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Originally Posted by host
Thanks for clearing that up for us, ace....however, the "tell", as I see it...is that 20 percent of the new mortgages and refis done in the last few years were to subprime borrowers.
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Subprime ain't noth'n but a word. Is there a common definition? What was the percent 10 years ago? What was the percent 25 years ago? What are the trends? What are the trends in the changing definition of subprime?
What is really happening, worse case? People who would ordinarily rent, now buy. If they are forced to sell, they go back to renting. Same housing supply, same housing demand. Only change long-term is the name on the title.
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Since december, with no signficant economic downturn, and no pain to the consumer from unemployment as of yet....only a slow down in the res real estate market and a slight reversal to the negative, in housing price appreciation, has triggered the collapse of nearly the entire subprime mortgage lending industry. It is easy to imagine what a spike in unemployment and a sustained decline in home valuations would cause. This is the biggest, most prolonged run up in housing prices and over building in the US, ever, and the reversal and depression in the housing market will most likely be the mirror image of the run up, both in scope and duration.....
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Again, people gotta live somewhere. Even if unemployment goes up, the demand for housing won't change. There will be a change in second home or vacation home demand, so places like Miami are having and will continue to have supply/demand imbalances.
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Here are some of the top ten subprime lenders, today....the ones that haven't filed for bankruptcy...yet...or been absorbed by large banks for a pittance of their former high flying stock prices. Pension funds and mutual funds held significant positions in these companies, and the equity....is gone for good. That is not volatility....it is permanent wealth destruction:
<img src="http://ichart.finance.yahoo.com/w?s=NEW"><br>
<img src="http://chart.finance.yahoo.com/c/6m/n/nfi"><br>
<img src="http://chart.finance.yahoo.com/c/6m/n/lend"><br>
<img src="http://chart.finance.yahoo.com/c/6m/n/fmt">
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Forclosures will go up, but - so what? The family can always go back to renting.
I have not done research on the above companies, however I would bet things like PE, PEG, price to book value, debt to equity, are out of line with traditional financial institutions. If true, the stocks are due for a correction. This is healthy for the overall market, it gets rid of speculators. If conservative investors are heavily in these stocks, shame on them.