This link has been bookmarked by 3 people . It was first bookmarked on 01 Feb 2008, by At the Money.
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26 Feb 08
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Banks borrow so much money to fund their investments that if a loss on some holding reduces their capital by $10, they have to reduce their lending by $100 to avoid exceeding their self-chosen leverage targets, calculates Goldman Sachs (GS) chief U.S. economist Jan Hatzius. He estimates that banks and other financial institutions will suffer about $200 billion in real estate losses and respond by cutting their lending by $2 trillion, or about 5% of total lending. The cutback could be even more extreme if they react to the turmoil by lowering their leverage ratios, he says, rather than keeping them intact. Banks have already begun tightening lending standards. In the third quarter, mortgages were harder to get than at any time in the 17-year history of the Federal Reserve's survey of senior loan officers.
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05 Feb 08
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01 Feb 08
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Shocking though it might seem, a decline of 25% from here would merely reverse the market's spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation.
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So far, the amount of equity being withdrawn has remained surprisingly strong—$700 billion at an annual rate in the third quarter.
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Starting in 2000, prices crossed above their trend line and just kept going up. The spike had never happened in modern U.S. history, according to data dating back to 1890 that Shiller painstakingly compiled for the second edition of his book Irrational Exuberance in 2005.
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Homebuilders also are doing their bit to support prices: They've cut production so drastically that even though home sales fell more than expected in December, the backlog of unsold new homes shrank slightly. Douglas Duncan, chief economist of the Mortgage Bankers Assn., predicts existing home prices will slip less than 2% this year before beginning to rebound in 2009.
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or a truer picture of the market, look at sales by banks and builders, which don't have the luxury to wait things out because they have to worry about cash flow.
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That's capitulation, and it's likely to occur more often as sellers get the idea that waiting won't solve their problems.
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At some point, death or illness will cause baby boomers' houses to come onto the market
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