Home Prices Set To Fall Further: Richard Fairbank, Capital One CEO

Speaking at the Barclays Capital 2010 Global Financial Services Conference, Capital One CEO Richard Fairbank was pessimistic about the housing market and about consumer demand -- but optimistic about his bank's prospects.

Fairbank, in remarks that were broadcast on the web, was asked by an audience member whether there will be a double-dip in the housing market. He chose his words carefully. "I think we feel very cautious about the housing market," Fairbank said. "I think that even despite some of the recent months where home prices have gone up, I think it's a very plausible case for home prices to go back down again."

His dim view of the U.S. housing market, he said, is based on the current "logjam" of defaulted mortgages and foreclosures being dealt with at Capital One, which added a retail banking arm to its lending and credit card businesses in 2005. "Unsold inventory is really at just about an all-time high."

Although he claimed not to be predicting a "double-dip recession," Fairbank was not at all optimistic about the housing market. "We are managing to a view that home prices are more likely to be headed down rather than up," he said.

Nervousness on the part of consumers, he said, isn't helping. Because more people are saving money rather than spending it, their credit is relatively strong, but the economy is suffering from the lack of demand. "We've got to be careful what we wish for here," he said. "Credit is improving certainly faster than the economy is."

The thrust of the speech and Q&A session was a brief on Capital One's own position, which Fairbank and head of investor relations Jeff Norris said was largely conservative. The bank, they said, will be resilient "even in the face of a weak economy."

Comments

[sonnybrakes]

05:35 AM on 09/25/2010

What were they doing up in the first place?

[AntiClast]

04:53 PM on 09/22/2010

The ratio of monthly income/ monthly mortgage cost used to be constant, so that house prices went up when income did. Lenders wouldn't qualify buyers if their mortgage was too high. But that became oldthink...

I finally saw a chart showing that the cost of housing soared but income didn't in the mid 2000's. Because mortgages had turned into 'hot potatoes' -- pass them on quick before your hands get burnt. When the ratio comes back into line, housing prices will stabilize.

[parags20]

01:59 AM on 09/20/2010

The sicknesses of the property market are excess liquidity, low real interest rates and the lack of investment alternatives. These structural problems are causing constant worry of a bubble and unless they are resolved, everything else is just a band-aid.
http://www.financemetrics.com

[Christine Perry]

01:26 AM on 09/19/2010

I think it is outrageous giving all that money to the banks. Bank was offering a foreclosure at 140k, I offered asking price, they sent it to sheriff sale and put in bid of over 320k when the property was only worth 160k. While the bank still owned it - someone was moving stuff into the home, very strange, seems like maybe someone from the bank. I felt like the bank bought this property to benefit one of their own. Simply amazing what those bucks have allowed all the banks to do. I'm sure this and other fraud happened everywhere!

[hangthebanksters]

03:54 PM on 09/20/2010

Current values are much worse than Moodys or Case are saying, remember these are the same guys who lied about values before. I view real estate transfers on a daily basis as part of my job and what is happening is frighteneing. Many lenders are transferring properties between themselves and other SIV's and SPV's to create transfers that can be utilized by their appraisers who are inflating values. They are in fact trying to create value within markets where there is none. This is exactly the same thing they did with CDO's when they could not get buyers at their asking prices prior to the collapse of the secondary market. I suggest you get an independant appraisal when purchasing or refinancing as the appraisers that the banks are currently using are in fact working for the bank and inflating value, to keep people trapped in bloated mortgages, under the threat of being fired. Fannie and Freddie are also in choots with them as they are simplyu trying to keep people in their inflated mortgages.

[jumpstart the economy]

05:42 PM on 09/15/2010

Enough with using taxpayer and borrowed funds to help the rich, business, banks & Wall Street…

End high unemployment, the foreclosure blight and jump start the economy –
WITHOUT SPENDING TAXPAYER MONEY!

Want to put Americans to work, help Main Street and stop the Financial Crisis without borrowing from China? Want to accomplish this within three to six months?

Give all citizens (with incomes up to $250,000) the option to withdraw some/all of their retirement savings TAX FREE IF THEY PAY ALL CASH FOR A PRIMARY OR SECOND HOME OR RENT TO SOMEONE WHO LOST THEIR HOME!

Retirees and those near retirement have suffered significant losses to their savings thanks to Wall Street greed. Tax free withdrawals for home purchases would make up for some of these losses, put a bottom on home prices, reduce foreclosures, increase consumer confidence and spending, provide state and local governments with much needed real estate taxes, and provide construction, consumer product and other employment without costing the taxpayer a dime.

Putting America back to work NOW would more than make up for FUTURE taxes on retirement funds.

[alasker]

10:41 PM on 09/14/2010

Do we want stability in this market -- not far below where the market is now?

Refinance and finance everyone (not just for some but for ANYONE who wants it) during a two-year window -- with a gov't subsidized 4% - 40-year term mortgage. If the homeowner can't stand that -- let him or her walk and take the credit hit -- some still will but many won't. The individual cost impact of this could be to on-average make house payments ONE-HALF of what many are today -- finally making them really competitive with rents and the flexible advantages of renting.

The US budget impact of this may be high but perhaps less in the long run of continued bank bail-outs of too-many banks who should not be in business anyway in a world of internet, automation, ATMs and other banking expert systems that should lower rates and costs to come down much more than realized.

[woodheat]

07:27 PM on 09/14/2010

Not only is there a log jam of bank-owned foreclosed homes, there are many people who would like to sell but can't because they are currently trapped in underwater mortgages or are unwilling to let go of what equity they had three years ago. Its going to be ugly for sellers for years and years to come and no relief in sight from government or punishment for the architects of this scheme to pump up prices and sales no matter if the loans could realistically be paid back.

[sonoffestus]

04:03 PM on 09/14/2010

Friends of ours in California just sold their 1.3 million dollar home (appraised value 4 years ago) for $800,000.00 . They are very happy to have sold it. Fortunately, they bought in at 350 and only put 150,000 into it.

The bottom will come when homes can be bought on salaries of 12 to$15.00 per hour, the new wage scale in the States.

[Tony Dickey]

02:15 AM on 09/15/2010

Loved the last line! Fanned & Faved.

[SF TKF]

11:10 AM on 09/15/2010

Why call it a 1.3 mil home? I'm sure it didn't apraise for that when they sold it. My house sold for $500K in 2006, but I bought it for $150K last year. It was never REALLY worth a half-mil. That value was smoke and mirrors.

[dadw5boys]

12:54 PM on 09/14/2010

People can't afford to retiree bye bye retirement communites .

[SF TKF]

10:30 AM on 09/14/2010

I think it's really going to depend on where you live. If you live in a place where there are solid, good-paying jobs and limited housing, the prices will go up. If you live in a place surrounded by over-built x-burbs, prices (at least in the x-burbs) will continue to fall.

[IndyFem]

02:23 PM on 09/14/2010

Realtors Mantra: Location, Location, Location.....

[fortressfountain]

10:10 AM on 09/14/2010

The market may be bottoming out? I do not think so. For this to happen people would have to be buying homes. I see a lot of television shows about people going on foreclosure trips to search for homes but I do not see them laying down the cash.
Real estate and the mortgage costs are unsustainable. I know of a town where the water bill is being raised 100%. How many people will line up to buy a home here?

[wdw505]

11:03 AM on 09/14/2010

REO properties prices are very nice right now........flipping is almost back

[IndyFem]

02:25 PM on 09/14/2010

fortress....I can assure you that the 100% raise in water prices will be passed on to any renters by the landlords. So...you're going to pay one way or the other..

[richardgordon]

08:43 AM on 09/14/2010

Remarks like this are a good indication that the Real Estate market may be bottoming out. In other words there is good value to be found in the real estate sector. Anybody who has successfully INVESTED in the markets will tell you that you "buy when everybody else is selling and sell when everybody else is buying". This time is no different. Look for real estate which is good value and be prepared to sit tight for 5 to 10 years. On the other hand, only gamblers and fools try to predict the bottom of a market, because, quite frankly that is impossible to do. You cannot predict human psychology. You might do it occasionally, but that is through sheer luck. Even Warren Buffet routinely failed to buy at the bottom of the market. What accounts for his success is that he looked for VALUE and looked for EXCEPTIONAL companies. Right now in America there are probably hundreds of thousands of real estate investments that fit that profile.

[wdw505]

11:04 AM on 09/14/2010

look for an REO broker first

[Master-T]

03:24 PM on 09/14/2010

LOL - another real estate troll tring to convince people to buy. Sorry pal, we're not even close to bottom yet.

[Robert59]

05:31 AM on 09/14/2010

Judging from the comments, the ones extolling you to keep drinking the koolaid must be tied to either banking or real estate. We are in for deflation with houses leading the way. The reason is unemployment and wages. What we're creating are 10 dollar an hour jobs when we need to be creating 30 dollar an hour jobs. House prices are out of whack, but so is medical care and college tuition. I was a lifelong renter and bought my first and only house in '03. In '04 prices jumped 50,000. In '05 another 50,000. By '06 realtors would tell me my house was worth nearly double what I paid. Then the bubble burst. Now my house is worth about 10 percent than what I paid. Going through a realtor I would realize a 5 percent profit, enough to pay a year of tuition at a state school or buy an inexpensive new car. If we don't start growing 30 dollar an hour jobs we will see even bigger drops in housing.

[wdw505]

06:07 AM on 09/14/2010

but look at all the money saved by employers ultimately it is good thing

[SF TKF]

10:31 AM on 09/14/2010

Well, it's certainly a transfer of wealth . . .

[Lucy1886]

01:58 PM on 09/14/2010

The employers can buy castles in Southern Spain, villas in Tuscany, or make even MORE money buying up foreclosed properties! I'm so happy for them !

[ImmanuelGoldstein]

01:55 PM on 09/14/2010

There is absolutely no rational basis for anything but a conclusion that housing will continue to decline in price. Stagnant incomes, unprecedented debt,massive overbuilding, banks that actually have to worry that housing loans will be repaid, all determine this will happen.
The entire concept of housing as a growth investment is economically impossible and deserves to go the way of the dodo.
Housing prices are still above historic post WW2 norms and must fall about 25% to reach them.

[IndyFem]

02:35 PM on 09/14/2010

Immanuel...It is unrealistic to think that housing will ever go back to "post WW2 norms"...no other costs have nor will....

[karen1p]

01:52 AM on 09/14/2010

EXPOSE THE FRAUD!

In each and every county recording office, there are thousands of forged and fraudulent documents. You have to uncover the scam, go to your AG, remind them that Florida is investigating, and show the suspicious paperwork. If you really examine.....each and every loan file, document that the banks choose to file, and the paperwork they fight to never disclose shows the crimes.

[wdw505]

06:09 AM on 09/14/2010

how about pay your bills

[karen1p]

09:58 AM on 09/14/2010

Good morning, Lloyd.

What? Are you angry there are homeowners (and advocates) that are catching onto your lucrative scam?

[IndyFem]

02:37 PM on 09/14/2010

Karen....I think that everyone that is facing foreclosure should do exactly what you just said....

[karen1p]

02:50 PM on 09/14/2010

Yep.

[karen1p]

12:43 AM on 09/14/2010

Has anyone calculated the amount of money that the banks have been given (the real amount, not the TARP monies) and divided it into the homes that are currently under-water or in foreclosure?

Just sayin'.

[plumbergirl]

08:46 AM on 09/14/2010

Theft by politicians. Who pays who? Should we say let them eat cake.... or off with their heads?