pimco real estate prediction

This reminds me a little bit of a discussion my partner and I had will a couple of guys who had bought a package of bad loans in the mid 90's. They were telling us how they thought they had hit a home run because they had been working the package for about a year and had gotten through about half the package and had a return of over 25%. My partner and I looked at each other and immediately had the same thought (which happened all the time... which is why I think I'm never going to be able to replace him): That's not as good news as they think: odds are they went through the "easy" one's/the one's where they would make the most first, and the difficult one's/the one's where they will make less or lose money, those are the one's which they still have.

That's the problem when you "cherry pick"/"skim the cream": what's left is the not so good stuff. Think of it this way: if you have a group of anything, and take away the stuff which is "above average" - by definition the new average of what's left will be lower.

In this case, a lot of what the real result will depend on how good the "Making Home Affordable" and other programs actually end up being. If they find a way of making them work, then this PIMCO analysis will be incorrect. But from what I've read so far, the default rate on the various programs reworked loans isn't any different than the rate it was before and/or without them. Certainly the only way of dealing with STRATEGIC defaults is HUGE principal reductions. I don't know if THAT is going to happen, and even if it does, isn't it just really shifting the loss as opposed to "curing" it? Secondly, if someone loses their job and can't find a new one, even a recast lower payment isn't going to do it for them.

However, I will also say the statement regarding "all foreclosures or none" is a bit misleading: I'm sure if you "optimized" (probably a good linear or perhaps non-linear programming problem; the should get some Operations Research grad student to do their thesis on it) the mix of foreclosures, you could come up with a number which led to a much lower total loss by strategically releasing REO to the market. It's the same thing developers do all the time with new projects; they don't put all of their units on the market at the same time when they open a new project. they hold back most of the units and strategically release them to maximize the total sellout price.

Now, if all the lenders got together and came up with a strategy to release REO to the market in a coordinated effort, there is little doubt in my mind they could come up with a way to sell out at increased prices. But that would generally be deemed to be price collusion of some sort. The issue is would the "good cause" of "supporting home prices" be seen as a justification for allowing such a thing to happen?

Certainly in New York City (well, the areas we talk about here - except for Harlem), we have not yet seen even the tip of the iceberg in terms of foreclosures effecting prices, because there really haven't been any. But what will happen if we do start seeing them? We see lots of arguing here about where prices are headed as is. If properties start getting "dumped" in our market in the same way they have been in other markets, is there any way it won't have a fairly extreme affe4ct on pricing in a negative way?

you have way too much time on youyr hands. You do know your talking to yourslef since nobody reads the crap you post, right?

at least this one is directly related to RE. good post

I always read 30 yrs and I think this is a good post because Pimco has been uncannily accurate though I have never followed the work of Mr. Simon.

Roubini was on CNBC this morning and said that prices were going down another 10% nationally. One on the reasons he cited was 3.5 million foreclosed homes in shadow inventory. I know that in Miami the courts are so clogged and the paper work so overwhelming that they are many months behind on foreclosing and people keep living in the homes, essentially rent free. So I wonder if that is part of the shadow inventory and perhaps what 30yrs is suggesting is a contributing factor. Maybe there is collusion to with hold foreclosed inventory in an effort to control pricing. It would make sense.

30_yrs, keep the good posts coming! The President (btw, who but a disenfranchised loser would call himself that?) is always spewing negativity on these boards.

Apt23. PIMCO has great posts, but I often wonder if they are influenced by the positions their long & shorts.

You've talked about this a little, 30yrs (btw, you have mail from me) - but one thing I find frustrating is the lack of REO options for the ordinary consumer.

President: you've just outed yourself as a 2008 Q1 buyer, i.e. at or near the top of the market. Give it up man. You criticize a well thought out discussion by 30yrs without addressing the gist of his argument. Yes your condo will depreciate 30-50% from where you purchased it. You will need to realize a 50 to 100% increase in the value of your condo just to break even. Hope you're under 40 years old.

RS: As if Goldman or Blackrock don't talk their book. I think you have to game anything any of those guys says publicly. But that Mohamed El Arian sure seems to know his stuff. Since he rarely talks positions and almost always talks market philosophy and trends, I have found his advice very sound -- and profitable. And my PIMCO fund has done extremely well so if they are talkin their book, I would be happy for them to keep talkin. Although El Arian did so well at Harvard Endowment, and he got out well before the fund tanked, I have always wondered if the new head of the endowment ever wanted to blame him. I think it must be an interesting story. I think some glossy mag (Vanity Fair?) did a story on it. I'll have to look it up.

I think Alpie was referring to riversider's post, not 30yrs'.