Bits Bucket And Craigslist Finds For August 18, 2006
Please post off-topic ideas, links and Craigslist finds here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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a very good piece from tim about the disconnect between the rate hikes and the credit explosion. fantastic
http://themessthatgreenspanmade.blogspot.com/2006/08/interest-rates-and-credit-expansions.html
A look at how condos fared during the bubble burst in Northern NJ..
New Jersey Condos - A Look At The Last Crash
Caveat Emptor!
Grim
wunderbar!
Very nice and thanks for including the bit about not being fooled into thinking if you can stay for 5-10 years you’re okay even if the values decline. I still hear that from people/experts/friends who encourage me to buy now in Los Angeles - I think they are dead wrong.
Just as a matter of interest what would one of those places be worth now assuming I bought at the peak in the 1980’s and was still living there with my mortgage paid off?
same story in Europe, despite 1% higher ECB rates over the last year, actual mortgage rates have hardly moved, credit is easier than ever to get, EU money supply is surging at more than 10% yoy and mortgage fraud is everywhere. For several years in a row people in countries like Netherlands and UK (to name a few) have compensated their declining real wages by going much deeper into debt. Of course home prices keep increasing at a healthy pace and the credit/housing bubble keeps growing.
I think Helicopter Ben and Tricky Trichet are extremely happy with what is going on lately. Business profits and incomes for the top of society have surged and nearly everyone is buying their smokescreen about ‘being tough on inflation’.
nhz,
What’s going on in Europe may well be a precursor to what will happen here. I actually found out about the global credit/housing bubble on UK blogs in 2003 (before much attention was given in the US). The bulls and bears there were saying the same things we say here. As we can see, there has been no severe correction. A headfake in the UK in 2005, I believe, with plunging consumer spending and slowly declining housing prices…then, magically, everything levitated, for no apparent reason.
I seriously hope the global credit bubble bursts soon. The longer we go, the worse it will get, IMHO. Like jmf’s link to Tim’s most recent post…no real tightening going on. Now, rates are coming down again to top it all off. I’m beginning to wonder how long they can float this beast.
more on mills the mall developer.
today there is a upgrade to outperform and the analyst raised the price target. can you belive this. he raised in the face of a bankruptcy. the news in the last weeks were awful. enough for him to raise the target.
by the way he upped mls to marketperform at the end of may with his former price target of 23. now 26$. sinde then the stock lost 50% of its value.
what are they smoking?
http://immobilienblasen.blogspot.com/
What’s with the home builder’s stocks this week?
Home builders stocks have gone up sharply this week. The feeling that the Fed with halted, based on the PPI and CPI data, has strongly out weighed the reported decline in home starts and the abysmal survey of home builders data, which reached lows not seen since the recession of 1991.
On Tuesday WCI was upgraded, based on the argument that it probably will not go bankrupt and has gone down too fast. Today (Thursday) Pulte was upgraded, albeit from sell to neutral.
It seems that big money (hedge funds and mutual funds) are again buying HB stocks this week on the assumptions that the fed is through and that a home buying recovery is on the horizon, or at least that things will not get much worse. IMO the homebuilder are in bigger trouble than these people suspect, even if the fed halts.
My housing bubble put options account was up 100 K last week but is down 70K this week. Is it time to sell off puts and close down shorts?
IMO, institutions buying the HB’s this week face three problems. First, since a fed halt now seems priced in, any indicators of inflation will be a problem. I can’t guess whether the fed will pause or raise next month, but unless the economy falls off a cliff before then, Fed will not say that they are done. Thus even if the fed pauses again next month, they are likely to still be concerned about inflation, just like the August statement. Even if they fear a recession, the Fed is unlikely to say: “We are so worried about a recession that our next move is likely to be loosening rates.”
The real problem with being long on housing is the fundamentals. Fundamentals (home selling and home prices) are getting worse every week and could. turn into a panic by fall. It will be interesting to see what happens next week when sales on new and existing homes are reported.. While it’s difficult to know what the HB stocks will do in the next week or even month, (I would not open any new Sept positions!) anyone who reads this blog must suspect that by Oct and Nov any hope for a quick recovery will gone (except maybe from a few realators and recent buyers).
It’s interesting that “someone” bought 10,000 out of the money Sep 30 call contracts Wednesday on Pulte, the day before the stock was upgraded. A similar amount of DR Horton (DHI) calls was also bought Wednesday. I will be more than a little suspicious if DR Horton is also upgraded in the next few days. Presumably these trades were by institutions since spending over $ 1 million on one risky trade takes a lot of capital (although inside info about an upgrade would make it less risky).
So, I think that it is now a good time to buy long term (November and later) puts on builders. I am favoring Lennar (LEN), mainly because LEN has not warned or been cut in a long time. They will be reporting earnings in Sept. Does anyone know why LEN should have a much better margin, more sales and higher profits than most other home builders? I will add to my LEN Nov 45 puts.
I am going to keep an eye on the Pulte Sept 30 calls and the DHI Sept 22.5 calls to see if the big investors gain or lose money. With such big blocks of options, it should be possible to see when they are sold and at what price.
I am now kicking myself for not taking more profits last week and for buying some more puts last week. It looks like now is the time to buy puts or go short, unless you think that next week’s reports July home sales will be better than consensus.
Warning: I am doing very well with long term put options but tend to buy too early and to take profits too slowly.
thanks for the education. Please keep posting - I am learning quite a bit.
Interesting post, Bill. I’ve been reading the blog for over a year and have spent the past few months kicking myself for not buying some puts on the big homebuilders when I knew I really should. So hats off to you, txchick57 and others who put your money where your mouths were.
I decided to dip my toe in and buy a small number of Jan08 PHM puts at 32.5 just before open today. I’m starting small since I have no practical experience with options and most of my money is tied up in my retirement plan in CAD. I’d be interested to hear more on your plans; I’ve learned a lot from you and others on the board.
Bear in mind there are two sides to every trade. Who sold those calls? Why? If they were a covered write, then that is someone effectively putting on a synthetic naked put write. Who is selling you the puts? If it is a covered write, then that is someone short the underlyer converting their position to a synthetic naked call write. Do you do max pain analysis? There is some evidence for steering to max pain. Those writing the instruments bear this in mind.
Check out the max pain prices for most of the homebuilders today. Most closed very close to their max pain prices, after a little runup these week to those levels.
Russian reserves continue to grow with a $10.1 billion spike the week ending August 11. Looks like hot money is showing up betting on rouble appreciation against the USD. Russia will also repay $20 billion in Paris Club debt in the coming weeks. See related article at:
http://www.moscowtimes.ru/stories/2006/08/18/049.html
Your headline says “August 11″.
I predict housing starts will be way down next week!
lol. So wise in the ways of housing start statistics!
Things are not so good in Dallas. Foreclosures up due to “bad planning”.
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/081806dnbusforeclosure.317270a.html
Good, I was about to repost that.
Anyone notice that Dallas foreclosure way outstrip LA, LV, PHX, etc?
What?? I thought there was no bubble in Dallas.
perferct fit from calculatet risk
“dalla and the housing myth”
http://calculatedrisk.blogspot.com/
I recently read that Indi has been #1 in foreclosures per capita, followed by Denver. Indianapolis seems like a vibrant city (by midwest standards) so what gives.
Looking through some housing data, I saw that Indi home price appreciation was near the bottom for the whole country in 2005, something like -2%.
I guess that we can’t separate cause and effect here. That is, the reason for the weak housing market may have caused the foreclosures, not just the weak housing market itself.
This could be scarey. If a 2% decline in home prices is linked to high foreclosures, foreclosure rates this time around could go high enough to cause riots.
“I guess that we can’t separate cause and effect here.”
Yes you can.
Cause = job loss
Effect = foreclosure
Having moved to the DFW area from California because of the cost-of-living issue and having bought a house in 2005, I’ve been thinking a lot about this.
You’ve commented frequently on Dallas, and you’re obviously right that there’s a problem here, but from a semantic standpoint is it really fair to say the area has a housing “bubble” when (at least in the majority of the burbs and with several exceptions) there wasn’t a big spike in prices? Houses here are still affordable, and the prices don’t seem to have gotten as out out-of-whack as in Southern California. Sure, there are overpriced areas, but they’re often 15 minutes away from affordable ones. Compare that to, say, Camarillo CA where truley affordable houses are many hours away.
The pain that’s gonna hit DFW seems like it’ll be caused not by a classic “speculative frenzy that buys up all the inventory and causes prices to skyrocket” type bubble but rather by an enormous expansion of credit. Obviously, other factors are at work and the credit expansion had a big part in southern California too, but at least to my naive eyes, things seem to have played out very differently between the two.
Compare that to, say, Camarillo CA where truley affordable houses are many hours away.
Cote’s fault……
You’ll find out when you want to go back to California because prices have come down and you can’t without either taking a loss or leaving a lot of your “equity” behind.
I’m not moving back. Even if prices in California fall by 50%, I couldn’t afford what I have now (several fenced acres and no HOA or municipal retrictions on the number of dogs I can own 8)) and this is where my professional contacts and friends are now.
It’s interesting that your bring up “equity”-in-quotes and assume it’s something I expect to have. That’s actually a big difference I’ve noticed between my friends here and back in California. People out here don’t expect their places to appreciate much; there’s a noticeably different attitude towards home ownership. I bought my place on fixed notes expecting the real price to stay flat, and of the half-dozen people I know who’ve bought recently none expected tons of appreciation and all used fixed rates. Of course, all of them (myself included) have been in Texas for at least a few years and they’re all white-collar middle-middle class types so there may be some selection bias.
Your correct Xcal;…I have many friends, one in particular in Michigan that has owned his house for 9 years and its went up 12K in value….
Can’t we justify buying a home without “any” appreciation ?? I say yes… Problem is California along with other locations has distorted the mind set of people that come from those area’s…I say good for you for choosing a life over a life style….
Yes, you can justify buying without appreciation. Rents mostly go up over the years with no equity built up for you - fixed rate mortgages are just that and end after 30 years (usually), leaving you with the equity.
You’ve commented frequently on Dallas, and you’re obviously right that there’s a problem here, but from a semantic standpoint is it really fair to say the area has a housing “bubble” when (at least in the majority of the burbs and with several exceptions) there wasn’t a big spike in prices?
The recent bubble is a complex thing, one of the complicating issues is owners borrowing against the home equity (easy credit explosion). From this standpoint, Dallas/FTW are not only in the bubble, but are the pioneers of the bubble. The lifestyles that the Texans finance through their homes are enormous, something that would not be possible without the AG monetary stimulus.
Also, the number of developments has jumped significantly in recent years, signalling increased speculation in RE.
So, I do think that Texas is in as big a bubble as other parts of the country, because it has all the signs of excessively cheap credit, overspending, and building mania.
Yes it is, but there’s no convincing these people. Who cares, they’ll find out the hard way.
TX hasn’t seen the torrid appreciation of the West and East Coasts, so how exactly do they finance their lifestyles through their homes?
HELOC’s weren’t even legal in TX until 1998.
ibbots,
Don’t forget that over 100% LTV has never been a problem in the last five years.
I’ve seen in when I lived in Denver - it was so easy to get “free” $20K in the second over-100% LTV loan, I at first didn’t even understand how it was possible. My friend would tell me “it’s like a free credit card with low interest” that they gave you just because you’re an owner. You are free to spend that “cash” on anything you want.
This was the time it coincided with many new Hummers on the streets, and boats in the summer. I would not in a thousand years believe that your average suburban Texan/Coloradan has anywhere near the cash/credit terms necessary to purchase those toys, had it been not for the free money they literally gave away.
ibbots,
one more thing. Me and txchick have empirical evidence on our side - gigantic foreclosure rates in TX and CO. And I mean not slightly high, but trully out-of-line - 500 foreclosed per 500 households? That is one per block on average, which probably means about 5 foreclosed houses per block in a working-class tract.
That is not “normal”, but the most bubble-like you can get. Texans and Coloradans clearly outspent and exhausted themselves, and their properties failed to take off.
This “housing bubble”, which is really a financial bubble, manifested itself differently in different locations - in the land-constrained CA and other coasts it put the prices beyound reach of 90% of the population; in the boundless Flatland it has created countless new developments and gave HELOC’ed the suburbia. You’re gonna see these remnants of the bubble in the Flatland for a long time.
I meant “1 foreclosed per 500 households”
ex-californian - that’s a good point, the symptoms we see in the DFW area are caused by easy money.
txchick57 - that’s basically what ex-californian just said, there’s no run-up, hence when prop’s are sold it won’t be at a gain. Also, shouldn’t you be changing you handle to ‘Azchick57′
I ran Northeast Tarrant County (west of Dallas county)numbers for the last six years. This is a growing area, generally higher dollar, still some open land. Average (not median) SFH home price appreciation is about 6% 2000-2006. Real property assessment base is up about 10% for the same period. Latter is, of course, partially because of price growth, and partially from new development. Bottom line seems to be nice growth but not a frenzy.
Sonic Boomer: 6% annually? or overall from ‘00-’06?
You people crack me up.
NOBODY WANTS TO LIVE IN NORTHEAST TARRANT COUNTY. Of course there’s no growth there!
Now, “run the numbers” from 1990 - 2006 on the following areas
Highland Park
Bluffview
Oak Lawn/Uptown
M Streets
Lakewood
Preston Hollow
and then get back to me.
sounds like you crack yourself up more than anything.
NE Tarrant County includes grapevine, Bedford, Euless, etc. Although you found TX undesireable, many would disagree.
If one looks at those desireable inner areas you mention, over a 16 year period, there will be appreciation, big deal, 16 years is a long time and those areas are close in and well served.
Try 3-5x appreciation. Comparable to any bubble area.
What can I say. All you “experts” know better. I only lived in the hellhole for 18 years, through two booms and one major bust.
Knock yourselves out!
Actually, a lot of my coworkers live out there. Professionals and managers who’ve lived in this area for quite a while. They live there because Dallas is different then some of the other bubble areas. Different. Not “better then”. I’m NOT arguing that the housing bubble isn’t going to affect Dallas; I believe it will. I just think it’s going to affect Dallas differently then the areas that experienced a true, classic “bubble” in house prices because the Dallas region didn’t experience a classic price bubble–it seems to have instead been affected by a large credit expansion.
Look at my coworkers: the reason they live in a far-off burb is because they could get a “nicer” (by there standards) home for less out there. They added maybe 30 minutes to their commute to get an affordable house. That’s NOT an option that was available to someone living in Ventura County, CA.
Here are a few factors that may make the Nationwide Housing Bubble affect Dallas differently then the rest of the country:
People really are moving here. Because prices didn’t get out of control, there was always affordable housing here. If housing prices take a few years to come down, this area will remain more affordable then the rest of the country for a while yet. There may be more demand here then the classic bubble areas.
The credit expansion may have played out differently here: because middle-class people could afford homes with conventional loans, the people who get foreclosed on here could more likely be from the lower classes then in California. Perhaps lower-class areas here could be disproportionately affected?
Someone whose Dallas home declines 30% in value is out a hell of a lot less “equity” then someone whose Manhattan Beach home declines 30% in value.
All loans are recourse loans here. People may be less likely to hand in the keys to the lender here then in California.
That’s just off the top of my head. It’s also all just blatant speculation; I’d really like to discuss how Dallas might play out with someone who understands real estate and the economy better then I do. You’re obviously in that category. And, again, I’m not disagreeing with you that the housing bubble is going to affect the DFW area hard. If it makes you feel any better, feel free to imagine me pulling my hair out and rending my garments in a blood-filled street, having pawned my Birkenstocks for a greyhound ticket back to Camarillo; leaving the lonestar state never to return.
Whatever. I’ll check back with you in a year or two when your entire suburb is up for foreclosure (with the exception of the Californians who will by that time be inhabiting a rubber room).
JP:
Reference my earlier post. Appreciation rates were YOY. Sorry about that.
————-
# RE Accounts 2005 2006
Colleyville 9,472 9762
Grapevine 14,411 11418
Keller 13,622 13,870
Southlake 9,660 9,821
ex-californian-
I am inclined to agree with you that DFW is not in a classic bubble although prices will probably trend downward. It’s is somewhat the same here in West Michigan where most people don’t view their homes as investments and usually choose fixed rate loans. During the speculative frenzy of the last 3 years prices have been flat to declining here.
They are now trending downward but I doubt a collapse is in the cards. The coasts with all the goofy stuff going on with the IO loans and flipping are in for a fall.
3-5x over 16 years isn’t that outrageous, whatever.
I guess 18 years in a place you consider a hell hole explains why you are perpetually acerbic.
Perhaps you should’ve moved sooner.
Oh, it isn’t?
I think there’s a place where you’ll feel safe and loved.
http://www.sdcia.com
Is this a Cat Fight ? A Dog Fight ? Or a Cat/Dog fight ???
Anyone notice that Dallas foreclosure way outstrip LA, LV, PHX, etc?
There is a very simple and obvious reason for this. You see, the homes in Dallas are way cheaper than LA, PHX or LV and therefore……….wait a minute, that doesn’t make any sense.
Never mind.
LOL
It does make sense. You can’t refinance / HELOC your way into keeping things afloat.
In the bubble areas, we’ve had a lot more “furniture to burn.”
You can’t? Home equity lending has been available in Texas for less than ten years. There was plenty ‘o equity to liberate!
Next!
I misspoke… I should have said “You are less able to refinance / HELOC…”
picky picky.
Time out here. There is something that I don’t understand.
Generally, Dallas has not experienced the LA/SF appreciation bubble over the past 5 years. RE rates are still relatively cheap.
So whats going on? Everyone there using their home as an ATM and run out of equity? Job market dropping like a rock? Massive numbers of people moving out of state?
ARMs and marginal buyers getting hit with high gas costs and summer air conditioning bills.
Uh, yes it has had California type appreciation.
IN THE INNER CITY. The suburbs are toast, have always been toast, and always will be toast. There is endless new building out there and the easily manipulated are distracted by shiny objects (new houses vs. used). Fundamental appreciation is impossible. Are there brainless equity locusts descending on the place and arrogantly bidding things up? Absolutely. Will they be able to sell in 2 years for even scratch? No way.
Wish I could link the press release, but RealtyTrac says 92,285 properties entered some form of foreclosure in July.
“Colorado, Nevada and Texas post top foreclosure rates
With one new foreclosure filing for every 480 households, Colorado documented the nation’s highest state foreclosure rate for the fifth month in a row. The state reported 3,810 properties entering some stage of foreclosure, a 3 percent increase from the previous month and a 55 percent increase from July 2005.
Nevada documented the nation’s second highest foreclosure rate for the second straight month. The state reported 1,626 properties entering some stage of foreclosure, a 31 percent increase from the previous month and a foreclosure rate of one new foreclosure filing for every 533 households.
Texas reported 13,103 properties entering some stage of foreclosure, the most of any state for the eighth month in a row, and a 15 percent increase from the previous month. The state’s foreclosure rate of one new foreclosure filing for every 614 households was third highest among the states and more than two times the national average.
Other states reporting foreclosure rates among the nation’s 10 highest were Georgia, Utah, Florida, Michigan, Indiana, Ohio and Illinois.
Six states account for more than half of nation’s foreclosure activity
The six states with the most new foreclosure filings — Texas, Florida, California, Michigan, Ohio and Illinois — accounted for 54 percent of the nation’s foreclosure activity in July. Aside from Texas, Florida documented the most foreclosures and the highest foreclosure rate among these states, with 10,757 properties entering some stage of foreclosure — one new foreclosure filing for every 679 households.
California reported 10,025 properties entering some stage of foreclosure, six fewer than the previous month but more than twice the number reported in July 2005. The state’s foreclosure rate of one new foreclosure filing for every 1,218 households registered just above the national average for the second month in a row.”
Source: PR Newswire US, August 16, 2006 Wednesday
Nice post…
It’s also getting bad in Tarrant Co:
‘More and more North Texas homeowners are in big trouble. Residential foreclosure postings are at record levels, up 30 percent from a year ago. More than 3,800 houses are threatened with foreclosure next month in the Dallas-Fort Worth area. And for the first nine months of 2006, more than 28,000 home foreclosure postings have been recorded.’
‘This is bringing back nightmares of 1988 and 1989,’ when thousands of Texas homeowners lost their properties during a regional recession, said George Roddy, president of Addison-based Foreclosure Listing Service. ‘The average number of postings in 1989 was about 2,000 a month,’ Mr. Roddy said. ‘And that is when we saw a massive devaluation of residential properties in some areas.’
Here’s some ‘insight’ into the mind of the FB- (this is a message board posting):
“Hi everyone,
I met with our lawyer today and we will be filing for BK 7 in a few weeks.
We will be giving up our home as we have a lot of negative equity in it, our ARM is up in Dec., and it has been a money pit since day 1.
The lawyer suggested that if we are planning on giving up our current home (either with foreclosure or possibly a “deed in lieu” if they will allow it) we should try to look into getting a new mortgage NOW- before we file and that way we may get a better rate?
He also suggested that we could technically stay in this house for almost a year payment free before it was actually foreclosed on and we could take that time to save up, start building up some new credit, and THEN try to get a mortgage.
Not sure which is the best way to go……
Anyone had any luck with this? Our 1st mortgage and 2nd mortgage are in my name only. Our 3rd HELOC is in my name and my husband’s. He is the only one working at this time and therefore, the mortgage would likely be in his name this time around. Also, any good companies out there that work with BK7, foreclosure/deed in lieu- type issues??
Thanks!
“
Link.
Good Lord!! How in the hell would they get another mortgage and who would give it to them.
lol.
They’ll get one with very little effort the rate won’t be the best but they’ll get one
I think you need to take responsibility for your bad decisions. Unfortunately the slimy lawyers in this country have everyone believing there are no consequences.
You need to file BK and take the consequences. You should rent what you can afford to pay monthly in cash from your earnings.
You should start a savings account and later a money market and pay your bills and put some away each week or month. It’s real simple don’t buy what you cannot afford. You should cut up every credit card you have. You should cancel your car lease if you have one and find a nice used one you can pay cash for. If you lose “Friends” or “Social status” so be it. Also loose this lawyer who is getting rich giving you advice that is only going to prolong the inevitable.
“It’s real simple don’t buy what you cannot afford.”
Steve Martin did a parody about this on SNL where he acts as a credit councilor and keeps reiterating the “If you can’t afford it don’t buy it” message to a couple. They can’t ever seem to understand him. It was funny but only too true.
Here you have one of the biggest reasons for this RE bubble, upside potential with minimal downside risk. I saw this all the time in Cali back in the 1990’s. People would brag about how they beat the system. They ended up in better housing than I did.
Yeah, except those 2nd and 3rd loans are recourse loans, meaning that they won’t vanish when the FB drops off the keys. And the BK laws have changed.
It’ll be interesting to see how this plays out politically as a tug-of-war between multitudes of angry FBs and well-connected financial interests trying to collect from the FBs.
You are right on. Further, if the holders of the 2nd & 3rd T.D.’s cancel the debt and issue a 1099-C, then the people may have a tax liability (because if they dont follow thru on the BK then forgiveness of debt could be considered income). The killer is that since the loans are recourse, even without the BK, they will have a deficiency judgement on their credit for many years to come. Either way, they are screwed…
HAHA thats right. thats too bad……..
What a disgusting person. She doesn’t even seem to see that there is a moral obligation here. It is times like these that I wish I wasn’t an athiest. Absolutely sickening.
She’s oblivious, thoughtless — maybe dumb is the word. I don’t mean to defend her, but who exactly is her “moral obligation” to? The bank/realtor/assessor/mortgage broker who all conspired to stick her with a suicide loan? And how about the lawyer giving her this advice at $250 an hour?
To society. Every time someone buys a house they cannot afford, they drive up the price of that house and all the houses in the neighborhood so that it becomes out of range to someone who could have legitimately have afforded that house had it not been artificially propped up. Hence the bubble. Not only have these idiots done this once, they are planning on doing it twice. And, in between, they are thinking of literally stealing by continuing to live in a home they aren’t paying for.
The lawyer suggested that if we are planning on giving up our current home (either with foreclosure or possibly a “deed in lieu” if they will allow it) we should try to look into getting a new mortgage NOW- before we file and that way we may get a better rate?
Sounds like the next housing boom is on its way as FB’s rush out to buy up RE before lenders foreclose on their existing property.
This lawyer- rather than telling them to wait, fix their credit, rent for 3-5 years while they get their act together (tongue in cheek) and save some money- is advising these nitwits to go ahead and buy another home??????
Are we SURE this “lawyer” is not a realtor (or a mortgage broker, for that matter)?
Background check asap please.
Wow, these FBs are way beyond stupid. This post clearly shows they don’t get it, and probably never will.
Imagining a significant dollar decline, domestic manufacturing could see a boost. Companies in the Rust Belt could do well. However, new plants in the US seem to be going to the Carolina’s or south of there. My take is that they want to avoid the influence of the Detroit Unions, but that is pure speculation.
Thoughts on the manufacturering?
Or manufacturing. It’s your choice.
My favorite subject! I don’t even know where to begin… Suffice it to say that mfg’ing domestically will become in vogue again for certain industries. Unfortunatley we will never regain what we lost, which, maybe, isn’t so bad.
A subject or two back someone (Cote?) made the astute call when comparing the possibility of our domestic RE market weathering a similiar crash as Japan’s that we (paraphrase) ‘American’s are able to adapt and change’ faster thus we will find the bottom quicker and fight up from there. The same could be said about our mfg’ing industries. If the American public would wake up and demand domestic fair priced products from the WalMart’s of the world we would see a surge in activity. Coincidentally, or not, plants could operate with a lot less incumberances than before…
Could that also apply to housing?
Manufacturing and service jobs heading down south is just a layover before catching the big plane to South of the Border and the Far East.
I’m not normally violent by nature, but these borrowers are candidates for a serious b**ch slappin’.
Get in line.
Start selling tickets!
This is the first one I’ve seen where regulators are beginning to crack down of fraudulent stated income docs. Sorry if this was already posted…I can’t even keep up with the headlines much less the comments anymore.
http://tinyurl.com/f6gwe
Great post Moqui.
I cannot get enough of the “crackdown on mortgage fraud” news, along with the MBS buybacks, since those are the things that will crash this market for good.
I’m looking a no holds barred absolute and complete crash. Not this soft landing crap like we’ve seen in Europe- that scares me.
So bring on the “mortgage fiasco party over” news! It really lifts my spirits and gives me hope!
This is interesting:
“Luxury Consumer Confidence Plummets in Second Quarter”
http://www.furninfo.com/absolutenm/templates/NewsFeed.asp?articleid=6597
Off topic: I wonder what will happen to cities if their revenues dry up in a severe real-estate downturn? Can municipalities just keep suck-it up and cut costs, or is there a certain level of liabilities that they simply can’t eliminate (e.g. pension contributions, bond payments, etc)? Can towns actually go bankrupt altogether?
A better question is what happens to home-owners in towns that wind up bankrupt. Do they only suffer the degredation of services and infrastructure? Or can home-owners find themselves saddled with huge unexpected tax burdens?
I seem to recall hearing about some town in Colorado that went bankrupt in the mid ’90s and all the home-owners were given $70,000 bills to cover the bond obligations of the town. Is such a thing really possible for cities in trouble?
Like Orange County’s 1994 bankruptcy?
What impact did the OC bankruptcy have on home-owners? It wasn’t all that severe from what I’ve heard. Is this as bad as the pain will get for home-owners in other municipalities that go bust?
Most governments are functionally insolvent. It seems to me admitting it could only be good for the citizens. It is the public leeches that face problems in that case.
Zero real impact.
Don’t forget that some/many/all of the public pension funds [that municipalites are counting on to fund their current and future retirees] have money invested in MBS [mortgage backed "securities"].
And don’t be surprised that some people won’t be able to pay their property taxes [no more HELOC ATM to get their money from] and get foreclosed by the city/county. If the homes are upsidedown, can the city get anything from the foreclosure? Property taxes are due once a year [usually Q1 no? -- it was January in Austin, TX], so the waves of non-payment won’t be visible until Q1/Q2 next year.
And then the appraisal mess: the peak is 2005 (or 2006) so there will be many appraisal protests and lower tax assessments for 2007/2008. And states with caps on how much rates can be raised will have to scramble to pay for their “fixed” costs. Those cities/counties which do raise rates may get too many people who can’t pay the new jacked up taxes and the downward spiral may become uncontrollable….
[I'm hoping these are pessimistic scenarios rather than optimistic ones.]
This is one of my favorite topics.
“Can municipalities just keep suck-it up and cut costs, or is there a certain level of liabilities that they simply can’t eliminate (e.g. pension contributions, bond payments, etc)?”
They HAD BETTER suck it up. There were three alternative uses for most of the windfall property tax revenue (the non-”most” part is that required to support new construction):
1. Save it in a contingency fund for future/emergency use or to pre-pay debt or required reserves;
2. Spend it on non-recurring improvements, like local roads, lighting, parks, whatever;
3. Spend it on recurring items, principally increased staff.
Almost no local taxing units will have saved the money. Those that spent it on non-recurring costs will be spared most of the pain because they do not have ongoing commitments at the same spending level as today and can ramp down gently. Those that increased staff — for the same population they “needed” more police, fire, teachers, etc. — are in a world of hurt because cutting costs means laying off or firing people. Ever watched how difficult and time-consuming it is to get rid of a government employee, particularly if a union is involved?
Politicians will be running for the hills — once the taxpayers detect any resistance to their petitions for reduced valuations or millage and, in the dawning panic need people to blame for their expenses, there will be a lot of mighty unhappy moments at town halls and county chambers across the country.
Unfortunately, politicians won’t be running for the hills. They will just raise taxes, mainly to fund gov’t employee pensions and to educate other people’s children, because too few citizens are willing to fight like at Lexington and Concord.
“‘It’s going to bite (those) people in the butt,’ said Sue Rainwater, a loan officer in San Ramon and past-president of the East Bay chapter of the California Association of Mortgage Brokers. ‘And we are going to see more foreclosures and short sales, and we are going to see more people who are unable to refinance because they are going to end up owing more than the home is valued.’”
I have a question for the mortgage people here. I was an FB back during the last downturn, at one point being about 15K underwater on my condo. I was still able to refinance into a 30 fixed loan, called an FHA Streamline, which lowered my rate. Is this loan still available and could it bail out some of the FBs this time around?
Discredited: National Association of Realtors’ Anti Bubble Reports
http://tinyurl.com/hfkla
David
http://bubblemeter.blogspot.com
I am thinking of pitching a new show to the networks. It will be a combination of Pimp My Ride, The Girls Next Door and Flip This House.
I am going to call it “Pimp My Wife”. It will feature FB husbands filming pornos (starring their wives) in their McMansion, in order to pay their bills.
I bet Fox would pick it up.
Tooo funny.
That is the entrepreneurial spirit and creativity that will get us through this crisis. That’s why America is great.
Condo craziness in Metro DC!!! Here is an example of the hard-hitting RE reporting from the Washington Examiner today. I can’t post a link because the story only appears in the print edition, but this one is priceless:
The future of Rockville is slowly revealing itself at the Monterey, a threebuilding complex that is undergoing a transformation from apartments to luxury condos. Developer Triton Pavilion, based in Annapolis, is pumping $20 million into the project and it shows in the completed units, the first of which will be available for occupancy by October.
The two-bedroom, two-bath model is reminiscent of a luxury hotel suite. The unit features floor-to-ceiling windows that bathe the condo in natural light and maple hardwood floors, which are standard in every unit. The large kitchen has ebony-hued granite countertops, maple cabinetry and stainless steel GE profile appliances including gas range, dishwasher and refrigerator.
The master suite and guest bedroom are spacious, as are the full bathrooms. Cultured marble vanities and floor-toceiling bathroom tiles are just a few of the luxury appointments available in the master and guest baths. Behind louvered doors in the bedroom, one finds a wall of glass with views of busy Montrose Road. All units come equipped with full size stacked washers and dryers.
The conversion of the former Pavilion complex, built in 1976, will be completed in about 18 months. Though construction continues, the first floor gives a hint of the updated Monterey’s amenities including an elegant finished lobby, community library with fireplace, coffee lounge area and party room with a widescreen television, wet bar and Foosball
and pool tables.
There are remarkable views of Sugar Loaf Mountain and the Tysons Corner skyline. “The higher the floor the more spectacular the view,” said Eric Mayl, a developer with Triton Pavilion.
The Monterey sits on an enviable spot at the intersection of Montrose Road and Rockville Pike, which is half a mile from the White Flint Metro station and Whole Foods. There is a Monterey shuttle to two nearby subway stations and underground parking for every unit. The Monterey
is within a short distance of Target, White Flint and Montgomery Mall.
Pets are welcomed.
A custom tailor, convenience store, beauty salon and dry cleaner are located on the property. Residents will also have access to an on-site business center with computer stations and high-speed Internet and a club-style fitness center with $100,000 dollars worth of state-ofthe-
art exercise equipment. If that’s not enough there’s a resort-style pool with sun deck.
Units range from one-bedroom condos (636 to 833 square feet), selling from the low $300,000s, to three-bedroom suites (1456 to 1567 square feet) that start in the low $600,000s. The location made the apartments popular with senior citizens, and some will continue to rent at the Monterey under a state condo conversion law requiring that up to
20 percent of units be set aside for existing elderly and disabled tenants.
So, for $350k or so, you get a closet in what amounts to an old-folks’ home, literally surrounded by the very worst traffic in the DC area, with architecture befitting a Best Western (trust me, it looks like a dump from the outside), and you’re only about a 10- or 15-mile drive from great nightlife and cultural amenities. Where do I sign up???
Actually, you can view it online as a .pdf (where I copied it from).
Go to http://dcpaper.examiner.com/dc/ and scroll through to pg. 46.
The Examiner is worth what you pay fo rit–nothing at all. They are RE cheerleaders…
http://tinyurl.com/oythc
“Baltimore condo market could buck national trend”
Yup, it’s different here…I don’t even bother to publish their drivel on my blog anymore, their “stories” are free advertising for the RE industry.
Yes, there is nothing enviable about proximity to Rockville Pike, imo. A few miles up the Pike, at the new “Rockville Town Center” there is the “Fitz” condos. From what I saw on land records, lots of speculators bought into this one. The prices mirror those of the “Pavillion”, from 350-500K. I found this ironic bit in their sales lit:
“The name “The Fitz” comes from American writer F. Scott Fitzgerald, whose gravesite is just down the road at Rockville’s historic St. Mary’s Church. His books, particularly “The Great Gatsby,” chronicled the history of the Roaring Twenties, a time of luxurious living and exuberant fun in America.”
That was my parish years ago, when Rockville was a nice place. Fitzgerald, BTW, had been buried in a nearby public cemetary, disinterred & buried at St. Mary’s, post-Vatican ll. The transiency is typical of the area. As for the name of the condos, they got the decade right, just the wrong part of it - Hooverville may end-up a more apt handle.
Good explanation of why Greenspan encouraged borrowers to use ARM’s:
http://www.minyanville.com/articles/?a=11009
The link to the article “Value at Risk” is especially interesting if you’re into studying fun things like systemic financial risks.
So Greenspan suggested ARMS because he is a control freak?
Much like controlling money supply and credit via the bank Reserve Required Ratio, ARM’s are a tool to expand or contract the supply of money:
“It (ARM’s) imposes risk on the consumer, but since the Fed controls the short end of the curve, they can withdraw liquidity through rising mortgage payments but can also more directly inject liquidity back into the economy by lowering the short term rates that ARMs are linked to. “
I remember when Greenprint used those comments. I also remember that what he said was to the effect, people in the recent past have done well by using ARM’s.
You could argue that he was encouraging the use of ARM’s but thats not really what he said. I believed he also mentioned risk. I’d look up and post exactly what he said but I am too lazy.
Make Yourself A FB NOW…also, don’t worry about the house price.
http://phoenix.craigslist.org/rfs/195374566.html
WTF? I saw the same thing in the Washington Post the other weekend, they didn’t even bother to post a list price (and not because it was an “uper brackets” house either). I figured it was a gimmick to get people to go to the open house. Wonder if it worked?
http://washingtondc.craigslist.org/nva/rfs/195682362.html
original owners paid 200k 6 years ago, now they want 525k. and they brag: “…it’s cheaper than a condo and no monthly fees.”
this tells me that condos have a LONG way to fall.
“adorable vintage 1927 cottage”
I believe in other, less rarified places, they call those “shotgun shacks.”
I shouldn’t laugh, though. I live in the Crystal City area, and a house across the street from me, almost exactly like that one in the listing, sold for about that same price in March. Doubt it would go for that now, since a much nicer and bigger house down the block went for about $570k in June. The older Arlington neighborhoods are difficult to analyze since they contain such a variety of houses.
Condos do have a long way to fall.
That house at that price probably will sell.
Just when you think the equity locusts are about to punt they call a balsy up the middle play on fourth and ten. See the latest outbreak in Hurrican Alley per Yahoo!:
http://news.yahoo.com/s/bw/db20060816589836
Don; know if anybody has put a post in for this yet but Shiller has got a video interview on bloomberg.com accessable from the bloomberg home page. Interesting interview, also talks about the futures market product he has created for housing if anybody want to take a bet.
This Condo Developer in San Diego is dropping prices by 1000 dollars a day until the units sell:
http://www.mpcondos.com/
Read the article below:
http://www.nctimes.com/articles/2006/08/14//news/sandiego/81306192551.txt
August 18 (UPI) - Skilled cult deprogramer Ben Jones today arrived outside the fortified compound where members of the SDCIA doomsday cult were holed up making final preparations for what can only be described as mass financial suicide. Reports from inside the compound say that Cult Leader Gary Watts is growing increasingly desperate and hysterical, leading his Flipper minions in round-the-clock chants of “Real Estate only goes up!” and “12% is in the bag!”
While most of the empty-eyed SDCIA cultists are still clinging to their delusions, a growing number are starting to feel a palpable sense of unease, thanks to devastating forays into their camp by TxChick57 and other Housing Bears. Their feeble attempts to stage counter-strikes against the Ben Jones partisans have quickly collapsed as Sammy Schadenfreude and his intrepid Housing Bear brothers-in-arms (females included) have swooped down to club them like baby seals. Several “it’s different here” bubble stalwarts like LV Landlord have tried to make a stand, only to ooze away under a barrage of bad news as their soap-bubble dreams of easy money come to a Hindenburg-like end.
More and more disillusioned, fearful Flippers are slipping past grim-faced minders like Suzanne, ignoring her proffered Kool-Aid, breaking ranks with the lemmings and rushing to unload their “alligators” before the onrushing crash. Some have even defected to Ben’s Housing Bubble Blog, embracing their new creed with the zeal of “born-again” neophytes.
More on this fast-breaking story as it develops….
LOL!!! Keep up the good humor, Sammy!
QUICK POLL: I blogged today about record homeownership rates and that got me thinking: We are at 68.7% homeownership rates today. Where do you think we’ll end up? Post your answer here and I’ll summarize the responses on my blog.
Also, random observation on the Cincinnati market. Drove through a subdivision tonight. All houses less than 5 years old, same builder, same quality, etc… Found a 4 bed 2.5 bath foreclosure listed at $180k. The smaller 3 bed 2.5 bath home next door (FSBO): $260k. Some people just don’t get it…
Not sure if homeowner rates would be affected much. As FBs leave, the “buy the dips” crowd will move in until we finally bottom and the smart money comes back into the game. At first, I’d imagine a declining homeowner rate as REOs and other “for sale/rent” inventory sits on the market. After that, it might stabilize around 67% or so, then go back up as the market begins to normalize.
Just MHO.
Does anyone know how the residential RE collapse if affecting commercial property values, if at all?
Let’s try this again: anyone have any thoughts whether the collapse in home prices is affecting commercial property values?
Don’t know if anyone posted this , but here is the highlight.
http://sfbay.craigslist.org/eby/rfs/194743141.html
$265000 NO MONEY DOWN,TENANT IN PLACE,JUST COLLECT RENT!IT WILL COVER!!! (oakland lake merritt / grand)
IF YOU USE A NEG. AM. LOAN PROGRAM, IT WILL BE POSITIVE INCOME!
Hahahahaha, no need for equity!