‘I’ve Never Seen A Soft Landing In 53 Years’: CEO
Some housing bubble reports from Wall Street and Washington. “Downward momentum in the U.S. housing market is leading some of America’s biggest mortgage lenders to launch new cost cuts and risk reduction strategies that suggest growing concern that the outlook is worsening for the $9.5 trillion home mortgage industry.”
“‘I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out,’ Countrywide CEO Angelo Mozilo said on a Tuesday conference call. ‘I have to prepare the company for the worst that can happen.’”
“At New Century, one of the nation’s biggest subprime lenders, CEO Brad Morrice told Reuters the company has tightened some credit requirements as it puts ‘more thought into loans you want to make or don’t want to make.’”
The Union Tribune. “An avalanche of investors paying top dollar to buy office buildings, San Diego’s commercial real estate market may be showing signs of slowing. GreenPoint Mortgage vacated 110,000 square feet on Willow Creek Road along the I-15 corridor. And Capital One is leaving several floors in the First National Bank tower downtown.”
From MarketWatch. “Pulte Homes announced today net new home orders for the quarter were 9,455 homes, which represent declines of 30% and 29%, respectively, from prior year second-quarter results. ‘Our second quarter results reflect the changing dynamics being experienced in the homebuilding industry,’ said Richard Dugas, Jr., CEO.”
“‘The supply of homes for sale continues to increase, while greater buyer uncertainty about purchasing a home at this time is being further impacted by their inability to sell existing homes and the effect higher prices and interest rates are having on overall affordability,’ Dugas said.”
“Meritage Homes today announced second-quarter results for the period ended June 30, 2006. ‘Demand from investors and speculative buyers has decreased dramatically; inventories are up; and price concessions have increased. These conditions make it more difficult for our buyers to sell their existing homes, resulting in higher order cancellations. While gross orders for the second quarter of 2006 were down 17% compared to the previous year’s quarter, higher cancellation rates reduced net orders by 28% for the same period,’ said CEO Steven Hilton.”
“For the first time in more than a decade, home prices could start to fall around the country in coming months, the NAR said Tuesday. David Lereah, NAR’s chief economist, said he expects ‘price numbers to start deteriorating.’”
“On Thursday, the Commerce Department will report new-home sales for June, and economists such as Phillip Neuhart of Wachovia expect those figures, too, to show continuing weakness. ‘The numbers are not fully counting cancellations, which builders are reporting at a very high level,’ Neuhart said.”
From Bloomberg. “The National Association of Homebuilders ‘believes that the Federal Reserve has been relying on deficient inflation measures to rationalize the interest rate hikes that have been taking a serious toll on the housing sector,’ Joseph M. Stanton, the association’s chief lobbyist, wrote.”
“‘Ironically, much of the recent increase in `core’ consumer price inflation that the Federal Reserve is trying to control with higher interest rates is coming from a weakening housing market, which is increasing the demand for rental units. That translates into a sizeable increase in the large `owners’ equivalent rent’ components of the core inflation measures,’ Stanton said.”
“‘Fighting an increase in core inflation stemming from this component is an inappropriate use of monetary policy, since tighter policy will cause rents to rise further and put additional upward pressure on the core inflation measures,’ he argued.”
“Tens of thousands of new and existing condo units are on the market, and thousands more are under construction. In other instances, some older apartment complexes, which were to be converted to condos, will be renovated and remain on the rental market.”
“The Commerce Department reported yesterday that the number of unsold homes on the market rose to 3.725 million units, almost 40 percent more than a year earlier. ‘This implies that we are only at an early stage of home sale problems,’ economist Ken Mayland told his clients. ‘At some point along the way, prices could crack big time.’”
‘Wood-products giant Weyerhaeuser Co. said its second-quarter earnings fell 25 percent from year-ago results that were boosted by one-time gains, as performance was hampered in part by the slowing U.S. housing market.’
‘Cemex SA, the worlds third-largest cement producer, said second-quarter net income fell 17 percent as U.S. cement sales declined for the first time in three years ‘
‘Black & Decker Corp.’s stock got drilled by investors Wednesday as the toolmaking giant reported flat sales amid mounting evidence that the nation’s housing market is slowing.’
Outstanding info Ben….The systemic effect of the slowdown in housing….Next is job loss, then possibly a acceleration of it all…
There is one really stupid part of this all…
Since Ol’ Mr. Stanton has been a great fan of the speculative excess of the buy-to-rent housing boom that low interest rates created, how are all of thos FB’s who are holding negative cash flow properties on toxic loans going to feel about him essentially saying he wants to ensure that rents are stable and not going up quickly? Won’t they want to strangle him? Excess housing is just excess housing, regardless of whether it is rented or bought.
I guess the easy solution for Mr. Stanton is to exclude rents from the CPI as well and have the FED lower rates and inflate away like always. According to the burocrats, we don’t need food and energy to survive, so why not exclude housing as well?
“‘I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out,’ Countrywide CEO Angelo Mozilo said on a Tuesday conference call. ‘I have to prepare the company for the worst that can happen.’”
Can anyone get a quote from this schmuck from 6-12+ months ago whereby he stated the opposite?
WTF
Sun-prime ben beddy beddy good to Mr. Mozilo. He made $56 million last year:
http://www.forbes.com/static/pvp2005/LIR7G33.html
Sidebar: Mr. Mozilo is 66 years old. 53 years ago he would’ve been 13 years old. Guess he got an early start.
Yep…he did. According to this article, he started working at a mortgage company at age 14 as a messenger boy and worked his way up. He didn’t know a soft landing from a hard landing at that time I’m sure, but he HAS been in the mortgage business the amount of time he says. He’s just using the 53 years for emphasis, no doubt.
http://www.horatioalger.org/members/member_info.cfm?memberid=MOZ04
BayQT~
I actually like Mozillo. Especially after his “California Sucks” outtake.
Mozilo from Feb. 06;
“I would expect a general decline of 5% to 10% throughout the country, some areas 20%. And in areas where you have had heavy speculation, you could have 30%. We will see…sellers back off from the prices they have been demanding. A year or a year and half from now, you will have seen a slow deterioration of home values and a substantial deterioration in those areas where there has been speculative excess.”
He’s been among the more honest in the home biz.
If you consider skimming $50M+ a year off the top while bankrupting the company with crappy loans honest, then ya, he’s honest.
For the shareholders, you can only hope that he sold as many of those “crappy loans” as possible to people willing to buy them. And for Countrywide, I think that is the case–I don’t think a whole lot of those loans are on their books.
Now, I think that Corus is a different story . . .
All of them non-recourse, of course.
For countrywide, on their RESPA servicing disclosure, they state that they sell or transfer 0-25% of their loans in the first 12 months. After 12 mos who knows…
Damn. Corus. Wish I’d cashed out the whole CD. I left half in for another year. Oh well, I guess FDIC will pay me eventually.
Does anyone know whats going on in the Phoenix market. They’ve got the Baseline killer and the Serial Shooter. That, and the fact that it’s 118F there. Who wants to shop for a house.
Well, you know they’re not making anymore uninhabitable desert land…
The Phoenix housing market is in the toilet, truth is there is no market. Housing in my neighborhood have sitting for 5+ months. They have just begun to lower prices, measly 5% drops, which are doing NOTHING to bring any traffic to the homes. There are perpetual open houses that go on 7 days a week and I haven’t even seen any potential buyers parked on any of the streets. ZipRealty.com has ~52,300 homes on the market in Maricopa County today, whereas last year at this time they had ~4500. I can confidently report that we have run out of idiots in Phoenix!
Yep open houses all week. I see one SOLD sign out of 25 plus for sale signs in my immediate area. Will it pick up in the fall with the cooler weather?
118 aint nothin it was 120 in woodland hills saturday.it gets hot in the san fernando valley.
Which is why I expect the July SoCal numbers to be even worse. What with the first week taken up by the 4th of July (and it was hot then also) and the record heat since then I bet when the July numbers come out in August it will be a total cratering
anybody discounting angelos smarts is a fool. we were on this board twelve months ago marveling in his stock sales and downsizing/transfer of people out of california. my bet is that he/countrywide will become “the” uber-servicer in this whole mess, contracting with the feds in bailing out all of these failed reits and mortgage backed firm. mark my words, he’s light years ahead of the competition.
Agreed.
You’re on point there, boulderbo. Even though I no longer work for Countrywide I know that the people running it know exactly what they are doing. They’ve learned from their past mistakes and they are extremely pro-active. Sure, it doesn’t ensure no future guffaws but their true strength is that they are a mortgage lender first, not just a high street bank.
All their eggs are in the RE market and they can foresee trends like no other mortgage lender I know of.
Downward momentum in the U.S. housing market is leading some of America’s biggest mortgage lenders to launch new cost cuts and risk reduction
Can they just come out and say layoffs? Anyone associated with the investment business in 2000-2003 remembers the unprecedented layoffs by all of the major brokerage firms, including nice guy Schwab.
Not to reply to my own comment, but also there are many more jobs associated with a booming real estate market than a booming stock market. With stocks you get brokers, traders, analysts, portfolio managers. But many of them are employed by the same company.
RE, of course, has the builders, lenders, escrow, title, realtors, “real estate economists,” etc, etc.
Yep, hate when they say cost cuts instead of layoffs. These CEO’s and their PR people use Madison Ave. tactics to smooth over the bad news.
Made my day!!! How wonderful!!
“Prices got too high in some local markets,” Lereah said. “So you’re seeing two things occur: Investors are leaving quickly, and regular home buyers are staying on the sidelines.”
Imagine somone is paying David for his astute ability to look into a problem and see why it is happening and explain it in terms we can all understand. duh
What I find surreal is how they are complaining that the inflation measurement is defective because of increased rental prices caused by the deflating housing market. Ummm… what about the horribly overpriced homes that are driving people away from buying a house to being with? It’s not as if people as thinking, “Hey, renting is the way go!” No - instead they are thinking, “Wait - why should I give 90% of my paycheck over to the bank again just to buy a house when renting is much cheaper?”
The real estate industry really wants rates to come back down, but if that happens, inflation surges and the dollar continues its march towards worthlessness. Plus, in the long run, many of the people who bought these overprices home can’t really afford them at their actual rate (ignoring teaser rates and other “features” of suicide loans) without steady and significant price appreciation. Lowering rates won’t fix this problem.
Not to mention that they’re ignoring the effect of all the failing condo conversions that will return to being rentals. That will drive rents down, not up.
Joseph M. Stanton, the association’s chief lobbyist.
Joe is twisting this as much as he can. I see no reason why the inflation calculation shouldn’t have included the price of buying a home. If it hepled reduce reported inflation now its time to catch CPI up with higher rents.
‘From MarketWatch. “Pulte Homes announced today net new home orders for the quarter were 9,455 homes, which represent declines of 30% and 29%, respectively, from prior year second-quarter results. ‘Our second quarter results reflect the changing dynamics being experienced in the homebuilding industry,’ said Richard Dugas, Jr., CEO.”’
Is this the bad news that explains why Pulte’s stock price went up today? Because generally speaking, builder stock prices go up like clockwork on the release of bad news. It was not too many years ago when a negative news release drove down the price of shares, but we are in a New Era now.
Earnings were released after the closing bell. In AH trading, PHM was off by as much as .85, finishing down .55.
But you’re right, GetStucco. PHM will probably finish green tomorrow, which I think is almost guaranteed if the S&P finishes green for the day.
“‘I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out,’ Countrywide CEO Angelo Mozilo said on a Tuesday conference call. ‘I have to prepare the company for the worst that can happen.’”
You’ve gotta love the pull-no-punches approach of CEOs like Toll and Mozilo to delivering bad news. Quite a refreshing contrast here to the likes of Liareah…
It is amazing all the RE people in the past talking about a soft landing. The point is if you review history, there has a hard landing in every decade after a RE boom - 70’s, 80’s, 90’s. This time it is not different!!
At least stock investors will admit there is a bear market every 3 to 5 years.
Also, let’s not forget that this boom was unprecedented with regards to price increases, relaxed lending standards, speculation and thus overbuilding. Megaboom -> Megabust.
Can you say CRASH , I bet you can
Yes, but can you say it without smiling? That’s the question?
If I were an FB I could.
“For the first time in more than a decade, home prices could start to fall around the country in coming months, the NAR said Tuesday. David Lereah, NAR’s chief economist, said he expects ‘price numbers to start deteriorating.’”
Translation: deteriorating = dropping like a rock
Lereah can’t speak a straight forward phrase if his life depended on it. It’s all nuanced lingo.
I’d be thrilled if he got the chance to try that nuanced nonsense out in court. That’d be sweet.
The best part of all this latest news is that everyone can stop surmising. It is over folks. The price depreciation will begin in earnest this fall.
Remember: Everyone from Lereah on down to your average Joe Shmoe analyst shouted from the rooftops in the past couple of years that NATIONWIDE average prices have NEVER declined since the Great Depression.
Here are just a couple quotes from a Businessweek story in 2005 making that statement:
http://tinyurl.com/cmfsd
“Average national home prices haven’t dropped since the Great Depression”
“I don’t foresee any national decline in home price values. Freddie Mac’s analysis of single-family houses over the last half century hasn’t shown a single year when the national average housing price has gone down. The last consistent drop was during the Great Depression, when the unemployment rate got up to 25%, or five times the level we’re at now.”
In the most recent month (June) , the average price of an existing home rose a scant 0.7%. Condo/co-op prices? NEGATIVE 1.4%. New home average was up 2.4% in May (June figures come out tomorrow). If this keeps up, will 2006 go down as the year that’s the worst for housing since the Great Depression? Imagine the newspaper headlines if that happened. And I’d point out that CPI inflation was 4.3% YOY (officially, though we all know CPI stinks for measuring REAL inflation) in June. So on a “real” basis (inflation adjusted), home prices are already falling. Food for thought.
And if we measured unemployment the way they did back in the 30’s unemployment would be hovering around 10-12%.
interesting comment - can you explain? I am seriously interested in this….
thanks!
Great Depression II might have already begun, given the news that real estate prices are dropping from coast-to-coast. Hopefully the facts that home prices are falling and national savings are negative month-after-month for the first time since the 1930s are mere coincidences…
“‘Fighting an increase in core inflation stemming from this component is an inappropriate use of monetary policy, since tighter policy will cause rents to rise further and put additional upward pressure on the core inflation measures,’ he argued.”
So it’s ok to use this highly distorted measure of inflation when it benefits your business, but when it doesn’t - then you can’t use it.
Inflation will just go away if we ignore it and manipulate numbers to serve one group’s interests over another…
Such twisted logic.
Privatize profits, socialize losses is the surest fire way to a profitable business.
The only thing a businessperson wants from the government is a reasonable advantage over the competition.
“‘Ironically, much of the recent increase in `core’ consumer price inflation that the Federal Reserve is trying to control with higher interest rates is coming from a weakening housing market, which is increasing the demand for rental units. That translates into a sizeable increase in the large `owners’ equivalent rent’ components of the core inflation measures,’ Stanton said.”
“‘Fighting an increase in core inflation stemming from this component is an inappropriate use of monetary policy, since tighter policy will cause rents to rise further and put additional upward pressure on the core inflation measures,’ he argued.”
It would be greatest tragedy if fed buys this arguement. The higher housing prices should have been reflected in core CPI in the first place - the rents would not be rising if the housing costs had not increased so much. housing is consumption and higher house prices are inflation. I will move my money out of USD the day I hear fed heeding to this arguement of higher rents not being inflationary. The hardearned money which people have saved and work hard to earn is loosing its purchasing power because of this reckless borrowing and lending to housing industry. Helicopter Ben better not bail this out and destroy the system.
Couldn’t agree more.
But at some level, doesn’t an increase in buyer’s equivalent rent alos decrease the rent/buy ratio and help support the current, insane prices? Of course IMHO this is a short term, transition effect. The huge increase in housing supply will lead to a decrease in rents in the medium term.
“‘Ironically, much of the recent increase in `core’ consumer price inflation that the Federal Reserve is trying to control with higher interest rates is coming from a weakening housing market, which is increasing the demand for rental units. That translates into a sizeable increase in the large `owners’ equivalent rent’ components of the core inflation measures,’ Stanton said.”
Strange that there was no complaint that inflation was understated as housing prices went up.
I read the other day that since 2001(or 2002) motorcycle sales have gone up 41% in california.
Not content with a HD/Buell dealership a few doors down a V-Twins dealership has opened. This in a small business park between Oxnard and Camarillo. Nowhere near a quarter the population necessary to support one. They are kinda like condos or lawyers in that respect.
I pity the fools who have expanded their dealerships based on false demand. it’s gonna get ugly.
Not to worry. These dealerships are only a dozen miles from Countrywide Mortgage’s corporate HQ.
I’ve hardened my heart recently. I used to think a nice cleansing price decline would be enough. Now I’m entertaining the necessity of a “fall down, go boom” type of event to just set the stage for a merely painful protracted contraction following. I am honestly worried that papering over the “Event” (my new term) will only make things worse. I thought we could avoid The Event; steady increases in interest rates, gradual tightening in loan requirements, natural end to the business up cycle, public awareness. Now I’m not so sure.
Hey Robert, I think all bears are struggling with what you mention.
Even housing bears that disagree with each other share that concern.
I think we may be in for a harder ass-whupping than we anticipated.
But that is OK, because my beating will be much more tolerable than an Fb’s.
motorcycle sales in CA:
There are two kinds of people: (1) “lifestyle” sales, i.e. fat encrusted Harleys etc (2) normal motorcycles
The second category is much less expensive, and perhaps people bought them to use because they get 50-100 MPG.
What I would do to have been a fly on Lereah’s wall to witness his reaction from hearing Country-f***ing-wide’s very own CEO say, “I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out.”
Poor ole Dave has successfully managed to go from the proverbial housing cheerleader to angry bullfighter in less than a year. Next week on Discovery Channel’s Dirty Jobs….Mike Rowe spends a day at NAR headquarters to sit at the desk of David Lereah. In the episode, Mike gets first hand experience staving off furious CEOs of mortgage lenders, home builders, f***ed borrowers, and the CAR chief economist Leslie Appleton-Young. Rowe admits that this episode was a cake walk compared to his avian vomitologist episode.
Damn….
Rowe admits that the avian vomitologist episode was a cake walk compared to this.
“David Lereah, NAR’s chief economist, said he expects ‘price numbers to start deteriorating.’”
for a brief moment there i thought d lereah said something about price deteriorating.
i’d better go easy on the pepperoni at lunch
“”Prices got too high in some local markets,” Lereah said. “So you’re seeing two things occur: Investors are leaving quickly, and regular home buyers are staying on the sidelines.” ”
You knew this just had to happen sooner or later…there was no way the NAR was going to outrun this problem indefinitely. We’re not in a true buyers market yet, but this is definitely a milestone.
Just want to second the outstanding collection of info in this post…thank you Ben.
An article from Grant’s. It’s from July 2005 and it features Countrywide and Angelo Mozilo.
http://www.grantspub.com/articles/houseparty/
BayQT~
Re: the bloomberg article with this quote:
” Sarbanes, in questioning Bernanke, asked whether the decline in housing might go too far. And of the NAHB argument about rents, he observed, “That seems to me to have some validity.”
“On your first point about housing, we are watching the housing market very carefully,” the Fed chairman responded. “Other parts of the economy are picking up to offset some of the weakness we see in the housing market. But we are watching that very carefully.”
Whatever happened to this, from a paper by Bernanke and Gertler at Princeton?
“The inflation-targeting approach gives a specific answer to the question of how central bankers should respond to asset prices: Changes in asset prices should affect monetary policy only to the extent that they affect the central bank’s forecast of inflation.”(http://tinyurl.com/j4ca8)
So falling home values should, by reducing consumption, lower inflation. Only in the overheated market we’ve recently seen would a slowdown in housing tank the entire country as it could now. But then, what about this from Kohn? (http://tinyurl.com/jg7fs)
“”If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,’ Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany.”
If it’s their argument that the housing market has been the momentum carrying the consumer and it will ripple down to slow everything, what is the answer to the problem other than preserving their asset values?
I think the FED will let the individual home borrowers go down without bailing them out. However if Country wide starts to go down then they will start up the helicopters ( to throw money out of per Bens famous speech).
So it depends how bad it gets, and I bet they are watching it.
Sarbanes, in questioning Bernanke, asked whether the decline in housing might go too far.
Inasmuch as the increase in housing prices went too far, pricing out of the market almost everyone who is unwilling to obtain a cheater loan, I would suggest that the decline won’t be “too far” unless it goes beyond wiping out the illegitimate increases of the past 5-6 years.
Well said, jbunniii!!!
has there been a soft landing in financial history of any number that got way over the mean ?
gold-stocks-RE- tulips- jute
anything , ever ?
so much for commercial RE.
commercial may hold up for 2 more years- was late to tank in some markets last time
it’s funny, I have lereah’s book on my desk waiting to read a few chapters and catalogue his ridiculous statements. the forward or whatever it’s called is so brazen. he basically guarantees there is no slowdown on the horizon, even with higher interest rates.
Are you missing the real estate boom?
(Why homes values and other real estate investments will climb through the end of the decade- and how to profit from them.)
I don’t care what qualifiers he uses, he could hire cheney, he can’t wiggle himself out of his book title, or all the chapters.
NAHB’s chief lobbyist Stanton is a complete jacka##. While interest rates were dropping and home prices were escalating at a 15% annual click and not captured by the CPI, he had nothting to say, Mum…Zip…Nada… Now that home prices are lofty and many people cannot afford to buy a home, he discovers the irony in the CPI’s two bedroom apartment and real cost of homeownership interest rate relationship.
It works both ways Stanton. While interest rates were low and renters bought homes at inflated prices, rents stayed relatively low and the increasing cost of a home was not captured by the CPI. Landlords had no pricing power. They were afraid of increasing rents and making homeowners of their dwindling tenant base.
Now that interest rates are increasing and home prices remain inflated, the landlords tenant base is increasing and it has no option but to rent. Landlords are aware of the tenant’s predicament, afterall with all the apartment to condo..con..versions occuring over the last three years there are fewer and fewer available rental apartments. Consequently, landlords have increasing pricing power and are increasing rents, and the cost of homeownership is finally being reflected in the CPI.
During Bernanke’s testimony (I believe it was the House testimony) the last rep. to ask questions brought up this exact same argument. Interestingly enough, Bernanke basically mentioned that nobody was complaining about the CPI using rents on the way up (very loose translation — will try to find minutes). I thought he was great!
I heard the same exchange…
“The exchange between Bernanke and members of the Senate on both the downside risks to housing and the effect of “owners’ equivalent rent” on the core inflation measures presumably contributed to the soothing effect of the testimony on the financial markets, according to NAHB Chief Economist David Seiders.
“Recognition of the downside risks to home sales and housing production reduced the markets’ estimates of the probability of more Fed tightening,” said Seiders. “And the markets now know that the Fed at least partially discounts the increases in the ‘owners’ equivalent rent’ component that recently helped drive both the core CPI and the core Personal Consumption Expenditures price index above the upper ends of the Fed’s apparent comfort zones for these measures.’”
http://www.nbnnews.com/NBN/issues/2006-07-24/Front+Page/index.html
————————
I can’t find the exact exchange I was looking for, but the pressure is on WRT changing or discounting “owner’s equivalent rent” in CPI calculations.
BTW, the argument they use is exactly the reverse of what’s happened the past few years (like we all know that already, I know). The understated inflation due to OER instead of purchase prices is one of the things which caused CPI #s to remain so low, and interest rates waaay too low.
We absolutely MUST fight this! Please write your senators & representatives, (as well as a note to Ben B.
) and let them have a piece of your mind.
I totally agree. we need to fight this stealing of money by Fed. the higher home price inflation is finally showing up in CPI as it should have been long time back and if Fed does not raise rates to fight this housing inflation then we should not only just write to senators etc but move money out of US dollar since it’ll continue to loose money.
just wanted to add that although homeprices in the US seem to have topped (and may decline further), they are still rising and posting record after record in most of the other markets (e.g. UK, Netherlands, most other EU countries, New-Zealand).
This ain’t over until the world wide credit boom is stopped; and the comments by Bernanke and his fellow inflationists from the ECB would make me very cautious about saying this is the end of the credit boom.
Personal debts. Housing debts. National debts. State and local government debts. Pension obligations.
The temptation to screw the little guy through inflation is overwhelming, given that it generates a vague but unfocused anger. Tax increases, reductions in public services and benefits, bankruptcies, and lost jobs create much more focused anger.
Savers are in the minority here.
That’s why I can’t explain why long term interest rates are so low relative to short term. Short term interest rates, controlled by the FED, are NOT too low relative to inflation anymore. It is long term rates, stock market PEs, real estate cap rates, heck the return on any investment, that is too low.
slightly OT but I have a comment on new car sales: Our former babysitter’s husband sold Porsches for a living (in Northern Virginia). He said for the past five years or so almost every buyer paid for the cars outright with a home equity check. About 6 months ago, the babysitter announced that they were selling their house and renting because they needed the equity in their house to pay bills—*her husband hadn’t sold one single car in months*. Her house is still for sale. They are nice people and I feel badly for them.
MeShell…. Your posting was not off topic, a great anecdote and very telling of what is happening.
My brother-in-law from Tampa is visiting. He works at a Mercedes Dealer Repair shop - he estimates that 75% of the people who own a Mercedes there don’t have a pot to piss in. They don’t own any equity on the vehicles and they cannot afford to fix anything on them once they are out of the warranty period. Once they are out of that warranty period, the vast majority of them drive them into the ground rather than pay for any of the repairs. He told me that he had a few people who actually did fix their cars out of warranty, but they stopped, they told him their home equity lines of credit were maxed out, as well as their credit cards - there is so much “fake” wealth out there for appearances that is going to disappear.
Wow…that is a very telling story indeed. How many of the luxury cars in VA and the simple suvs in MI are being financed by home-equity loans, and how many salespeople’s mortgages are getting paid by other people’s HELOCs…it’s such the house of cards, and a big deal I think that it’s gotten to the point of Lereah finally needing to use the word “deteriorate” regarding prices. (I hope he didn’t pronounce it ‘deteriate’ though)
It makes you wonder about that whole issue of ‘too far down’. It’s such a complication that so much of our current economy is the smoke and mirrors of the housebubble and creditbubble. I think there’s also the reality that real wages are stuck at levels from a good couple of year before the most ridiculous recent run-up in a lot of places, and I think there’s far more reason to believe that wages in an increasingly global economy will stay flat than that they will increase, no? It sometimes seems to me that for houseprices to *not* give up even more than the ridiculous increases of the last 4 or 5 years would require people to be optimistic about future wages, and I don’t see that happening somehow.
Lierah and the NAR make Mary Meker, Henry Blodget, Abby Cohen, Joe Battapaglia and the other ANAL ysts of the Dot.com days look like amatuers. Yet like the paid liarsfor Wall street, the Liars of Real Estate will escape this oncoming crash unscathed. We as taxpayers will be left holding the bag and the equally corrupt Congress will conduct hearings where they will sacrifice some lower lever scapegoat. I blame this entire mess on Greenspan. He transferred one bubble into another and then left town before it blew up to collect millions in speech fees.