The Binary Circumstance

Ask yourself whether the dream of heaven and greatness should be waiting for us in our graves - or whether it should be ours here and now and on this earth. — Ayn Rand

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I’ve been writing for some time about a potential disaster in the housing market due to the reckless lending practices that were employed in recent years to support the housing market.

Today the stock market, which had been up about 140 points, dropped almost 300 points to close on the minus side by 146 points on news that another mortgage company may be in trouble, adding to the list that have already gone belly-up.

NEW YORK (AP) — Wall Street resumed its downward skid Tuesday, falling sharply as renewed concerns about soured home loans blew away what had looked like a solid recovery rally. The Dow Jones industrials lost nearly 150 points, while investors seeking safety moved into bonds.

Early in the session, stocks soared following strong earnings from General Motors Corp. and Sun Microsystems Inc. and amid somewhat mixed economic data. But the market pulled back after American Home Mortgage Investment Corp. said Tuesday it hasn’t been able to tap into its credit lines and has hired advisers to consider its options, including the sale of its assets.

Wall Street has been concerned about lenders after some loans made to borrowers with poor credit have gone bad, and that anxiety contributed to the market’s big plunge last week. Tuesday’s trading showed how vulnerable the market remains, and how any advance can quickly evaporate.

I look at technical charts and I think the current rally has run out of steam and we may be in for a correction, so I made some adjustments to my own portfolio to reflect my own change in sentiment. Because each investor has different goals and financial needs, they have to make their own decisions based on how they view the markets.

I think the government is soft-peddling the problems in the housing market and totally misleading the country about the long-term damage they have done by racking up the war debt and adding more entitlements that future generations will have to pay for.

Interestingly, a report I received today from a local real estate agent showed that although housing inventory has increased quite a bit since the same time last year, prices in most categories have continued to rise. The local market rose 11% over the same time last year. His statistics also showed that job growth and migration to western Washington still remain strong.

The Seattle-PI has a related report on Seattle home prices that confirmed the Bainbridge Island stats.

Seattle-area home values continued to rise in May, bucking a national trend of declining home prices, according to a Tuesday report.

Prices for existing homes in King, Pierce and Snohomish counties were up 0.9 percent from April, and 9.1 percent from May 2006, according to Standard & Poor’s S&P/Case-Shiller Home Price Indices.

That annual increase is the highest of 20 major metropolitan areas that the study tracks, followed by Charlotte, N.C., at 7 percent, Portland at 5.7 percent and Dallas at 1.8 percent.

On average, year-over-year home values in the 20 cities declined by 2.8 percent.

Another factor that will contribute to a further softening of the market is the fact that 90% of appraisers report being pressured into overstating property values in the recent heated market to keep the business of their clients.

In 2003, 55 percent of appraisers felt pressure to overstate property values, according to a survey that year of 500 appraisers nationwide by October Research Corp., an independent firm in Richfield, Ohio. In 2007, the firm found that the rate jumped to 90 percent, with 71 percent of more than 1,200 appraisers reporting pressure from mortgage brokers and 56 percent citing real estate agents and brokers.

Ninety-six percent of appraisers said colleagues in their market bowed to pressure.

Not good.

Science, freedom, beauty, adventure - aviation offers it all. - Charles Lindbergh

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I took this picture this weekend from a Cessna 172 Skyhawk. It was my first ride in a small plane. That’s Mt. Baker in the background as we were heading north to Orcas Island from Seattle.

Religion is all bunk. — Thomas A. Edison

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