The Housing Bubble

Especially when you sit on a porch of a insanely priced Denver McMansion and look upon the plains….

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Besides, there is a globe full of land and roughly 95% of it goes undeveloped.

Check out the post from The Housing Hit Is Intensifying:

Some housing bubble news from Wall Street and Washington. Bloomberg, “Housing starts in the U.S. plunged more than forecast to a 14-year low in September, the Commerce Department said. Building permits fell 7.3 percent to a 1.226 million pace. The number of housing starts was the lowest since March 1993. The decline was led by a plunge in construction of townhouses, apartments and condominiums.”

“Construction of single-family homes fell 1.7 percent to a 963,000 rate, today’s report showed. Work on multifamily homes slumped 34 percent to an annual rate of 228,000.”

“The decrease in starts was led by a 28 percent drop in the Midwest. Construction fell 12 percent in the South and 10 percent in the West. Starts jumped 45 percent in the Northeast. The number of homes under construction fell 1.4 percent to a 1.114 million pace and the number of properties completed dropped 8.2 percent to an annual rate of 1.391 million.”

The Street.com. “‘Starts have declined at almost a 40% annual rate over the last three months, as the problems in credit markets gave the housing market another leg downward,’ said Wachovia economic analyst Adam York. ‘We think new construction will continue to decline into 2008.’”

“Housing analysts continue to say that a reduction in overall home inventories is a necessary precursor to any recovery in housing prices, which are falling in nearly half of U.S. markets.”

From MarketWatch. “Economists were clearly shaken by the accelerating weakness in housing starts. ‘There is no end in sight to the drop,’ said Ian Shepherdson, chief U.S. economist at High Frequency Economics.”

“He noted that housing starts fell 66% from 1978 to 1981. ‘This episode will likely be worse. The housing hit is intensifying,’ Shepherdson said.”

The Guardian. “‘September’s housing starts figures were so bad I’ve just had to apologise for using a profanity out loud,’ said Paul Ashworth, economist at Capital Economics. ‘Starts peaked at almost twice that level only 21 months ago. The credit crunch may only have had a limited impact on the rest of the economy but it has devastated an already weak housing sector.’”

The Associated Press. “Homebuilders are getting gloomier about the slumping housing market, as a 22-year-old index that tracks their sentiment set a new record low Tuesday.”

“The National Association of Home Builders said its housing market index, which tracks builders’ perceptions of conditions and expectations for home sales over the next six months, fell two points to 18 in October, the lowest level since the index began in Jan. 1985. It was the eighth straight monthly decline.”

“The group’s chief economist, David Seiders, said in a statement that many prospective buyers have ‘unrealistic expectations’ about new home prices and about how much their current homes are worth in this market.”

“Nationwide new home sales are projected to fall to 805,000 this year, down 23 percent from 1.05 million last year, the National Association of Realtors said last week. If that happens, it would be the worst year since 1997, and sales are expected to drop a further 6.6 percent in 2008 from this year’s forecast, according to the Realtors group.”

“In August, new home sales tumbled to the lowest level in seven years, and the median nationwide sales price fell by 7.5 percent from a year earlier to $225,700. That was the biggest drop in percentage terms in nearly 37 years, the Commerce Department reported last month.”

From Forbes. “‘Builders in the field are reporting that, while their sales incentives are attracting interest among consumers, many potential buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values,’ said NAHB President Brian Catalde.”

“The Mortgage Bankers Association predicts the housing recession will last until the end of the third quarter next year. And if confidence isn’t restored in the credit markets, the wait could extend until 2009, the group’s chief economist said.”

“‘Tough times,’ said said Doug Duncan, chief economist of the group, after sharing the group’s loan production estimates during a briefing with reporters.”

“‘We have a ways to go in the housing recession. It is clearly a deep recession; at this point, we figure that will dissipate at the end of the third quarter,’ he said. ‘Anyway you look at it, there are massive supplies of homes that have to be worked off the marketplace before we return to an increase in activity, and certainly in terms of construction.’”

“In fact, the publicly reported inventory numbers are likely underestimated, considering they don’t include contract cancellations for new homes or foreclosed properties that aren’t being marketed by a real estate agent, Duncan said.”

“With the current glut of homes for sale, ‘any significant increase in homebuilding is probably years off,’ Duncan said.”

“‘The day of the 100 percent loan-to-home value loan in the subprime world are gone,’ he said in an interview with The Associated Press.”

“‘If you’ve got a spotty employment record, but good financials on your credit record, you may well still be able to get credit,’ he said. ‘But if you have a spotty employment record, and late payments on three credit cards, and you don’t have cash reserves, most likely you’re not going to get the credit.’”

“‘Layered risks is what that is all about,’ he said.”

The Sun News. “Troubled home builder Levitt and Sons has halted construction at all of its home projects across the Southeast, a spokesman for its parent company said. Fort Lauderdale, Fla.-based Levitt and Sons ordered builders to stop working Thursday - the same day the parent company, the Levitt Corp., announced it would write off huge losses from its home-building subsidiary.”

“The glitch leaves home buyers in Seasons, Levitt’s planned 460-house community for people ages 55 and older in Murrells Inlet, in limbo.”

“One buyer, Eileen Behrens, had been looking forward to moving into the Seasons community next month. She said she put $42,000 down on the house, including luxury upgrades.”

“But when Behrens drove through the neighborhood Thursday, she found that all work had stopped. But as the road progressed through the development, homes were less and less complete. Frames of homes stood deserted on lots, as if a permanent lunch break for construction workers had been called.”

“‘It’s just sort of like a ghost town there,’ Behrens said.”

The New York Times. “J.P. Morgan Chase took $1.6 billion in write-downs and increases to loss reserves, in line with several of its Wall Street peers, after it suffered from a sharp drop in leverage loan values, bad trading bets, and deteriorating home equity loans.”

“CEO James Dimon was cautious about the next quarter or two. ‘Clearly there are still a lot of issues out there that will take time to resolve and there is a lot of risk on the balance sheet.’”

“Mortgage lender Thornburg Mortgage Inc. said Wednesday it lost more than $1 billion in the third quarter due to the fallout in the mortgage markets and elected not to pay a dividend to holders of common shares to conserve cash.”

“During the third quarter, Thornburg Mortgage sold a total of $21.9 billion of loans at a loss of $1.09 billion. Thornburg also posted a loss of $11.5 million to fund forward commitments.”

“The lender was forced to sell loans from its portfolio at a discount because of the declining mortgage market. Thornburg Mortgage originates jumbo loans.”

From Reuters. “Fremont General Corp, which quit offering subprime mortgages in March, on Wednesday reported a $1.06 billion loss for the 18 months ended June 30.”

“CIT Group Inc., the largest independent commercial finance company in the U.S., reported a third-quarter loss, dragged down by costs from closing its subprime home-loan unit. he loss included a $290.5 million charge for lowering the value of its home lending portfolio to reflect market conditions, following a $495.3 million charge in the second quarter.”

“MGIC Investment Corp., the largest U.S. mortgage insurer, posted its first quarterly loss and said it won’t be profitable next year as the U.S. housing market worsens.” “The net loss of $372.5 million, was the worst quarter for the Milwaukee-based company since it went public 16 years ago.”

“MGIC reported third-quarter costs of $602.3 million, more than three times as much as a year earlier, to cover losses by the mortgage lenders it insures. CEO Curt Culver said on a conference call that U.S. real estate prices may drop 10 percent over the next 18 months.”

“MGIC wrote off its $466 million investment in Credit-Based Asset Servicing and Securitization LLC, jointly owned with Radian Group Inc., after demand for subprime loans collapsed.”

“Fitch Ratings said it may downgrade MGIC’s claims-paying ability because mortgages insured in 2007 appear to be performing as badly or worse than 2006 loans.”

The Kansas City Star. “Kansas City-based NovaStar Financial Inc., scrambling to survive the subprime mortgage meltdown, plans to sell much of its remaining business and slash about half of its remaining staff.”

“The company late Tuesday announced a deal to sell its mortgage-servicing rights for $175 million to Saxon Mortgage Services of Fort Worth, Texas. NovaStar said it would use the proceeds to pay off debt. At the end of June, NovaStar had about $633 million in short-term liabilities.”

“The once high-flying company has been laid low by the woes of the subprime industry, which makes residential loans to borrowers with blemished credit histories.”

“As of June, more than 1 million mortgages were in default or foreclosure, up 50 percent since June 2005, according to a report released Tuesday by the Government Accountability Office.”

“By selling off its mortgage-servicing rights to Saxon, NovaStar hopes to buy time until housing conditions improve. Whether it can do that while other subprime lenders declare bankruptcy, close their doors or get bought out by larger concerns remains an open question.”

The Journal Sentinel. “The U.S. housing market has become an economic drag on the businesses it once fed, A.O. Smith Corp.’s chief executive said Tuesday. ‘Housing weakness will continue for the foreseeable future and may be accompanied by slowdown in other market segments,’ said CEO Paul W. Jones. ‘As subdivisions don’t get built, some strip malls and the like will be delayed.’”

“‘The first couple weeks in August, when credit dried up and everyone decided we weren’t at the bottom of the housing market after all, we saw a couple weeks with practically no orders,’ Jones said.”

The Palm Beach Post. “Treasury Secretary Henry Paulson said he wants lawmakers, regulators and lenders to focus on ‘putting an aggressive plan together and moving forward.’”

“The roots of the problem reach back to the 2002-05 housing boom, when many lenders aggressively pushed subprime mortgages. Paulson also urged Congress to ‘make some changes in our laws and rules in order to prevent some of the excesses and abuses of the last few years from happening again.’”

“‘Some of the conduct and practices that I have learned about are shameful,’ he said. ‘It is no secret that, while not the norm, some fraudulent activity on behalf of mortgage brokers occurred.’”

“A plan by top U.S. banks to set up a fund preventing the forced sale of billions of dollars of hard-to-value securities faces some serious obstacles.”

“Analysts said the pool might end up hurting existing SIVs even more by stripping them of their best assets. Nor is it clear who would manage the new pool. ‘It’s all a bit of a shell game,’ said Bill Cunningham, head of global fixed income research State Street Global Markets in Boston.”

“The chief of JPMorgan Chase & Co Inc, which is helping create a roughly $100 billion fund to bail out risky, illiquid investments, said there may be some of these investment vehicles that will not be helped.”

“JPMorgan CEO Jamie Dimon said on Wednesday the so-called super fund for structured investment vehicles, or SIVs, won’t help every SIV equally. ‘No one ever said every SIV is going to be helped,’ Dimon said.”

“‘There may be some SIVs that it’s not going to help, and that’s life in the fast lane,’ Dimon said.”

The Washington Post. “Only on Wall Street, and in its political annex, the U.S. Treasury, could someone think that the way to prevent a meltdown in structured investment vehicles is to create a giant structured investment vehicle.”

“While we’re at it, why not locate it, with all the other SIVs, in some offshore financial haven like the island of Guernsey or the Cayman Islands, where we can shield it from lawsuits and regulatory scrutiny and make sure nobody has to pay taxes until the profits are repatriated.”

“Like the SIVs it is hoping to rescue, let’s make sure it is highly leveraged, to get the best return on the relatively modest amount of real cash anyone puts into it.”

“And let’s ensure none of the banks setting up this Super SIV will have majority control or assume too much of the risk, so they won’t have to put any of it on their balance sheets or set aside their own money — ‘regulatory capital’ — in case something goes wrong.”

“Best of all, let’s use it as another chance to earn big fees!”

“International investors sold a record amount of American securities in August. Total holdings of equities, notes and bonds fell a net $69.3 billion, the Treasury Department said Tuesday. None of the dozen economists surveyed by Bloomberg News predicted the decline, the first since Russia defaulted in 1998.”

“Foreigners dumped American assets as mortgage defaults set off a surge in borrowing costs that spurred central banks to flood the banking system with cash and forced the Federal Reserve to reduce interest rates.”

That was a busy day.

It has also been detailed how most of the housing units being built are luxury, and the need is more affordable.

In other words, the lack of household formation could be due to a mismatch between what is being built and the need. Overall, the level of vacancy is NOT concerning as compared to the bubble years, which indicates to me that we are not (yet) overbuilt.

We’ll get the Q3 vacancy data in a couple of weeks, and we’ll see if the trend noted in the article continues.

Thanks for responding RW. I appreciate the dialogue.

I’m not sure I follow you on why the vacancy data matters. I understand that if there was excess supply Vacancy would be higher.

I agree that 90% of what’s being built all over the US is luxury. I’ll bet that’s affecting household formation.

Also, I am of the opinion that luxury will bring the entire market down with it.

What would they be covering up? A crazy guy shot a bunch of people from a good vantage point with the right guns and lots of ammo. The only thing that seems sketchy to me is the police and hotel responses, which could have been quicker.

How about a lack of motive?

Like he wasn’t the actual shooter, and somebody else did it who’s at large?

Apparently, there’s a paper trail of this guy purchasing all sorts of weapons going back to the early 1980’s. If those are the guns used, I don’t see how it points to anybody else. He could have just been an angry guy. A lot of compulsive gamblers are vengeful against the casinos who take their money.

I don’t think we’ll ever know what this guy’s motive was, but it’s hard to imagine anything else going on. I’d think Trump would be putting the screws to the FBI, local police, etc. if he thought there were shenanigans taking place. And I think a coverup would take too many people to orchestrate. Somebody would go rogue and start making anonymous calls, etc.

He also noted:

“I’ve had hundreds of meetings with Harvey Weinstein, and literally not a single time was Harvey abusive to someone in my presence,” Katzenberg said. “Somehow this behavior was masked by him.

“The tragic part is these women masked it from us too because they were intimidated,” he said.

Katzenberg is clearly not being hit on by the likes of Weinstein, and he acknowledges that the women who were being intimidated were not coming forward.

And the likes of NBC were happy to keep the story under wraps.

And there were plenty of settlements that I’m sure were kept quiet.

In other words, the best Katzenberg probably hears are rumors…and it would be pretty crummy if he started naming names if all he had was rumors to go on.

“How about a lack of motive?”

Crazy peops don’t need no stinkin’ motive.

Desi Arnaz invented the casting couch.

Those corrupt elites mock us for clinging to our morals, ethics and freedoms.