SoCal Mortgage Firms Shedding Jobs, Office Space
News from the lending front. “Brascan Adjustable Rate Trust I today announced a change in the monthly distribution of the Fund. The reason for the change in the monthly distribution is the flattening of the U.S. yield curve which has narrowed the spread between BART’s cost of funds and the return on the Fund’s investment portfolio.”
“The Federal Reserve Bank has increased short term interest rates by 100 basis points which caused funding costs to rise at a rate greater than the rise in yield on the Fund’s investment portfolio. As a result, there is a reduction in BART’s income available for distribution to Unitholders.”
“The market is currently pricing in the expectation that the Federal Funds rate will increase to 4.75% in April, 2006 This has put further upward pressure on interest rates and the shape of the yield curve. Brascan is an investment trust with exposure to a portfolio primarily consisting of mortgage backed securities with an actual or implied AAA rating. Brascan Adjustable Rate Management Ltd., an indirect wholly-owned subsidiary of Brookfield Asset Management Inc.”
And Paul Muolo from NMN. “What is it with Southern California and nonprime mortgage bankers anyway? Take a look at the top five subprime firms. All five are based in SoCal. And 10 of the top 15 are in California, with the northern part of the state claiming a few HQs as well.”
“Now, for the bad news, it appears SoCal-based mortgage firms are shedding not only jobs but office space, big time. Grubb & Ellis executive Oliver Fleener has been witnessing lender after lender looking to unload their office space via a sublease arrangement. He said that mortgage firms suffering the most are young, net branch operations.”
“He also had this to say about the companies: ‘It seems all these executives know each other’…And in case you missed it; Washington Mutual slashed 2,500 mortgage jobs last week, mostly in operations.”
“Washington News: Office of Thrift Supervision director John Reich, says adjustable-rate mortgage products with negative amortization features are ‘not appropriate for unsophisticated borrowers or those with weaker credit capacities.’ Mr. Reich told the Exchequer Club that the regulators are worried about the sudden growth in option ARM originations by institutions with limited experience in managing the risks of these loans.”
About office space, “When billionaire commercial real estate developer Carl Berg of Silicon Valley speaks, his industry peers listen. But, while many today might still take a moment to hear his words, they’re clearly not heeding his message.”
“Amidst one of the most robust investment sales markets the valley has ever seen, Mr. Berg’s company, Mission West Properties, has been sidelined. Others are simply willing to pay far more than he is for the office and R&D buildings that are his specialty.”
“To justify their prices, Mr. Berg told Wall Street analysts recently, Silicon Valley buyers today will have to see ’substantial’ increases in rents in the next several years. If they don’t, ‘you have a whole bunch of idiots who are really going to lose a lot of money.’”
Thanks to the reader who sent in the SV link.
I’m real curious where all the laid off workers in real estate are going to go? It might be very difficult fo them to find work in this environment.
They are going to back to the industries they were in and let the real realtors clean up the mess.
Like writing software code and designing websites.
Oops, those jobs don’t exist anymore.
I do agree that the real RE pros will have to clean up this mess.
Housing Vacancies and Homeownership - OUCH!!
Melody,
Interesting data, the homeowner vacancy rate is the highest it has every been as well, along with the rental vacancy is pretty high. But I thought we were always told that demand greatly exceeded supply and that current prices were based on those fundamentals.
In fact, the OC register ran an article on Sunday talking about how rents are increasing and a really high pace IMO trying to scare people into buying property.
exerpt: Dollars and rents
At a time when rising home values have priced many residents out of the homebuying market, Orange County rents have gone up anywhere from 4.5% to 6.1% within the past year
Read More
I read that article and I was doing some searches on rental properties. It looks like they went up. But then I was looking online and it seems that you can get much better deals out of the newpaper and the pennysaver.
Like I said before… landlords can push… tenants can push back.
You can raise rents, lose tenants, and end up with increasingly lower revenue with your nice high rents. Bully for you.
In 2006 the underwater flippers and adjusted up ARMs will raise rents. In 2007 the renters will have all moved to cheaper/better places. If not sooner…
well i can say in SW Florida that rents are all negotiable. so another words what is being asked for is not gotten.
—AL
I read the OC Register article and posted on it over the weekend.
The only thing that the article portends is a further bursting of the bubble.
Why? Home prices are excluded from CPI.
Well what part of housing is in CPI? Rents, if (big if) rents are rising sustainably and not just wishful thinking that means higher interest rates.
Higher interest rates means less valuable real estate.
I don’t know where you get this fact, but the umemployment rate is the number of people unemployed , looking for work divided by the labor force. People don’t “fall” off the books, as long as they’re actively looking for employment.
http://www.bls.gov/cps/cps_faq.htm#Ques5
The rub is in how you count those people. People who don’t keep showing up at the unemployment office every day aren’t counted as “looking for work”. And once the umemployment checks stop coming (after 6-12 months), most people who are actually looking for work don’t bother to waste time hanging out at the unemployment office. Talk to a few people who have actually tried to get a job through the unemployment office, or read a few newspaper articles about how this works.
I agree sm landlord. There are big cracks in the system and I see it first hand. Have you ever stepped foot in a Job Service Office? Do you talk to the people looking for work? Do you know how long they have looked for work? Do you know the good jobs they lost and that they can’t seem to find another that paid as well? I see it all the time.
You are incorrect. The unemployment rate has nothing to do with unemployment insurance. You’re mixing up the “initial jobless claims” statistic with the unemployment rate. There’s a survey done by the department of labor each month that caculates the unemployment rate. The assumption that the unemployment rate has anything to do with the unemployment insurance statistics is one of the biggest urban legends around. Go to the department of labor and read up.
http://www.bls.gov/cps/cps_faq.htm
The national and state unemployment rates are based on a survey (the monthy CPS). Below that level, they are based on a model that includes the survey and unemployment claims, because the survey sample size is too low.
And because this is a big misconception, the bls has a page about it:
http://www.bls.gov/cps/uiclaims.htm
To quote from it:
Some people think that to get these figures on unemployment the Government uses the number of persons filing claims for unemployment insurance (UI) benefits under State or Federal Government programs. But some people are still jobless when their benefits run out, and many more are not eligible at all or delay or never apply for benefits. So, quite clearly, UI information cannot be used as a source for complete information on the number of unemployed.
While not related to the national unemployment rate, UI claims data do serve as inputs into the calculation of state and local area unemployment estimates
This is “underemployment”. There have been attempts to measure this, but it results tend to be interpreted negatively and so get buried. The government no longer publishes this data, though as I recall the last time they did the US was running around 10% underemployment which is a troubling figure. There is some info about this on the same BLS FAQ:
http://www.bls.gov/cps/cps_faq.htm#Ques12
Do you work for the Employment Development Department?
no, but I’ve taken enough economics classes, and read enough to know the difference between the “initial jobless claims” statistic and the “unemployment rate” statistic that comes out each month. It is a huge urban legend that the two are related, and when asked, no-one can ever come up with a source of this confusion. Try and look around, you won’t find it.
How naive you are… lil grasshoppa
Where do they come up with the jobs lost figure? Do the companies report when they cut jobs or do they get it from the unemployment office?
The jobs lost figure is from yet a different source. There’s a monthly survey of 160,000 non-farm employers for this statistic.
So many more jobs could be added or lost that we aren’t keeping track of? But when people file for unemployment, that is the unemployment rate? Based on the number of people divded by the number of those in the workforce?
Now, even though these numbers aren’t directly related, as you say. You could do some regression on both statistics, find the equation and then relate the derivates to find how one moves in relation to the other? Over time of course or something else.
You almost have it.
The “initial UI claims” is the number of people filing for unemployment insurance.
The household survey determines the unemployment rate by dividing those that report as unemployed divided by the total workforce.
The payroll survey determines a “job lost” number.
None of these are completely accurate, as the only way to be sure would be to survey the entire population each month. As such, the numbers should be taken in relation to previous numbers, and not as a complete picture in themselves. So, saying the unemployment rate is 5% is not as useful as saying the current unemployment rate is %5, and it was 5.1% last month. This gives a trend number.
Urban legend? Yeah, right…
John Williams of “Shadow Government Statistics”:
Up until the Clinton administration, a discouraged worker was one who was willing, able and ready to work but had given up looking because there were no jobs to be had. The Clinton administration dismissed to the non-reporting netherworld about five million discouraged workers who had been so categorized for more than a year. As of July 2004, the less-than-a-year discouraged workers total 504,000. Adding in the netherworld takes the unemployment rate up to about 12.5%.
In response to my comments on the “non-random” and “haphazard” nature of the payroll employment survey in Installment One, the Bureau of Labor Statistics (BLS) advised that my information was outdated…
I have just reviewed the BLS’s current sampling methodology and have not changed my mind.
Read his entire report here:
http://www.gillespieresearch.com/cgi-bin/bgn/article/id=341
On the topic of measuring (un)employment, here’s an informative link:
http://www.epinet.org/content.cfm/briefingpapers_bp148
Also, here is a link to the latest stats from BLS, including U-1 through U-6 numbers:
ftp://ftp.bls.gov/pub/news.release/empsit.txt
Maybe they should start counting “realt-whores” who haven’t sold a house since ‘05?
That industry really has absorbed a lot of marginally-skilled people in the past few years. I wonder where they will go. Based on my few experiences with “realt-whores”, I seriously doubt that web designers or software writers have much to worry about. I’m sure that they will find the used car industry, the Gap, or the fast food industry to be much more accommodating.
The “discouraged” worker was never part of the unemployment rate number given out each month. It was a different number that was reported.
Austin:
The “discouraged” worker was never part of the unemployment rate number given out each month. It was a different number that was reported.
Prove it — site your source. Obviously John Williams is so widely respected that the BLS feels it necessary to respond to him; is your source as credible?
Ahem, I meant “cite”, not site.
If this is true, this means that the data Bernanke is using to raise rates is flawed. Of course those on Wall Stree want low rates, but perhaps the economy really is slowing down? I am still in the camp that rates need to raise in order to keep the dollar strong. I think we all know where this will eventually go anyways.
I like this one
Click Here
This house has 2 SUV’s in it too. Think they took a HELOC out to buy them?
Those were interesting…
150k worth of gas guzzling SUV. My question is why does someone need 2
They’ll need to throw in thoose SUVs to move that house, and lower the price.
Lenders in CA wouldn’t fund this risky stuff would they? A blast from last summer:
‘On the West Coast, California investors have driven the price of investments to levels never before seen. California CAP rates are hovering between 4 percent and 7 percent, even with no or low increases in rent. Investors are betting on appreciation gains.’
‘The most interesting revelation at the meeting, however, came from our Los Angeles friend who said that in his area financial institutions were financing properties at pro-forma (or future budgeted rents). Investors are buying properties running with a negative cash flow, paying the monthly cash needs to cover the negative, and then flipping the properties 3-4 years later. This sets all investment principles on their head. If this trend continues, investors in California will continue ignoring CAP rate levels, and those in the surrounding states will shift away from a cash flow return model to an appreciation return model.’
Interesting isn’t. I just came face to face with my first anecdotal confirmation of the downtrend here in San Diego. I had lunch with my former supervisor. Several months ago, he had bought a house in Chula Vista (SE side of SD area) before having sold their house / residence in Escondido (NE side of SD area). The Escondido house (bought in 2003) still hasn’t sold yet and he was asking me if I was interested or not (I currently rent in Mira Mesa area). He’s paying both mortgages right now and his wife doesn’t work. He makes good money (100 -130K), but that still has to hurt. He has two young kids with a third on the way. They delisted it and plan to relist soon in early spring. He’s a really nice guy and I didn’t know what to say to him…suggesting he read this blog would have like pouring salt in an open wound.
Why on earth would someone buy a house without selling their initial house? Hello????
That’s very typical of San Diegans for the past several years. They have not had to worry about slow sales. He previously had no idea about the RE bubble here in SD and only now has heard about real estate slowing down. He is finance professional (CPA, as am I) and should have known better. As much as I want to see this bubble come to an end, this situation has confirmed how ugly this could really get in bubble markets.
I am a CPA also and I know many fellow professionals. I would have to say 80% of them have no idea there is even a bubble. In fact I went to lunch a few weeks ago with one who was thinking about getting into the real estate game.
It’s shocking isn’t it. One would think with the formal training on time value of money concepts that accounting / finance professionals should know better than to get involved with I/O’s, ARMS and NegAms.
should have at least put a contingent on the sale of his old place. Well, I assume having this type of contingent would not ge the seller’s attention during seller’s market.
No, it wouldn’t. Once again, if he was unware of the pending downtrend, which he was, they wouldn’t have thought about it.
It’s called slashing the prices to stop the bleeding. Can you say “Take a HELOC out on house #2 to bring cash to the table to sell house #1.” This is of course after they reduced the price.
That’s assuming there’s any equity in the second house in Chula Vista. They only bought it 5 months ago.
Because the economists like David Lereah make people believe that the housing market is healthy and you can sell your house at anytime.
Yes, that is part of the problem.
Well i think if he has not sold it since 03 he missed the boat and he should just suck up and lower the price, i’m suggesting people to lower it by 5 to 8% of recent comps. Then the buyer thinks they are getting a deal.
i feel we have now entered into chasing the market down stage. the homes that sell will be priced right
—AL
Your supervisor is a greedy moron. He thought he could squeeze a few more bucks out of the old home while also riding the new one. Reminds me of the stupid folks who excersiced their dot.bomb stock options and didn’t sell right away because they thought more easy money was coming.
No, he is simply ignorant of the market reality for whatever reasons. I had the advantage of coming from a non-bubble market (Chicago) in late ‘04 with a high level of skeptiscm about what was driving the appreciation levels in So-Cal. If I had been here in SD for several years already, I’m not sure that I would be as in tune with the realities of the bubble…kind of like the proverbial frog in slowly boiling water, by the time the frog realizes that he’s in trouble, it’s too late.
Stories of the type you posted are bringing flashbacks to when I was home-hunting in the summer of 1992 in San Diego, when the last bubble started crashing. I had lived in SD since 1984 and was out of town for Grad School from 1990-1992. I couldn’t wait to get back to SD and buy my first home. I had my down-payment money saved and my wife and I would make trips to SD from L.A. to search for homes with a great buyers agent from one of the more reputable firms. Almost every home we looked at was the type of situation your friend is. Some owners were so desperate that as we walked away from the home they would plead to us that if we didn’t want to buy it, how about a good deal on renting it. The number of sob stories scared me out of the market and we put our home buying plans on hold until 1999. Purely coincidence, but I seemed to buy at the bottom of that bubble and lucked out. SE San Diego where your friend lives now is greatly overpriced. If he is In Eastlake, the first and premier SE San Diego neighboorhood, he should talk to some of the original owners. Stories abound of the original owners (1991-1995 time frame) whose homes were worth less than they paid by the time they moved their furniture in. The worst scenario is your friends current home and the one he is trying to sell both loose value simultaneously…he will unfortuntely be screwed. Rich Mexicans have propped up the ridiculous price increases in SE San Diego, but there are only so many of them (the DEA, SDPD, and CVPD is doing a pretty good job busting the drug rings that are run out of $1M+ homes in SE San Diego). Once SR-125 freeway is completed, the area will be full of folks from T.J. as the Otay Border crossing will be much more convenient for day shoppers, etc. Wonder what that will do to the property value of your friends new home (yep I know all this because that’s where I sold and got the heck out of. Nice area but definitely on the long term downslide).
Oh yeah, as far as the nice realtor in 1992 that probably spent 15+ hours driving my wife and myself around in his car to look at homes…he earned zip from us since we didn’t buy at that time. I always felt bad about that…but I guess that’s the commission based business they are in. The next few years will see a lot of Realtors hitting the unemployment lines.
The interesting thing about folks ignoring what I call the fundamentals of investment property are people who have either pulled a heloc or sold a house or a rental house and they are trying to move up into the big leagues armed with sfr knowledge which doesn’t translate to commercial and I never understand how they wrap their minds around the fact of thinking that it does. During the last downturn I watched people put their golden parachutes into investment property and loose every nickel within a year. It was a very sad thing on many levels but it looks like it’s coming back again. A new round of suckers have been brought to the table. Guess I better start calling the banks for work again.
I’ve already seen an example of it with a nEast Coaster trying to buy into the SoCal market withing 4 mo’s he’s trying to get out cause the gang bangers are already kicking his butt. The least he’ll loose at this point is 300k not counting the gross rent income he’s has already lost. The pro’s have left this market for at least 2 yrs let the rookies buy the 4 to 7 cap rates and get three jobs to hold on
OT, but I don’t think this was posted…
HOUSING — JUST COOL OR GOING COLD?
As Bay Area sales continue to drop, questions about the market’s cycles are taking on a new sense of urgency.
Wow, the arrogance “People ask why are home prices so high in California, and my response is: ‘Everybody in the world wants to live in California,’ ” said Michael Carney, real estate professor at California State Polytechnic University at Pomona.
This is why so many are becomming disillusioned with waiting, they are trying to build a life and are faced with “in their mind” two choices. Buy now or be priced out forever, or move to another state where they have no family, no connections, all to avoid living in their car in CA.
And does anyone wonder why this housing madness is so difficult
And if SF has an earthquake? There goes BILLIONS of dollars in RE. They will be faced with the same problem FL homeowners have to deal with, which is higher insurance.
I am ashamed to admit that I thought Cal Poly Pomona was a decent school.
At least CSU Fullerton, Humboldt State, UCI and UCLA are on board with bubble realizations.
And Chapman University.
I think it would be more honest to point out that many of the speculators in Las Vegas and Phoenix are from the Bay Area, and have hit up the HELOC ATM to buy in the bubbles. When it comes time to cover their poor investments, we’ll see how much the house they love will be worth to them.
It is certainly not worth that much to me.
Professor Carney at Pomona is Executive Director of the Real Estate Research Council at the University.
http://www.csupomona.edu/~rerc/
Hmmm… I wonder where they get their funding?
http://www.csupomona.edu/~rerc/
No conflict of interest here, keep moving people.
Oh my! I will borrow from the excellent author and poster
Robert M. Campbell. “He whose bread I eat is the song I sing”
HOUSING — JUST COOL OR GOING COLD?
“Nothing leads to big declines in house prices except job destruction,” said John Krainer, economist at the Federal Reserve Bank of San Francisco.
He forgot another potential reason:…. big price increases before that! I don’t understand…what did he study for? What??? He hasn’t a clue…
“On the coasts, you see price run-ups, and then instead of having large price declines, you have mild declines and flattening for a period — it’s what you’d call a stylized fact of the industry,” said Andrew Leventis, economist at the Office of Federal Housing Enterprise Oversight, the overseer of mortgage titans Fannie Mae and Freddie Mac.
Yes that’s what you see. that is indeed what you see. The question to ask is: does he actually see? Did he see the D R Horton 25% off?
from DQ
California January Home Sales
February 17, 2006
A total of 38,300 new and resale houses and condos were sold statewide last month. That’s down 27.5 percent from 52,800 for December and down 9.5 percent from 42,300 for January 2005. A decrease from December to January is normal for the season. Last month’s sales count was the lowest since 38,137 homes were sold in January 2002. Sales for the first month of the year are generally lower than in the rest of the year, they have ranged from 20,894 in 1993 to 42,300 for January last year.
The median price paid for a home last month was $452,000. That was down 1.3 percent from $458,000 for December and up 13.0 percent from $400,000 for January a year ago. Last month’s year-over-year increase was the lowest since a 12.4% increase in March 2003 when the median reached $290,000. Prices increased at their fastest rate in June 2004 when the $382,000 median was up 23.2% from the same month a year before.
“To justify their prices, Mr. Berg told Wall Street analysts recently, Silicon Valley buyers today will have to see ’substantial’ increases in rents in the next several years. If they don’t, ‘you have a whole bunch of idiots who are really going to lose a lot of money.’”
AT LEAST he has the balls to tell the truth….
Absolutely. SV will continue to lose another 15 to 30% of tech jobs during the next 5 years. The landlords have no choice but to lower the rents even more.
‘…it appears SoCal-based mortgage firms are shedding not only jobs but office space, big time.’
*******************************************************************************************************************
But….but….How will all the houses being built be financed if all you guys are leaving?
“Brascan Adjustable Rate Trust I today announced a change in the monthly distribution of the Fund. The reason for the change in the monthly distribution is the flattening of the U.S. yield curve which has narrowed the spread between BART’s cost of funds and the return on the Fund’s investment portfolio.”
***********************************************************************************************************************
C’mon, give me m’dividend. Don’t wanna hear nothin about no yield curve, buddy.
Could history repeat itself in Valley’s ‘06 housing market?
this should be a warning to those that think commercial RE will appreciate. how many realtors set up shop in a storefront when they were rolling in dough? the answer is alot. and so did a lot of mortgage brokers and the like. no doubt a large number of them will not need commercial space in a few years.
Oh but they will, who else is going to clean up the mess. What a lot of realtor/mortgager broker haters on this blog don’t realize is that inventory during the bubble was at an all time low how many people do you think were actually making money. Not many. The money time is just beginning if you hated us/them now wait untill the bubble bursting gets really ugly.
I don’t agree with you. The big brokers will survive just fine, but there will be LOTS of empty offices from the newbie mom and pop brokerages that have been riding the fringe of the bubble. Inventory was only low during the bubble because there were lots of sales with very little work (easy money for all the realtors). The cycle will repeats itself as far as the number of realtors and offices. Inventories will keep increasing as sales get slower. The newbie realtors will get washed out of the market by not making any sales, but the real pros who get the listings will get more and more. Eventually prices will bottom out and the current sideliners and renters will again start buying making the real estate profession look easy again. Then the business will attact a new crop of realtors who will have no memory of the last (this one) bubble and will enter the new hot profession which has almost zero barrier to entry. But in the meantime, there will be lots of empty office space vacated by all the new realtor brokers that branched out on their own and opened offices in the last few years. They will get shuttered and some will go into different jobs while others will whimper back to their original national or large regional brokages (i.e. the Coldwell Bankers, Century 21, etc.) and ask for their old sales jobs back. But they don’t keep the old offices open…they typically end up sharing a desk with other loser agents or working from home and using the brokerage’s resources just to do the paperwork when they get a rare sale.
Lets agree to disagree on that one. It would take too much typing to show you your wrong and I’m not up for it.
You have somehow mixed up commissions coming from transactions with coming from inventory. Realtors make money from transactions, not inventory.
Transactions have been at record breaking levels for the past few years. Everyone got rich in real estate except buyers. That the latest downturn is only just beginning does not mean that much money will be made. Remember, you always have to sell to bring in cash.
In the end, cash makes you rich, not value. Value is subjective, money actually buys things.
Everybody got rich but the buyers hunh? I would very much disagree with that. The real money has yet to be made from a realtors standpoint.
Local Housing Market Statistics
HOUSING CYCLE BAROMETER™
Through November 30, 2005
BROKEBACK REAL ESTATE
Melody,
You really should join us over at Money & Metals once in a while!!
Today’s darkened windows: Downtown SD condo towers at night.
Tomorrow’s darkened windows: Office space which formerly housed mortgage firms.
Does anyone remember in the 1980’s when so called experts said gold was going to $5000 per ounce? Well I remember, and it sank to less than $250 an ounce. My point is that Housing or any other asset that gets out of line will eventually retreat to its normal value. Before we had paper currency and real trading existed you had few unequal markets. With that being said,Housing will eventually find its equalibrium. Housing was never meant to be a trading vehicle to take shelter away from all who work hard for a living and expect to find reasonable shelter.
Re: Tom’s link to the photo of the Palm Beach area house with two SUVs, the water in the background reminds me of a snooker that befalls pilgrims all the time. Many buyers think they live on a “lake” when in fact they live on a retention pond. How to tell? Easy — if it is a lake, it has a name on a real map. I grew up in Orlando, which has more than a hundred real lakes, but a lot of new subdivisions have creatively styled their retention ponds effectively to fool the buyers.
Hey…”Beach Front” property is priceless. It’s really nice when a creative homeowner dumps some sand on the edge of his lawn next to the retention pond and viola!…beachfront property! $500 worth of sand creates $100K increase in property value doesn’t it?. I love Florida real estate.