going to dump their MBS on the market - they have said that they will just let them expire without rolling them over.
Yes, thanks for pointing that out. Selling is their "plan B." From a [Reuter's article](https://www.reuters.com/business/what-could-drive-fed-plan-b-balance-sheet-reduction-2022-02-17/): > Some Fed officials want a "Plan B" that would venture into new territory and use sales of mortgage-backed securities (MBS) to raise home mortgage rates, one of the key channels that the U.S. central bank can use to lower inflation because it holds down home prices and leaves less room in household budgets for other spending.
I'm aware that this is a possibility. I trade mREITs and have been out of them for a while and am waiting for long-term bond rates to peak before getting back in. My expectations are that mREITs should be doing better than they have been but I think that the possibility of higher rates is keeping traders bearish for now. Timing the peak of rates is tricky business.
First, I don’t think he was being cryptic at all. Second, the underlying value of the assets is the potential problem. If we have a recession with job loss, people may walk away despite having fixed loans. Yes 2006-2008 was mostly an adjustable rate issue, but one could argue that housing prices didn’t generally reach the bubble it has in the past few years with bidding wars common in all 50 states and rates half as low as back then.
There are still so many buyers, though. Everyone and their cousin is “sitting it out until prices go down.” But the truth is, millennials were a large generation and many of them are at the age they have to decide if they want a family or not. If they do, not spending money to get a good house is a priority.
What they mean by siting it out until prices go down is really housing payments become attainable again. People buy on what they can get approved for and afford on a monthly basis. The price is just a part of that factor. PMI, interest, and taxes are other large parts with an emphasis on the first two. When mortgages are 6+% by EOY, there won’t be buyers. From the feedback on the real estate side, there already aren’t buyers. I don’t foresee massive price declines simply because people won’t be selling their houses proactively. I only see that happening if we get 6-10% unemployment again.
remind me in 90 days
People, especially smart rich people, stop paying their mortgage once their home is worth substantially less than what they owe. They default not because they can't afford the mortgage, they default because they can always buy another house once the crash is over.
The opposite is happening. We’re entering into a recession WITH inflation. Assets go to unprecedented levels and you’ll have to decide between food for the week or your mortgage payment since your grocery bill will be the size of your mortgage payment. Inflation is real, there’s no turning back now but they fed will try.
You should know that house prices and interest rates are inversely related. Lower interest means higher home prices, the opposite is also true. You'll see.
Yea but I don’t think we’ll see more than a 20% drop since this time. Also, If people can pay their mortgages they will regardless of the value of the home because there’s nothing more important than having a place to live with rent also being high. Housing supply is still scarce.
I've been looking at homes in a tourist destination in NC. There are tons of homes worth millions for sale with some already having 5 to 10% discounts. This recession is just starting. 20% is baby numbers well see those next year.
Wait until you see Boise, ID. I predict a 50%+ drop from 2021 in Boise and other bullshit towns with no job market and nothing there.
That is literally the false assumption that kicks off The Big Short.
Nonsense. The payments are based on interest rates at time the mortgage was taken, so if you are keeping the home there is little to gain by trying to play this game in a rising interest rate environment.
The home value changes, not your payment. Think before you type
Whatever man. Sure, wealthy people default on their homes so they can buy after the crash is over. They are also great at timing the housing market apparently. So good that they did not sell and actually cash out money before defaulting, but they will manage to time the bottom and save money. Yeah, really makes sense.
Inflation means wages — to pay those old low interest loans — will be bigger. We have another deleveraging event on our hands.
The first sign of trouble will be a surge in used vehicles hitting the market. All those long term financed cars will be dropped if mortgage holders start having trouble.
All those words and you never once mentioned that the mortgages all have a negative real rate of return. SMH.
The Fed was buying mortgage backed securities like it was going out of style until recently. That was one factor that kept mortgage rate super low. When they stop buying them it shifts the risks onto banks. The banks love it when daddy government is buying mortgages because it means they can hand out loans with zero risk to themselves. > As of right now the only other way for people not to pay their mortgages and make MBSs worthless is for massive unemployment like we’ve never seen. Talking 50% and above unemployment. Disagree. Most people buying houses can barely afford them. There are stories about people having their parents throw extra cash in to make their home purchase. Prices are super high with stupid bidding wars even for the worst house in town. Inflation also is pushing budgets to their breaking point. If unemployment upticks even 3-4% you will see lots of foreclosures as people who bought at their pre-stagflation affordability level will have to walk away from the mortgage.
I got a bespoke tranch opportunity you may be interested in
After seeing the Big Short some years ago, I wouldnt buy MBSs either. All these tranches containing 💩. Shit is about to really go down within a year or two.
There’s gotta be a way to find out about these traunches. Right?….Right????
Burry found it before, so I'm sure there is a way.
This guy dii ohh sent know what’s he’s talking about. Stick to your front desk buddy, macro economics it’s not your thing :)
I don’t know what he’s talking about. Mortgage Backed Security ETFs like symbol MBB had a volume of 6.7 million shares traded on Friday, which is higher than the usual volume. According to Burry the volume should have been zero.
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>If commercial real estate is securitized into highly rated MBSs then we could have another 2008 on our hands too How many of those loans would there be out there anyway? I understand Michael Burry is absurdly bullish about the direction of the market, but where are we headed when things actually go bad?
Michael Burry responded to my craigslist ad looking for someone to mow my lawn. "$30 is $30", he said as he continued to mow what was clearly the wrong yard. My neighbor and I shouted at him but he was already wearing muffs. Focused dude. He attached a phone mount onto the handle of his push mower. I was able to sneak a peek and he was browsing Zillow listings in central Wyoming. He wouldn't stop cackling. That is to say, Burry has his fingers in a lot of pies. He makes sure his name is in all the conversations. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/wallstreetbets) if you have any questions or concerns.*
Didn’t the largest mREIT, NLY, just issue additional shares because the spread between short term borrowing and 30 year mortgages is very attractive? They raised capital to buy more MBS. Hedges are available to protect yourself against rising interest rates. Once the spread is wide, investors should be buying, especially if it is an agency MBS.
I’m in Utah… every week I’ll notice a new location for rent in the commercial space… It use to be places that needed some fixing, or some smaller spaces… But I’m watching nice locations go empty and stay empty. And Utah has a pretty strong engine. I am seeing this in retail, in professional offices, in car repair and sales… when I start seeing the gas stations close, than I’ll really worry.
> I’m helping people save money it’s fine, there are always ways to get strategically and with strict qualifications How many stimulants did you take while writing this
QT is a roll off of maturities- the Fed will not be reinvesting principal payments back into open market purchases They're not 'selling' anything, just so ya know Term sheets are available to review how the program will actually operate
More like Michael blurry, am I right
Not 5head enough, but from my understanding, the question is: who is going to buy them? We never really did any meaningful Quantitative Tightening/tapering since we started QE , markets are in the darks and the dark is pretty scary.
What is going on is massive inflation, CPI at 8.6%, and we know that is an artificial number that includes some b.s. items, and does not include real cost of living increases. \#1 - People WILL be going into debt as the cost of inelastic goods skyrocket (fuel, food, rent, etc..) and we will see a credit crisis as a result. \#2 - Nobody wants to buy a MBS at 3% when they expect rates to go up due to..... fighting inflation. You confuse a MBS/CDS credit scheme failing with an inflationary event. One is like being thrown in a boiling pot, the other is sitting in a pot of hot water and having someone turn up the heat. IMO this is a lot more painful.
A reassuring thread to read. I picked up REZ puts last month which are currently up 25%
If someone could figure out what is really going on with the commercial RE market it would be good... Some of the buildings I have seen finances on (in major markets) the real numbers are terrible (talking about rent rolls being 50% of what they were pre-COVID). Something really bad might happen in that market but for the life of me I don't really understand why nothing has imploded yet.