The Dead Cat Bounce

WE’RE HEARING the piquant financial metaphor “the dead cat bounce” recently, describing the remarkable bounce up in home prices all across the America.

Of course, since we introduced the term ourselves at the recent American Enterprise Institute’s panel session on the housing bubble, it was more of an echo chamber than a groundswell of independent thinking.

A dead cat bounce refers to a market that falls a long way and then hits a floor. By the laws of physics an upward bounce is produced whether or not market fundamentals are in place (cat lovers, please don’t write, I didn’t make this term up myself, and no one should try this out with real cats). After the dead cat bounce, market forces take over from physics.

What’s the connection to the housing market? Well, in the past year national home prices have jumped by an average of 10%. That’s a remarkable figure, considering the deflation of housing prices by 30% to 40% and even higher since the market crash.

So, is this a dead cat bounce? We didn’t say it was, offering it as one possibility out of three, the others being the start of another housing bubble, or, a normal market reaction to an abnormal drop in prices. Several of the other panelists at the AEI event repeated the term while discussing the current housing market.

AEI fellow Alex Pollock (former head of the Federal Home Loan Bank of Chicago) has been hosting this excellent series of panels on the housing bubble ever since months since before it was apparent the bubble was going to pop and make a mess like bubblegum in Santa’s beard.

At the symposium Thomas Zimmerman, managing director of UBS AG, said housing market improvement was being caused by local investors and national REO-to-rental efforts, a “shadow demand” (nice term!) as household formations rise, and tight inventories.

Jay Brinkmann, chief economist of the Mortgage Bankers Association, was more cautious about market fundamentals. He is concerned that higher severity costs and higher costs to originate will dampen mortgage bankers’ ardor, and that the qualified mortgage rule of the CFPB and the Basel 3 servicing requirements may cause banks to weigh the risks of staying in the mortgage market.

Chris Whalen of Carrington Investment Services said this is an “atypical” housing recovery. Economic growth is weak, home sales will be off peak by two million this year, prices have recovered, but only to 2003 levels, and originations are expected to decline this year and next.

This is the fourth AEI housing bubble seminar we’ve presented at and it has always been the cat’s meow. Taking the train down and back to Washington from New York in a day, however, can be a literal pain in the butt!

MOST READ/EMAILED: Evan Nemeroff’s piece on the extension of the federal HARP refi program to 2015 was the most read content on our site this week. Kate Berry’s report on three big banks that failed Fannie Mae servicing tests was the most emailed. Nice job to Evan and Kate.

SHOUT OUT: We believe the mortgage economy, and the national economy beyond that, will fully recover when employment recovers. To that end we are recognizing lenders or vendors that make at least ten net new hires. This week a firm reported hiring 14 new staffers, so they get our shout out. Carrington Mortgage Services LLC has hired 14 account executives for its wholesale lending division. The latest hires include Fishers, Ind.-based sales manager James Torrence along with 13 other new account executives.

OH, THOSE VINERS: This week some of our industry posters at MortgageGrapevine.com were reminiscing about swag they had picked up at mortgage industry shows, including the handsome Mortgage Grapevine hat that we used as a marketing tool some years ago. (One of us had a humorous experience checking into a hotel in Grapevine, Texas, wearing, wholly by coincidence, a Mortgage Grapevine hat). Swag is perhaps the wrong word as it is an acronym for Stolen Without a Gun. The old Yiddish expression tchotchkes perhaps fits better. These are items designed to make you stop at a table in an exhibit hall. The price of the item? Listening to the glories of Version 2.0 being touted. We usually disdain these (a great traveler’s rule is never to take home more than you started with) but have to admit that offers of free blank notebooks generally soften our hearts.

FUN BLOG: Without a question this week’s was Garth Graham’s blog on the MBA technology show. It was there you could learn that the show hotel’s uncertain fate was rescued by financing from a plumbers’ trade group. How could you not title such a blog “No Ifs, Ands, or Butts?” And how could you not illustrate it with a cartoon of a plumber showing a familiar attribute of plumbers everywhere? We couldn’t, anyway.

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.