Stocks moved steadily higher after a rough opening on mixed news. The Case/Schiller 20-city home price index fell at an annualized rate of 5.3% in November continuing the trend of a slower rate of annualized house price decline seen over the last 10-months, from October prices increased .2%. Some notable standouts from the previous month include LA +.8%, San Francisco +.6% and San Diego +.4% at the other end of the spectrum Chicago fell 1.1% while NY lost 1%. On an annualized basis San Francisco gained 1%, Denver increased .5% and San Diego the original canary in the coalmine added .4%. This reports marks the 6th consecutive month of increasing prices, though this trend is slowing. Expectations going forward include rising foreclosures as the year progresses and a resumption of price declines as a result. The gains to real estate affordability achieved through said declines to date look to come under increasing pressure due to falling rents a critical component of the affordability equation. Further the likely failure of the HAMP program to effectively modify significant numbers of mortgages along with continued labor market stress will put additional pressure on prices.
Of course price declines are a big factor in foreclosures, which has led to a significant debate on the subject, do I do the right thing, the moral thing and continue to pay my mortgage despite a failure of the financial argument to do so. Or is a mortgage simply a business agreement that involves risk to all parties and if the risks are deemed excessive a default results. If you’re an individual with a mortgage the general consensus is that you have a “moral” obligation to pay. However if you’re a so called professional investor its just a business agreement and you can walk away without any messy moral considerations at any time. The latest example of which is the decision by Tishman Speyer and BlackRock Realty to walk away from their investment in Stuyvesant Town, a huge complex in NY City, creating the largest residential real estate default ever at 4.4 billion. Interestingly the loans were obtained with little money down, only 112 million and ridiculous cash flow assumptions. Much like a zero down stated income individual mortgage loan.
I’ve always found it fascinating that a corporation is considered a non-natural person, lacking a soul and as is painfully obvious after the last few years, if it wasn’t previously. Is frequently devoid of morality and conscience as well. In all of the reporting on this subject by the mainstream media these concepts are strangely absent for the most part.
