‘Current Housing Slowdown Is Unique’: CEO
Some housing bubble reports from Wall Street. “Toll Brothers cut its 2006 order forecast for the second time, calling the slowdown in housing markets ’somewhat unique’ in its largely psychological nature. The homebuilder said backlog dropped 13% and contracts signed plunged 45% from a year ago.”
“‘It appears that the current housing slowdown is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,’ said CEO Robert Toll. ‘Instead, it seems to be the result of an oversupply of inventory and a decline in confidence: Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction.’”
“‘On certain land deals that no longer work due to today’s weaker market conditions and slower sales paces, we are willing to let options expire if we are unable to renegotiate the land purchase,’ Toll said. ‘We have seen an increase in our cancellation rates in a number of markets, including Orlando, Northern California, Palm Springs, Las Vegas, and Phoenix.’”
“Toll slashed its forecast for the number of homes it expects to sell in the year to a range of 8,600 to 8,900 from an earlier reduced forecast of 9,000 to 9,700 homes. It was the fourth time since November that Toll had cut its forecast for the number of homes it expects to sell.”
“WCI said traffic and new order activity in Florida fell ’significantly’ in the second quarter. Second-quarter earnings fell sharply as the Florida housing market slowed. Net income dropped 70 percent from the year-ago period. Revenue fell 21 percent. The company said third-quarter earnings should ‘approximate’ the second quarter, indicating a continued slowdown.”
“‘It appears that it will take several quarters for the increased new and resale real estate inventories affecting most of our markets to absorb,’ WCI said.”
“‘While traffic in the Mid-Atlantic region has been favorable, few visitors are converting to purchasers,’ said Jerry Starkey, CEO of WCI Communities said.”
“In the only mention of recent layoffs, Starkey said the company was taking steps to ‘moderate capital spending on land and land improvements, decreased the size of our workforce, are lowering other operating costs.’”
“Accredited Home Lenders Holding Co. reported Wednesday second-quarter profit edged up 4 percent, but revenue missed Wall Street projections as the sub-prime lender endured challenging market conditions. ‘We are pleased with profit and cost results in the second quarter and the first half of 2006 that presented some of the most challenging market conditions in recent memory,’ said CEO James Konrath.”
“He added that the company has faced ‘continuing intense price competition, fluctuating secondary market appetites, and higher funding costs.’”
“Mortgage giant Fannie Mae, the largest financer and guarantor of home mortgages in the country, on Wednesday informed the Securities and Exchange Commission that it would not be able to file its financial report for the second quarter on time.”
“The company did not request a five-day extension beyond the Aug. 9 due date, saying it would not meet that deadline either.”
The Burlington Free Press:
‘A growing number of Vermont lenders are offering 40-year mortgages. Several Vermont banks are offering the long-term loan, but few customers have applied. ‘It’s not a hugely popular product,’ said Kellie Stoll, a mortgage sales coordinator at Chittenden Bank. ‘I think the intent was that it would help people qualify for a higher mortgage, but we haven’t seen that.’
‘Chittenden Bank began offering the 40-year mortgage shortly after Fannie Mae, one of the country’s largest mortgage companies, announced it would buy the loans from primary lenders. On a $200,000 loan, the 40-year mortgage saves the borrower $36 a month, Stoll said. However, over the course of the loan, $267,000 in interest would be paid on the 30-year mortgage and $405,000 would be paid on the 40-year mortgage.’
‘Philip Daniels, president of TD Banknorth in Vermont, is reluctant to encourage his bank’s clients to embrace the lower monthly payments of the 40-year mortgage, calling the emphasis on the monthly payment ‘a whole different mind-set.’
Yes, I would think that native Vermonters as a group (especially anyone over 40) would be reluctant to embrace a 40 year mortgage. Now, the speculators from Boston, NY, NJ, that’s a different story.
You nailed it.
Though it is hard for me to believe that anyone with some brains from the urban coastal regions of the northeast USA… would think about speculating in Vermont real estate.
But I’m sure it’s done.
Save $36 a month ($17,280 over 40 years), but pay an extra 138 THOUSAND dollars in interest.
Catch-22 here. If you’re STUPID ENOUGH to think this a good deal, then you should be TOO STUPID to even be considered for the loan. If you are capable of understanding what’s happening to your money in this situation, you probably will never end up here anyway.
Ha ha, good point. Maybe these banks use the 40 year loan as a sort of test - if they want it they fail. “You want the 40 year loan? Sorry, you failed the test. Why don’t you call Ameriquest.”
I like it!
BTW, my uncle (married my aunt) is a CanuckinCA.
So was I before the cashout in early 2005!
One would think no one would be insane enough to take out a 40 yr. loan on those terms but, then again, I thought the same thing about interest-only loans. I would have bet my life on it that no one who wasn’t a wheeler dealer would buy a house under those terms. I was dead wrong.
If your that tight on the payment that 36 bucks would make or break you ,you shouldn’t be buying a house . Save up your money for a couple more years and put m9ore money down .
The home prices will be cheaper anyway in the years to come .
I don’t think the 30 year loan sounds that terrible. With inflation the last 10 years of payments wouldn’t amount to much anyway. Imagine if you would have got one of these lones in 1976. Over the term of the loan you may have paid an extra $15,000.00. This was a ton of money in ‘76 but thirty years later who cares? It would almost be worth paying the couple hundred a month on this mortgage just so you could have the satisfaction of bringing up how cheap your mortgage payment is when your coworkers start whinning. The 40 year fixed loan sounds like a much smarter move than the adjustable rate.
One deserves what one accepts in life. People used to have 6 or 7 yr loans - that is all it took to buy a house. People should have stuck with that deal instead of accepting longer and longer loans. We would all be better off. Perhaps the next deal will be 100 yr loans so that our kids will have to take over the payments and then they can own the house.
While it is much better than an adjustable rate, it still doesn’t make any kind of financial sense and I don’t think I’d brag to my coworkers about it.
Having no mortgage, now that’s bragging material.
‘Philip Daniels, president of TD Banknorth in Vermont, is reluctant to encourage his bank’s clients to embrace the lower monthly payments of the 40-year mortgage, calling the emphasis on the monthly payment ‘a whole different mind-set.’
That’s about the politest euphemism for ‘incredibly stupid’ I think I’ve ever seen.
Bob Toll: slowdown in housing markets ’somewhat unique’ in its largely psychological nature
‘Somewhat unique’?
No it isn’t. Dust off your history books. You only need to look back to 2000. It’s just another financial bubble collapsing under its own weight. It’s that simple. In fact, the resemblance to other bursting bubbles is uncanny.
Well said; Lereah is living up to his lying reputation as ever.
The increase in prices in housing markets was largely psychological and fed by greed and the pump and dump by builders. Toss on the icing of fear mongering by the RE crowd, “Buy now or be priced out forever! Prices always go up!”, and have a classic bubble that was due to pop.
It’s funny how Bob Toll spins this monster. Who was selling all his insider shares over the past 12 mos? Bob Toll! That’s who!
I recently spoke with a former insider at a national homebuilder that shall remain nameless. He said they were closing loans without appraisals and trying to get appraisers to back date appraisals after the deals were closed and they money was funded. They’re so desperate for sales they will do almost anything including fraud to sell homes.
It should be against the law for builders to have their own mortgage companies. The momentum of the bubble is growing stronger, stay tuned for the debacle….
Wow. That’s desperate. Thanks for the very good info.
LEND is getting taken to the cleaners!!! YES!!!!
Should I sell my $50 puts now, or wait till the October massacre?
But, But.. Cramer said LEND was a GREAT BUY, BUY, BUY…
I’ve had a tough time reconciling my conflicting thoughts concerning Cramer. I think he’s entertaining and insightful, but his bullishness on housing stocks makes me question his analytical skills.
Cramer doesn’t have analytical skills. He is like Cliff Clavin from Cheers, he knows VERY LITTLE about a lot of companies. He doesn’t know IN DEPTH on anything.
He is the EXACT opposite of someone to look for with analytical skills, look to him for trends, not deep analysis.
What I mean with the Cliff from cheers reference is that Cramer is like him in that he knows bits and pieces of information, in fact he knows many bits and pieces of info, but he is NOT a deep well of knowledge on any one company just as Cliff was not a deep well of knowledge on all the idiotic facts he used to spew on Cheers.
look for this about cramer.
he is a clown
http://immobilienblasen.blogspot.com/2006/08/wall-street-talk.html#links
Here’s more from the WCI earnings release:
“Tower Homebuilding orders for the second quarter 2006 decreased 82.6% in value to $57.0 million and 88.8% in units to 36″
An almost 90% (NINETY PERCENT!) drop in condo sales for the quarter. They only sold THIRTY SIX condos in the 2nd quarter.
Man, this is a disaster unfolding in front of us. WCI has been, and remains, my favorite short stock pick (through put options). I can’t help wondering if this company will be able to survive. Time will tell.
Shouldn’t Fannie have been delisted by now?
shouldn’t raines be jail- he’s an AA a protected species
He’s a political appointee. The same connections that got him the job keep him out of jail.
Look Jeff Skilling is guilty and still not sentenced or in jail 5+ years after Enron’s bankruptcy.
White collar crime cases take a long time to build and win.
It’s becoming a absolute joke.
Fannie is going to become a fiasco much much bigger that Saving&Loan problem in late 80s.
How do you know the govt can’t mask Fannie’s problems indefinitely until the next up cycle?
Good question
“Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction.’”
Someone look up “housing bubble”. I’m sure you’ll find this quote in paragraph form somewhere in the definition.
it is different this time - a higher faster peak farther from the mean= you guest it
The slide down is not unique, as the ride up was largely psychology also. If fundamentals didn’t drive the market up, why would he think they be needed to drive it down???
But I love that speculation has finally made it to front & center. And isn’t speculation psychology at its core?? I live in the Bay Area, and believe me, no one would have paid these prices if they didn’t think it was a “no brainer” guarantee to riches.
And BINGO was his name-o.
Yeah, apparently “affordabilty” wasn’t a factor.
I loved how Liar-eah said on CNBC yesterday that the speculators that drove the market the last two years have now sold off their properties and the real homeowners can now start coming from the sidelines and buy as prices dip a bit.
Oh sure, all of the speculators have gotten out. No Mr. Dumass, they’re the ones still holding the bag and feeling the pain all the way down as buyers WATCH from the sidelines.
Does her have proof that the speculators have sold off their properties? Come to Boise and see that is not true- we have investor houses galore.
The speculators will be out when prices are back to 2001, mostly by foreclosure, then we’ll know the speculators are out.
Speculators will be buying all the way down. I’m not too ashamed to tell everyone I bought RedHat stock during my college career with money from an internship. It had slid all the way from a high of $275, I bought in at $27 and thought it was going to go back up. (Yes I didn’t understand then what I know today after many finance and economics classes and books on asset bubbles) It slid down to $12 and I bought more shares thinking they were an even better deal. At $6.50 I scrounged together some money and bought more shares thinking that this company would soon have earnings and the price would rise. The stock eventually traded just below $3 before rocketing back up. I sold at $18 after holding for more than 3 years and gaining only about 10% combined (my initial position was still underwater). This is why I believe investors/speculators will keep buying thinking each lower price is a deal that won’t be beat, only to find prices sinking lower and lower until years later when appreciation returns.
Investing in RHAT was one of my best educational experiences that I credit with keeping me from making a life-altering financial mistake of purchasing a home at bubble prices. It also taught me that I will be unable to pick the bottom of the market without dumb luck.
Well the bottom for real estate should be easier to predict than a “growth” stock. Except in a case of gentrification, the “earnings” (rental equivalent) that ownig your own home is unlikely to rise noticably faster than general inflation. the pricing of “Growth” stocks is predicated on the idea that an expanding company will someday be able to pay much greater dividends. Of course the difficulty is that with the massive building in the last few years, the rental equivalent is likely to fall until demand catched up with increased supply.
You bought shares in a company that makes money selling software that people can download, legally, for free.
OT: He did… but the reason a company like Red Hat even exists is that the majority of corporate IT managers won’t deploy mission critical apps on opensource software without a support contract/support infrastructure and some standards in place, i.e Red Hat/Oracle certified vs non certified… and yes Linux and opensource rocks and is causing no end of stress for proprietary Server OS makers like IBM, Sun, and Microsoft. Bottom line, don’t dismiss the market need that Red Hat addresses
Exactly linux in all it’s flavors should not be dismissed. In fact if I could locate a business quality contact manager like Goldmine or !Act for linux I would never use a microsoft product again.
And in fact (replying to NorthEasterner), my (government) manager won’t consider Linux even then. Mind you, we get a very good price from Microsoft :).
What you are describing is called ‘the slope of hope’ in the stock market. It’s the opposite of prices ‘climbing a wall of worry’.
Hey, this stock used to be $100, and now it’s $20…it MUST be a good deal! The stock continues down to $5.
Same with houses. Hey, this house sold for $500,000 last year and I just bought it for $400,000…wow, did I get a deal. 2 years later..the house is worth $325,000.
I was in Denver in the late 80s…THIS SORT OF THING HAPPENED. And I think we’re going to see it happen again.
Moral: do NOT rush to buy a house here. Prices may take several years to bottom. It took 14 years in Japan.
“‘the slope of hope’ in the stock market”
The slope for HB stocks is steep and slippery, at an 85% vertical incline…
The chairman of Toll Brothers labels the housing oversupply as a “BUST”. I thought they were not supposed to say that, even though it’s painfully obvious!
article at http://www.homepricebubble.com
You totally read my thoughts.
Interestingly…I did the same thing, re: RHAT. And it has educated me as well. Unfortunately, these FBs have a MUCH bigger loss ahead of them to teach them the same lesson. I only lost ~ $2500, they will lose 50-100x that amount…
The slowdown in housing markets is ’somewhat unique’ in its largely psychological nature.
He forgot to mention that the four year run-up in home prices was also ’somewhat unique’ in its largely psychological nature.
You just gotta love these guys..
Wasn’t Robert Toll the guy who sold hundreds of millions in
stock in 2005? I am sure he never saw it coming…
If they ever started handing out Academy Awards for total
and complete B.S, Robert Toll, David Lereah and a motley
cast of others would be nominated in all 10 catagories!
Yep. Said many times that Robert Toll is the Mark Cuban of the housing bubble.
LOL!
Mark Cuban is a jackass.
A lovable jackass to David Stern (commissioner of the NBA), since the former brings the league so much attention.
But a jackass nonetheless.
Imagine if you will… take away his billions (I know, tough to do), Cuban well represents the demographic of the NBA’s “best kind” of fans; the type Stern needs to keep and attract more of (know-it-all, physically uncoordinated, bratty, guys with money to spend).
Great idea! Like an ESPY award for Bull$hitters! I’d watch that show!
Seriously, what did you expect him to say last year? “I things look very bleak for the future, our stock is grossly overvalued, and I think people should sell, sell, sell?
Were he to say something like that he would probably be sued by the current shareholders, and rightly so. The CEO is supposed to be a cheerleader and an advocate for his company. Investors should know this and listen that way. Anyone who expects to get a public heads-up from the CEO that it’s time to sell the shares is nuts!
Good point, no one should expect the unvarnished truth from a CEO or anyone who has a vested interest in their subject. Unfortunately the media goes for the easy quotes and talks to players who have an incentive to spin and dissassemble. Whether it be the financial markets, real estate or politics, there are always certain media savvy people who are chomping at the bit to be quoted. The reason they want to talk is that they are biased and want to spin the news because of their career or portfolio (and they love attention). The experts who are truly financially independent of the field they are experts in are rare, not looking to get attention and probably not groomed for creating sound bites or looking good on TV. Unfortunately for our country, many people are still naive about the information they’re fed by the media and don’t filter information with a critical/cynical mindset. They sure don’t learn that in school (except for rare classes). Our educational system teaches the successful student to behave, absorb what’s given to them as gospel and then regurgitate it on their test.
Exactly right. At least his company was making truckloads of money while he was doing the cheerleading. And now that things are falling appart he seems to be owning up to it. Watch what the CEO sells not what he says.
It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,’
____________________________________________________________
The rates are high, compared to being able to get a no down no doc teaset liar loan a few years ago. Compared to that, they’re through the roof. It’d be like going from 7% to 13%. Imagine what it’ll look like when rates actually are 13%.
“a weak economy, job losses or other macroeconomic factors,’ ”
Weak economy - it’s here, it’s just being hidden. The last two are on their way.
The ecomony has totally been fueled by refi money. Many, many folks that I work with bought ‘fourwheelers, cars, trucks and boats!
‘It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors’
Aha! So it won’t actually take job losses for RE to crater! But didn’t Liar-reah and Toll just tell us the exact opposite not more than 5 months ago?!?!!?
WTF??????
on the bright side. All the home cancellations and abandoned construction sites will offer plenty of lumber for reinforcing your survival shelter to weather the riotous carnage which is imminent. Or, if it gets worse, maybe it could be used for to build an Ark? At the very least it can be burned for warmth , but I’m pretty sure you can’t eat it though.
I think I see a profit opportunity in Hoovervilles. Anybody want o form a construction company with me to build Hoovervilles? $50k for 55 sq-ft. I’ll put some granite counter top upgrades in them to help make them feel at home.
Don’t forget a community pool and low HOA. Then we can market it as an “affordable luxury” resort community.
The community pool will also be the community toilet, washing and drinking area. See as how efficient that would be, we could call them Luxury Efficiencies.
I think you need a more contemporary name.
Bushvilles has a nice ring to it.
That’s funny. I remember just a few months ago guys like him saying, “There cannot possibly be a downturn in real estate without high interest rates, a weak economy, job losses or other macroeconomic factors.”
Whoops, I guess there can be!
Yeah, no one could’ve seen this coming and sold a couple hundred million dollars worth of options last year, just days after making bullish predictions all over CNBC, could they?
Exactly. In fact most of the housing “experts” such as Harvard’s Joint Study, NAR, etc. have said that there has never been a drop in prices that wasn’t precipitated by job losses (and they point to the Texas oil bust, SoCal aerospace losses, etc.). But, those on this blog knew that this was a bubble, and that bubbles don’t require such an exogenous event to burst, as they are built on psychology and simply a shift in psychology is enough to burst the bubble. Oh, the affordability, inflation, stagnant wages, and ARM re-sets are helping too. But it is clear that the psychology is changing (there are still a lot of uninformed people out there, as well as many still in denial), as witnessed by the lower traffic, lower sales volume, higher inventories, and anecdotal evidence of buyers “waiting” for a price decline.
This was a bubble, created by credit, and even if the credit is not taken away, the bubble can still burst as psychology changes. We are witnessing it now. And all of those “experts” who said that prices can’t fall without massive job losses were wrong. The job losses, unfortunately, are coming as the economy slows and people go BK, but we already have price declines in some areas and those were not caused by job losses.
Another thing that is less known about 40yr mortgages.
There are two types, adjustable 2/38,3/27 or a fixed. The problem lies in the fact that these mortgages are amortized over 40yrs but due in 30yrs. So you have a nice balloon loan of 40/30. If you took out a 2 yr arm on a 40yr armotization with a 30yr balloon……you know the rest of the story. There is absolutely no benefit to this loan other than borrowers who couldn’t qualify for an i/o loan(580 fico and below) are now able to get it. I haven’t seen this program create any new business, simply outrageous.
One other thing. There is usually a .25% add on to a 30yr…wonderful program I tell you.
Oh yeah, very psychological in nature. I can’t responsibly afford a modest house unless I make 90k/year and have no kids. Quite a psychological phenomenon. (Sarcasm off)
Sigh….
‘Current Housing Slowdown Is Unique’
Alright. Let’s step back and look at all human activity. In this case disasters. Ever met someone who broke their leg skiing? It was a “freak” accident roght? I’m here to tell you all of them are freak accidents. Same thing here. ‘Current Housing Slowdown Is Unique’ and every single one in the future will be unique as well. We couldn’t have predicted [insert unique event] that precipitated these results. Yadda, yadda.
There is NO excuse this time. The cliff was there, the physics immutable. Accept no excuses, assign only blame.
Let’s just go back 15 years to the most recent housing cycle turn.
The ‘91 recession WAS PRECEDED BY an earlier housing peak (1989 East Coast; 1990 West Coast).
This is not a chicken or egg thing. Housing peaked, came off the peak and follow-on economic activity slowed.
Ever met someone who broke their leg skiing? It was a “freak” accident right?
Well, let’s see, I planted my pole, took a fast headlong run into the mogul field, and… well, you will guess the rest of the story, and the nice, comfy ride down with ski patrol. No freak accident at all; the only freak was.. me. D’oh! Probably pretty similar to the last guy they hauled down. Or the next one preparing his own ill-fated run.
So this will be like all the other “accidents” in the real estate market, slightly different in its own way from the previous ones, but (unlike skiing) moving so slowly as to be fascinatingly predictable, and with similar yet slightly different end results as the debacle unfolds.
Robert Toll said; “It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors.”
See? A freak occurance. No one could have predicted this. -IF- it could have been predicted, people could have made plans and taken action. Certainly someone who owned a lot of TOL stock -if- he had known could have disposed of $170 million in stock last year at roughly 3 times the current price. Oh… wait, nevermind….
CEO and other corporate officers even of companies with good outlooks for sales, profit, market share etc… continuously sell stock to diversify their holdings.
That was the same excuse I used earlier this year defending the practice. Truth is we now know the options are not just rigged like we all knew but outright abuse. Ask why he sold at 3x the current price but sees no benifit of diversifying now. He’s still massively overweight in TOL. answer is he is insider trading on insider information and manipulating the stock as well.
“It appears that the current housing slowdown is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,’ said CEO Robert Toll.”
———————————–
And this is just another indication that we were at a RE top in 2001, IMHO. The economy could not have handled the .com bust, housing bust and 9/11 at the same time. The PTB had to juice the economy (falsely and temporarily) through debt to bring us through what would have been a much more devastating recession in 2000-2002.
One sure way to get people to spend money is to give them a lottery ticket. Since homeowners comprise about 70% of the population, the answer was easy. Stimulate the credit market through housing. How? Eliminate the 30-year Treasury bond and force the long-term debt buyers into the 10-year (which mortgages compete with). This drove down the rate on the 10-year. Then, lower the short-term rates via Fed Funds. Mortgages have traditionally been considered safe due to their asset backing. Debt buyers were forced into the MBS market. IMO, the hope was that people would spend enough to improve the balance sheets of businesses which overspent during the tech boom. Then, business was supposed to take over from consumers and the economy starts chugging along again. But why would businesses invest when they sense a consumer slowdown and worsening of the (hidden) recession when the credit bubble implodes?
We never got out of the 2001 recession, as far as I’m concerned. As we have said here before, the housing (CREDIT) bubble masked the recession. It will come…just going to be worse now, IMHO.
“juiced the economy… in 2001″
how true, and how a propos. even the sheeple (most of us have been sheeple at some point) can understand a good doping scandal!
“it’s the economy on anabolic steroids, stupid!”
You ever wonder what will happen to the dollar if FNM goes up in flame? Will the fed have to raise rates to attract foreign capital or lower rates to shore up financial institutions holding bad loans backed by deflating assets? I’ll like to see them solve that conundrum if it materializes.
Excellent summary, CA Renter!
You’ve got to wonder… if TPTB thought we couldn’t survive 2000, WTH are we in for now, given the manifold increase in public & private debt loads???
TJ,
Thank you for your kind comment. As you know, I tend to be with you and the other more extreme bears on this one. There is one “hope” perhaps — and this addresses Chris’ point — I personally doubt the Fed wants a strong dollar. Honestly, I see a dollar devaluation as the “best of the worst” scenarios (see Auger’s posts about a new North American currency). It would likely improve our export/trade deficit and bring more work back to the US. We might begin consumming US-made products and using our own services sometime soon.
Of course, this would quite possibly trigger a war with the countries we’d be defaulting on (it’s why I think China is gearing up for one). But, as long as the war was “mild” even that might stimulate the US economy as well. At some point, everyone grows tired of war, and we’re allowed to wipe the slate clean and start over again. Kind of like a larger version of bankruptcy.
Lots of possibilities…not sure what course we’ll be taking, but this blog is an excellent place to check in every day to see what’s going on in the world.
ot. but a very good reading about the stae of the usa and the fed from the washington post.
http://www.washingtonpost.com/wp-dyn/content/article/2006/08/08/AR2006080801382.html
by the way can´t wait for the call from wci!
from germany
http://www.immobilienblasen.blogspot.com/
Excellent article - it all boils down to this: the fed’s ability to steer the economy is steadily dwindling.
Without fiscal responsibility on 2 fronts (national debt and trade deficit), the fed’s ability to control will continue to falter until, eventually, natural economics takes over (stagflation, economic bust).
“Toll Brothers cut its 2006 order forecast for the second time, calling the slowdown in housing markets ’somewhat unique’ in its largely psychological nature.”
What the…? So let me get this straight. The housing bubble was made up of people buying houses based on logical, intellectual decision making processes. But NOW people are NOT buying homes due to ‘psychological’ reasons. So the fact that the prices are so far out of whack with what the average person can and should pay has nothing to do with it? It’s all purely psychological?
“juiced the economy… in 2001″
how true, and how a propos. even the sheeple (most of us have been sheeple at some point) can understand a good doping scandal!
“it’s the economy on anabolic steroids, stupid!”
Does anyone else read these articles and wonder what world these people are living in? People are already talking about “maybe we have hit bottom when we have only fallen from Everest to Kilimanjaro.
To add to my term for constantly readjusting sellers(”Price Surfers”), I now add Prediction Surfers, people that have to keep lowering predictions because of their overly rosy outlook.
Do they realize that we are still 4(4!) standard deviations above a historical mean for prices, affordability and supply. That is huge. Even hinting that we are near any type of trough should get you arrested for being a retard and a danger to society.
Even Toll says that it isn’t interest rates that are killing the market, its oversupply and recognition that mania, not value drove affordability off a cliff and the limit of GFs(late speculators or even innocent bystanders that bought late) are basically gone. The smart speculators are already moving on to buy real estate in an Everquest game or whatever sector is next for hyperappreciation.
rentingrocks - do you have a source for the 4 standard deviations figure? I’ve heard it before and would certainly like to nail it down for use in future bubble rants. The version I’ve heard is that price growth is 5 standard deviations above income growth.
“Do they realize that we are still 4(4!) standard deviations above a historical mean for prices, affordability and supply.”
The unraveling of every other mania in history led to reversion below previous trend, but I guess the true believers will tell you either that there is no current mania, or at least that this time is different…
“‘It appears that the current housing slowdown is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,’ said CEO Robert Toll.”
That’s a good quote. He effectively admits that it’s a bubble and that the vaunted Fed pause isn’t going to save it.
I mentioned this earlier, but don’t see it in the comments, so I ask again:
How is it that negative real Fed Funds rates in the wake of the tech stock implosion were not a macroeconomic factor?
“Toll slashed its forecast for the number of homes it expects to sell in the year to a range of 8,600 to 8,900 from an earlier reduced forecast of 9,000 to 9,700 homes. It was the fourth time since November that Toll had cut its forecast for the number of homes it expects to sell.”
A key driving force behind luxury McMansion home purchases was rising valutions. If I am a middle-class homeowner who can stretch to buy a more expensive home under conditions of an ever-inflating bubble, I can add all the more to my third household income — what the housing ATM provides in addition to husband’s and wife’s take home pay. The reverse wealth effect will conversely bite relatively harder on owners of the more luxurious McMansions, so I would guess that demand for Toll’s homes will dry up to a greater extent than that for other builders…
Ken Heebner was on CNBC, he was kicking ass and taking names, comparing housing to the 1929 stock market crash, he was saying 50% drop.
Isn’t he the guy…. oh, sixteen months or more ago - who completely dumped his HB positions from his fund?
I have to say I’m paying attention to what he says.
Funny. What was “largely psychological” isn’t prices falling now…it was them being trumped up before!
“It appears that the current housing slowdown is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,” said CEO Robert Toll.
At first this read as capitulation to me. However, a second read makes me wonder how Robert Toll keeps his day job. He has to be in major denial.
I remember watching an interview on CNBC where Robert Toll indicated increasing interest rates would not affect his market segment within the housing industry, upper income home buyers. Now, he claims something unique and unexplainable is causing this downturn, something Toll has never seen before.
How can a CEO of such a large company be so blind to the market factors influencing his industry, his domain. Record forty year low interest affects purchase and pricing behavior. Get your head out of the clouds man! Wake up! The housing industry was awashed with free cash for 3 years and that is now slowly being mopped up. How can you not see this?
Chris,
Exactly!!!
So many times I just shake my head when I read stuff that implies the “typical” Toll customer is some wealthy person unaffected by rates, prices, jobs etc. There’s a bunch of reasons why the truly wealthy people have the money they do, and ignoring fundamentals isn’t one of them. And I’d be willing to bet they aren’t the type to really want a Toll house either.
Read The Millionaire Next Door, or the Millionaire Mindset if you haven’t already, a truly eye-opening look into the minds of wealthy individuals.
“I remember watching an interview on CNBC where Robert Toll indicated increasing interest rates would not affect his market segment within the housing industry, upper income home buyers.”
This upscale market segment to which Toll refers sounds quite similar to the group to which Option ARMs were supposed to be targeted. Wouldn’t it be an amazing coincidence if it turned out that many of those who used Option ARMs to purchase homes they otherwise could not afford also purchased Toll homes? Time will tell…
“Mortgage giant Fannie Mae, the largest financer and guarantor of home mortgages in the country, on Wednesday informed the Securities and Exchange Commission that it would not be able to file its financial report for the second quarter on time.”
I could cry salty tears
Where have I been all these years?
Little wow, tell me now
How long has this been goin’ on?
- Ray Charles -
So now Fannie Mae is coming to the ARMs rescue: just lie and we’ll give you a loan.
NEW YORK, Aug 9 (Reuters) - Fannie Mae, the biggest provider of funding for U.S. residential mortgages, said it has launched a program with lenders that boosts its business by encouraging customers to refinance adjustable-rate loans.
The company expects the program announced to lenders last month will help it capitalize on refinancings of hybrid ARMs created over the past few years as their interest rates reset higher, it said in a regulatory filing on Wednesday. It said homeowners have already started refinancing into fixed-rate loans, or the “sweet spot” for the company as put by Chief Business Officer Rob Levin earlier this year.
The program known as “Streamlined Refi Plus” will help lenders retain borrowers by simplifying underwriting, Fannie Mae said. As part of that, the company will reduce the amount of documentation over what it typically requires, it said.
Estimates of the amount of ARMs, or loans with fixed interest for an initial period and floating rates thereafter, that will reset in 2007 top $1 trillion.
“…it has launched a program with lenders that boosts its business by encouraging customers to refinance adjustable-rate loans.”
Who gets to pay for this wealth transfer, how much will they pay, and when does the bill come due?
The taxpayer, whatever it takes, and after the next election.
No government bailouts (or, please God, let justice prevail).
http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=mktw&guid=%7B2064F6FC%2D9633%2D4142%2D9092%2D9D0B664F3CF2%7D&link=&keyword=gse%20bailout
“Mortgage giant Fannie Mae, the largest financer and guarantor of home mortgages in the country, on Wednesday informed the Securities and Exchange Commission that it would not be able to file its financial report for the second quarter on time.”
Fannie Mae, the biggest provider of funding for U.S. residential mortgages, said it has launched a program with lenders that boosts its business by encouraging customers to refinance adjustable-rate loans.
Someone please reconcile these two statements for me! How the hell is a GSE allowed to introduce new programs when they can’t properly account for the old ones??? Oh, right… it’s the “G” in the GSE.