Builders Have Been ‘Hit With A Truck’
Some housing bubble reports from Wall Street. “First Horizon National Corp. said it expects a $1 billion reduction in its mortgage originations in the third quarter, which will help drive earnings down. The Memphis-based lender said that in addition to reduced production, earnings are down because of lower gains on sale margins and increased costs to hedge the risk of servicing its loans.”
“Margins, which were 122 basis points in the second quarter, are expected to range between 85 and 90 basis points this quarter. Hedging costs are up $5 million over the last quarter.”
“The recent drop in the 10-year treasury rate and the resulting inversion of the yield curve have changed the dynamics within the mortgage secondary market. As a result, First Horizon Home Loan’s gain on sale margins fell significantly below second quarter levels.”
“Although we currently expect some modest improvement in mortgage banking in the fourth quarter, the current operating environment suggests that mortgage banking operations will only be in the range of break-even in the fourth quarter while our other two businesses should continue to perform in line with expectations.”
From USA Today. “It’s not just companies that build houses that are seeing their stock prices crumble under the weight of a weakening real estate market. Shares of mortgage lenders who provide the cash to finance deals are also sinking.”
“The outlook for lenders has become gloomy amid growing signs that the five-year housing boom is over. The fallout: Fewer people are taking out mortgages. Overall applications are down 25% vs. the same period a year ago, the Mortgage Bankers Association says.”
“Also weighing on home lenders is the potential financial fallout from the use of exotic mortgages. ‘Borrowers are missing more of their payments than before,’ says analyst Matthew Howlett. ‘A downturn will hit the subprime market first,’ says Jay Brinkmann, an MBA economist.”
“Another headache for mortgage lenders is the constant drumbeat of negative news on the housing sector.”
From Danielle DiMartino. “The bulls insist homebuilders are safer than in prior down cycles because they’ve consolidated into a group of stronger players. ‘I don’t buy it,’ said Mark Kiesel, bond portfolio manager at Pacific Investment Management Co.”
“The flaw, he explained, is that their newfound critical mass emboldened builders to be overly aggressive with land commitments. Land is where things begin and end for builders; it’s where they take their longest-term, and therefore riskiest, gambles.”
“‘The builders have finally realized they’ve been hit with a truck, and they’re trying like mad to get out of their land commitments,’ he said.”
The Deseret News in Utah. “Speculative real estate investors could ruin Utah’s happy housing market, sending home prices nose-diving, according to Clark Ivory, chief executive officer of Ivory Homes, Utah’s largest homebuilder.”
“Behind the soaring prices, which are pushing homes beyond the reach of many working families, are speculators, Ivory contends. And he is blunt when it comes to homebuilders selling out to speculators, saying their motives amount to ’short-term greed and thoughtlessness.’”
“‘I basically have let my people know that if they sell to an investor and they knowingly do it, they are going to have trouble with management, and that means their job,’ Ivory said. ‘That’s how serious it is to us. I just think we ought to be careful and not let our market become artificially inflated so that we then have to see adjustments,’ Ivory said.”
“Ivory concedes there is no way of knowing how many speculators are out there. However, it is true that total unsold new housing inventory in the greater Salt Lake region is climbing. In the second quarter, unsold new housing inventory rose to 12,102 units, a 29 percent increase from 9,418 units in the second quarter of 2005.”
“Jeff Hansen, CFO of Sandy-based Liberty Homes, said he believes the percent of speculators in the market is much higher. Like Ivory, Hansen said such speculators can be damaging to the real estate economy by artificially pumping up prices.”
“‘Will there be a correction in the future here in Utah? I think there will be,’ Hansen said. ‘We are riding a high right now.’”
the yield curve hasnt been this inverted since december of 2000….
SLC is about 3-6 months behind Boise, which is about 3-6 months behind Phoenix. Its all starting to unwind and the Ponzi nature of the whole thing is becoming very apparent. I’m guessing TX or NC will be the next markets after SLC. You could add some smaller areas in AZ and NM as well.
I follow the TX and NM markets closely. Neither are healthy by any means. Dallas is one step away from the precipice. Trust me. Albuquerque has had way too much junk built for speculators. Most of it is awful (I think our friend NTLCA on here would back that up). Albuquerque does not have the job base in any way shape or form to support the ridiculous prices there.
Txchick,
Can you elaborate on your reasoning about Dallas being “one step away from the precipice”?
You usually have sound arguments and reasoning, and I’m interested in hearing them.
I want to believe that there’s more to it than your dislike for the city.
Thanks.
I think the Prudent Bear folks (based in Dallas) say it better than I can. Everyone is “all in” in Dallas and leveraged to the eyeballs. Very high foreclosures, high bankruptcies. Lots of people in trouble.
Yogibull? Yogibear? the gig is up mannfm11
NEW 8/10/2006 4:04:35 AM
I’m waiting for the Yogibear to come back. The short post We can’t save everything was the lightening flash to the thunder I am about to write about. Time to switch back Yogi.
There is mention of the housing market and the building inventories around the country. This is the tip of the iceberg. I am assisting my mother in her rental portfolio, of which I believe the peak income from which was about 2002. The recent vacancies have been tragic and the applicants we are getting are so beaten up credit wise that I am not seeing even honest applications. 3 of the last 5 applications I have taken have been people in certain stages of eviction. These are older homes, but they are in good shape in the North Dallas suburban region. They are not slum properties.
Everyone is all in. 10 years ago everyone was all in and they created a bunch more everyones by lowering the lending standards, eliminating down payments, coming out with high LTV B & C paper which served to fill the pockets of mortgage brokers, dilute the market and put more high risk people into homes.
What is left? What is left are people that can barely rent. Some of them make pretty good money, but it goes out the window to the point they cannot keep up their rental payments. There is a big storm brewing and the housing slowdown is only the tip of the iceberg.
But it is the iceberg as well. While the country could get through a typical housing slowdown, not this one. The industry is out of tricks. This industry funded the recovery we saw out of the bursting of the stock bubble and kept credit flowing. It stopped the deflation many of us feared was starting by creating collateral for more credit. But, the resale market is gone.
Who are they going to resale to? If they are expecting the people I am seeing apply to rent homes to step up and buy, they have another thing coming. If they are expecting the people renting to buy, they just might, but it will force the landlords to sell their property as well. This isn’t taking houses off the market, it is putting them on the market.
I checked the evictions posted on the JP courts dockets. Strangely enough, FNMA was posted as the plaintiff on several of them monthly. I find this interesting as FNMA isn’t shown to own that many homes in Collin County. But, what are they doing as landlord? Are the evicting foreclosures where people are refusing to move out? Or, are they evicting people on rental homes that socalled investors are letting go back?
As I started out, this is a deep subject. The next step is do people give up their homes or do they give up their nights out on the town? Do they pay their credit cards or their mortgage? The time of paying their credit card with their mortgage is behind us now and when these limits are maxed out, the card payment or the mortgage goes. We are about to see selling to get out from under a thing of the past, as few homebuyers put any money down as they didn’t have any money or at least the conventional down payment and thus are under water without roughly a 10% appreciation over what they paid. Here the new homes have stolen the market and I sense the new home builders can even cut their prices if things get dire. In fact, I sense we are going to see some wholesale discounting as builders are going to be forced to lessen their exposure and their debt levels.
There is a very small pool of available new buyers left. This is in housing and I think it is in other forms of real estate as well that are about to really be impacted as well. Remember, as someone already posted, we haven’t seen the 10 year bond rate move much from where it has been the past few years, maybe 75 BP from its mean of 2004/2005. I recall in the late 1970’s rates moving 75 BP in 2 or 3 days. This isn’t a rate induced slowdown, but a supply on the long run against demand on the long run slowdown. This is a market that is collapsing under its own weight.
You guys are about to see what real deflation is. Housing is by a massive amount the largest industry in the United States and probably the world. What is supplies is a huge portion of the ground up demand for the other goods and services bought and sold worldwide. You shut down housing, you shut down lumber, concrete, steel, copper, roofing and appliances to a great extent. Here then you shut down the industries that these industries are customers of. Realtors drive used Cadillacs instead of new ones. I recall seeing back in the 1980’s slowdown a long term realtor that was probably a millionaire at his peak sacking groceries at one of the local supermarkets, a guy that was a brand name in town when I was a kid. Others went just flat bust. The fringe business went down the drain. Mortgage banking, a huge business now that has hundreds of thousands of high paying jobs is threatened to where it has to shrink and those that are left are making a fraction of what they did.
The other end is the flow of funds from housing to enable people to buy other goods. Remember, housing was the credit card that allowed many to float through the last downturn and made the last downturn hardly a downturn at all. What happens when people have to shop at Walmart or pay their house payment? If they don’t go to Walmart, the associated overstocked manufacturers worldwide have their goods stack up. If they don’t pay their housepayment, the banking sectors and GSE’s have to tighten their credit standards to absorb the losses and most likely start by tightening up credit they can pull in, mainly credit cards. This shuts Walmart and its associated overstocked suppliers as well.
People are all in this game. Look at the tape of the stock market. I wrote about the Dow a few months ago. I believe at that time 21 out of 30 stocks were under their price at the peak. Of the 9 that were over, I think 4 or 5 of them are starting to break down in the form of MMM, BA, CAT and most likely C. Despite high oil prices, XOM hasn’t done that well. Watch companies like LU, SUNW, CSCO, ORCL, MSFT, INTC, GE and a few others that made up the top 10 to 20 highest cap value stocks and see where they stand. That was what the holders of mutual funds were holding when this thing started down in 2000. You know I can name more and I know you can too, but this small group of stocks made up probably 30% of the portfolios of all mutual funds combined and the stocks that have done well weren’t even in the portfolio. These people are stuck and they have been joined by even more fools trying to push a peanut up a mountain with their nose.
How broken is the stock market. John Templeton said a few years ago it was broken and I agree. Until valuations change, it is permanently broken, as the real rate of return on the broad market is at best 1% above inflation. These earnings growth projections are foolhardy and false if one wants to take them as a trend. The excess of the past few years, some of which was due to every company in the world taking their write offs when things were bad, thus having the natural snap back, but the rest is going to be snapped back as well. How can someone sell out with a 90% loss in so many stocks?
There are a lot of dominos lined up. Maybe the rest of the world does well swapping their dollars back and forth between themselves while the US languishes. At some price, money comes to buy property in the United States and that property will be purchased in dollars. But I sense the banks will draw in the money and those countries will be left without exchange as well. I doubt many people can get signature loans on their credit outside of the typical credit card. I doubt if housing goes the way I think it appears to be going, the mortgage insurance business is going to stand and it will take with it all the derivative postions that are used to support it. So will FNMA, JPM, WFC and FHLMC. And what about the Mexican labor that has been employed to build so much of this stuff? Do they starve in a country they went to find work or do they go home? If they stay here, maybe the government feeds them, maybe not. If they go home, that leaves even more vacancies in the housing market. That might solve the illegal alien problem that congress cannot agree to solve.
Long run supply in any product is the marginal cost of building one more unit. Once the bidding war stops, prices fall to the level of marginal cost. This leaves a lot of open shops that go unvisited, kind of like the small town merchant when Wal-Mart came to town. We are going to see a situation where land prices fall, dropping marginal costs even lower, leaving those that held lots that were so dear at the top with overpriced building sites they need to unload. This is a $10 trillion wreck in a group of assets that are very illiquid, unmovable and only marginally useful in the sense that you can only live in one at a time.
Wow! Does anyone else feel stupid because they don’t understand alot of what txchick57 wrote here?
A bit overdone, but some merit.
Too bad he didn’t proof read what he wrote.
While you’re at it. I’d be interested in hearing your thoughts on Albq. Since I live in NM, I’d like to hear what someone who doesn’t thinks about it.
I have been looking for something to buy possibly in Santa Fe or the North Valley/Foothills/High Desert area. Prices are ridiculous. Don’t you agree?
I’m in ABQ and was just checking out Zillow last night. In the past few months they say the value of my house has gone from 160K to 240K. That’s a huge jump, especially after years of only moderate gains.
I posted once but it hasn’t appeared. I track North Valley, High Desert, Foothills, Santa Fe and Taos. Would love to buy. Prices are beyond ludicrous. I saw a place in High Desert I liked. Seller paid 230K for it a few years ago. Wants 589 now. Has already “spent” the money on another house. Oh, she tried hard to sell it to me. I offered her 300K and told her to pound sand.
Santa Fe house prices have been ridiculous as long as I have been in NM. I have never figured out the driver for those prices. The best I can come up with is that much of the run-up years ago was from out-of-staters. The local population does not appear to be the main driver. I am no expert on SF, but it has many issues along with the rest of NM.
NM is poor, and it shows. It has a lot of crime and drug problems. It gets the largest amount of Fed $ returned to the state per fed tax $ sent to DC of any state in the US. I was told the largest private employer in the state is Walmart. The bulk of the remaining employers are either fed, state, local gov’t (or contractors thereof). Best paying jobs are at the two National Laboratories - Los Alamos in Los Alamos (north of SF) and Sandia in Albq. There is an Intel plant in the city of Rio Rancho, which is adjacent to Albq.
NM has one of the highest DUI rates per capita in the US. Many people drive uninsured. It is second only to DC in per cap unwed pregnancies. It was the “Dumbest State” 3 years running until the methodology was changed and AZ (as I recall) took top spot. NM was third. One of SF’s two public HSs reportedly has a dropout rate approaching 50%.
Albq’s (pop 469k) violent crime rate per cap is about 1.6x the national avg. and its per cap property crime rate is about 1.4x the national avg. SF’s (pop 66k) violent crime rate per cap is about the same as the national avg., its property crime rate is 1.6x the national avg. (its per cap burglary rate is 4.1x the national avg.) On a personal note, almost every investment property I owned in Albq was burglarized, along with my house in SF. My car was vandalized twice. A lot of SF and Albq is less than desirable, imo. Alarm systems very common. Bars on the windows and doors is a common sight in certain parts of Albq and SF.
Don’t get me wrong, some parts of these cities are very nice, but they aren’t cheap. SF far more expensive than Albq last time I looked. Income taxes get to the highest rate at a relatively low income level.
Dichotomous state. Los Alamos County supposedly has the largest number of per cap millionaire net worth households on a countywide basis in the US. Most households living in Los Alamos have someone working for Los Alamos National Lab. One company town. Prices there are almost as ridiculous as SF. Lot of the housing stock is old. Not much public buildable land. County is surrounded by Fed and Indian land.
The joke among many is that “NM is the stepping stone to the Third World”.
I also looked at a couple of things in Los Alamos and even in Galisteo and other places north of Santa Fe. Chupadero, Tesuque, etc. Tesuque is very very nice but as expensive as New York City.
I’m very interested in this - I’m a potential buyer, but hard to find data on Dallas (speculators moving in or everything dropping like a rock anyway…). Care to elucidate? Don’t worry, I’m still on the sidelines : )
oops - replied before reading thread…
Stay away for 3-5 years.
New Inventory numbers for SoCal “Normal”
http://www.dailynews.com/business/ci_4253105
Desmo
Trust me it will only get worse. We were the last to go into the last Housing down turn in the late 80’s early 1990 and last to come out. The big earthquake in Feb of 1994 did not help.
I see half built developments all over the place. I wonder under what assumptions they were build at least 1-2 years ago.
That Centex mess on Topanga Cyn. near Devonshire is got to be the icing a top what was a good dirt bike hill. The local gangs have taken to Taging it…. they first painted it then covered it. Just the place you would like to drop a zillion buck for a house.
“‘I basically have let my people know that if they sell to an investor and they knowingly do it, they are going to have trouble with management, and that means their job,’ Ivory said. ‘That’s how serious it is to us. I just think we ought to be careful and not let our market become artificially inflated so that we then have to see adjustments,’ Ivory said.”
News flash: your market is already artificially inflated, solely due to speculators.
they’ll take ANY deal they can get !
Builders are now demonizing speculators just to sound good to new prospective buyers. They certainly didn’t have a problem with speculators when they were buying 8 homes at a time last year. And I’m guessing they’re still quietly selling to any remaining speculators that come along.
Builders would sell to a 7 year old if they could get a mortgage, at this point. Looking at some of the mortgage ad’s I’ve seen lately, not as crazy as it sounds.
Are you insinuating that 7 year olds can’t get a mortgage? What makes you so sure?
“Builders are now demonizing speculators just to sound good to new prospective buyers. They certainly didn’t have a problem with speculators when they were buying 8 homes at a time last year. And I’m guessing they’re still quietly selling to any remaining speculators that come along. ”
They would sell to anything breathing.
It’s bad enough when you see builders and sellers trying to control the market price of homes , this guy actually wants to take it a step further and control the actual market participants as well? No investors need apply?
If you know that your investor-buyer is going to turn around and be an investor-seller next year, when you’re trying to sell phase II, you might be disinclined to sell to him. No sense creating competition for yourself.
I basically have let my people know that if they sell to an investor and they knowingly do it, they are going to have trouble with management,
Keyword: knowingly.
“Awww, gosh darn I didn’t know boss.”
“Oh, alright, carry on.”
The thing is if they don’t fill their orders they will be in trouble with management as well.
“Don’t ask, don’t tell,” Utah-style.
The real message is to the specuvestors, “Please hide your true intentions.”
Exactly, a la Phoenix over the last couple of years. There were numerous articles over the last two years in which builders claimed they were not selling to investors. Yeah, sure.
The MAR has said that prices in Mass. are more stable because they claim speculators are only a small fraction of the market, which would explan why most of the houses and condos on the market now look suspiciously like flips.
And people having to buy using I/O, teaser rate, and negative am. mortgages aren’t actually speculating too?
Enjoy the ride down, Mr. Ivory.
“…they are going to have trouble with management, and that means their job,…”
As if they’re still going to have jobs?
I would be interested to know what the YOY sales are doing in SLC. I was there last weekend, and saw For Sale signs on almost every street corner. The sellers/agents in the homes we looked at seemed to have fear in their eyes.
What gives?
I started looking for a house to buy in Salt Lake a few months ago. I started doing research about buying a house, loans, and the state of the economy. Well, holy crap, it is shaky out there and it is hard to conclude the economy won’t slide into recession. Not buying a house anytime soon. Check this site out to see how crazy the recent runup has been. Late in the bubble too.
http://housing-watch.com/regionview.aspx?city=Salt-Lake-City
For a realtor’s rationalization (I am sure you will have fun with this):
http://blueroof.wordpress.com/2006/07/20/how-the-salt-lake-real-estate-market-got-hot/
“I remember my first few years selling real estate here in the Salt Lake area. It was a good market back in the mid 1990’s with a lot of people moving in from out of state and the market appreciating well. We would list a property and do some good marketing and the average days on market was around 45- 60 days, which suited my sellers fine.
Once a home went under contract we would schedule an appraisal and then didn’t even think about it again because the appraisal always came in fine. Not even once did I even consider that an appraisal would be anything less than what the sales price was.
So I left the state to work in Colorado and then went to California and about five or six years ago I came back to Salt Lake and the market was totally different. It was slower and homes were taking longer to sell.
Then, about four years ago or so when Utah was ranking as one of the worst states in the nation for foreclosure rates the state decided they needed to do something to slow down these foreclosures. Well, they couldn’t tell home sellers what to price their home at and they couldn’t tell Realtors how much they could list a home for, so the only control they had was with the appraisers. So they started fining and suspending appraisers and taking away licenses and in a few years the numbers of appraisers in the are went from over 2000 to less than 900. And the appraisers were all so worried about audits and getting in trouble that they wouldn’t appraise anything anymore.
You could have three homes in your area sell for $200,000 and one sell for $201,000 and one more sell for $203,000 and try to sell a home that was upgraded to the hilt with granite and stainless steel appliances and new windows and a new roof and upgraded hardwood floors and put it on the market for $215,000 and you would get an offer for $215,000 and the appraisal would come in at $203,000. So we would call the appraiser and explain about all the upgrades but the appraiser still woudln’t change their value because they were scared. So the Salt Lake market didn’t appreciate for years. For a few years the market was just flat because no matter how much a buyer and seller were willing to negotiate- the appraisers wouldn’t come in with a value that was more than what had already sold.
Then, finally, last March or so some news channel broke a story about how the Salt Lake market was the most undervalued market in America. And then another story followed and then another and pretty soon we had a bunch of investors and people from out of state buying property here in the area. And the best part was that many were paying cash. They would sell their home in California for over a $Million and take their $500,000 and buy a home twice the size for cash. So the appraisers didn’t have any say in it. The sellers could sell and actually see some appreciation, the buyers could buy the home they wanted, and everyone would win. And the market started to appreciate.
Now the market is hot and homes are selling, but it’s a very healthy, steady appreciation (around 14-18% in most areas) and it’s fueled by job growth and people moving into the area, not just investors, so it should stay healthy for a while. Even with the market appreciating the appraisers are doing their best to be conservative, which can be tough for everyone else. It sure is nice when we get cash buyers who care more about getting a good home at a fair price then they do about one person’s opinion.
When appraisers sell their own homes hopefully they realize how frustrating it can be when some stranger decides to choose certain homes for comps and not other homes and the value comes in low. At least I hope they feel that so they can appreciate what everyone else has to go through…
Just my opinion of course but I don’t consider 14-18% appreciation to be “very healthy, steady appreciation” as it outstrips any normal metric that I’m aware of (be that wage inflation or ROI)
Doesn’t everybody get 14% annual raises?
“Now the market is hot and homes are selling, but it’s a very healthy, steady appreciation (around 14-18% in most areas) and it’s fueled by job growth and people moving into the area, not just investors, so it should stay healthy for a while.”
Mormons love Kool-Aid too!
wonderful post. When I lived in Upstate NY, the realtors always sweated the appraisals and I saw problems because of very conservative appraisals
My sister in the land of Zion says that almost 40% of the new homes in West Jordan are being purchased as second, vacation homes. This would be like going on vacation in Bakersfield or Lancaster, CA. Also, Utah is number #1 in the country for bankruptcy, fraud, (per FBI) and IO loans (per WSJ).
My sister who lives in a historic part of town says that a lot of the large, old, hugly overpriced ($500K! In SLC!) places are also being bought by people who have never looked at them, because if they did, they’d realize that they were not getting a glorious mansion, but a very old home that is falling apart with wiring and plumbing done sometime around 1900. Winter and hot summer is not going to be kind to those unoccupied homes.
I hope the CA Locust Equity scumbags lose their collective A$$ES for any that have helped to destroy SLC (and any other place).
Why? What about seeking returns is evil? If you could have bought in California any time before 1998 knowing what you do now would you? Of course you would. If you had all your wealth tied up in asingle asset would you pull some? Of course you would. If you stumbled across a Jackson Pollockat a yard sale would you buy it? What are they doing that you wouldn’t in their place?
If you stumbled across a Jackson Pollockat a yard sale would you buy it?
No, because I don’t know WTF it is? (I gather that I should buy it from your remarks however)
Robert-Of course I would if it had a Provinance and was priced reasonably.
A friend walking home in Soho one day (many years ago) stumbled across a yard/street sale, saw a framed original Piranesi print, eyes lit up, and asked the seller: “How much for the frame?”
Seller: “Twenty bucks!”
Friend: “Ten bucks.”
Seller: “Its a deal!”
Ah, the old New York - where you could find treasures on the street.
Nah, way too easy to fake a Jackson Pollock. Besides, his art was about the process, not the final result.
But my walls will always be open a fake/real Rembrandt or Caravaggio.
The building industries view on speculators is hogwash. If every last home was sold, I highly doubt that the builders would say, “Sorry, we can’t build any more homes, to many speculators”. A sale is a sale, a dollar is a dollar, and every business on the face of the earth will produce as much product as they can possibly sell.
I started looking for a house in SLC a few months ago. After some research, I have decided: no way. It is shaky out there and it is hard not to conclude a nationwide recession is on the way. Check out this website to see how crazy the recent price runup has been. Late in the bubble too.
http://housing-watch.com/regionview.aspx?city=Salt-Lake-City
No way — SLC median up from $175K to $299K from March 2006 through July 2006??? Please tell me that I have misinterpreted this chart, or else that the data is bogus. Otherwise, that is a prelude to a crash if I have ever seen one…
Here’s a web-site that puts numbers to the dramatic increase in homes prices in Utah. It shows each of the last 5 years’ median, and increase, by county and zip-code.
http://extras.sltrib.com/HomePrices/
If these numbers are correct, Utah is no different than anywhere else. The economists here hide behind job growth, and therefore demand, as a factor of booming real-estate. Yeah there’s all the $8.00/hr jobs you can want out here.
I see people leveraged to the Max, and everyone I know wonders how anyone can buy a house without using 2 incomes to facilitate it. Then, they’re still what we call “house poor” out here.
Don’t worry about two incomes per household; just make sure both Wife #1 and Wife #2 have decent jobs. And that they don’t find out about Wife #3, or websites #1 and #2.
That is hysterical. I believe it is a testament to how many of these “specuvestors” are still milking this cow and will continue to until it drops dead. This is going to get really, really ugly. I want to know who all of these fools are who jump at the chance to pay $250-$300k for a place that was worth $150k less than one year ago. Talk about stupid. With the advent of services like Zillow, etc. where is the due diligence? This country is just loaded with idiots with no financial sense whatsoever.
“Another headache for mortgage lenders is the constant drumbeat of negative news on the housing sector.”
So now we hear about the ‘constant drumbeat’ of negative news… Didn’t this drumbeat start for the most part only last week?? Sounds like a bottom-of-the-barrel reason to me.
“The flaw, he explained, is that their newfound critical mass emboldened builders to be overly aggressive with land commitments. Land is where things begin and end for builders; it’s where they take their longest-term, and therefore riskiest, gambles.”
“‘The builders have finally realized they’ve been hit with a truck, and they’re trying like mad to get out of their land commitments,’ he said.”
It sounds as though the builders succumbed to the same conundrum-born temptation to gamble which inflicted flippers and hedge funds. So much for the newfangled business model. At this point, only plunge protection can save them.
I don’t know that the builders can discriminate against the locust if they declare that aren’t going to owner-occupy and they put more down on the loan and pay the higher rate .The lenders can refuse to put to many non-owner occupied loans in one project based on underwriting risks ,(but what are the chances modern day lenders are going to do that ).
I have looked up the county records on what are obviously speculator properties listed on Craigslist. You know the description by now “new never lived in, just completed.” The phone number has a CA prefix and sometime that say stuff like “I was transferred out of state”. In EVERY case the county records say “owner occupied”.
So your point is the locust always say they are going to owner-occupy ,so how can the builders or lenders control them anyway ?There are ways lenders can screen for a speculator verses a person who is really going to move in ,but the lenders/builders have not been doing that .
All a “no investor” provision really does is add one more piece of shrapnel to the litigation hand grenade if things ever go south.
the truck will hit every non gov worker out there
That’s right. Government workers make twice as much on average than everyone else. You’ve gotta love those civil servants!!
Really? Where’re your numbers? In Wyoming for 2005, mean wage all industries all occupations, 33,015. Public administration, mean wage 30,858.
Hm.
janna, where in Wyoming do you reside?
The average federal employee (minus the military and U.S. postal service) makes twice the average private company employee–$106,579 average, including cost of benefits. Minus benefits, it’s $71,114.
Yep. Ha ha ha. I’m spending YOUR money looking at this blog!
Get back to work!
Does anyone know about the Saint George, UT market?
I have heard that they have alot of construction going on and the prices really went up in St. George .Must be do for a fall .
Think newly-built, speculator-owned condos stretching out to the horizon of a beautiful desert landscape with a temperature over 110 degrees F in the shade…
The Washington County (Saint George) housing market is not looking good. Residential home sales have been down YOY since December. The last three months listed being the worst, trending below the 2004 home sales numbers. April 2004(873) 2005 (1129) 2006(795). May 2004(873) 2005(1114) 2006(813). June 2004(975) 2005(1167) 2006(831). I don’t have July’s numbers.
There are alot of new homes for rent in the local newspaper and a large amount of homes “for sale by owner”. We have a whole neighborhood of around thirty $900,000.00 plus new homes in Green River (exit 10) that are finished or near completion. Last time I checked only two had sold.
I was talking to a Realtor last week about the housing situation here. She told me that the inventory for $800,000.00 to $1.2 houses is about 30 months! The only thing worst than the residential inventory is the amount of commercial space that is under construction or finished and sitting empty. It is going to get ugly here.
Third quarter will be bad. Fourth quarter will be the disaster.
This is it guys. I am convinced that what we are seeing are the gathering clouds of a financial storm the likes of which most of us have never seen.
I am not an alrmist. I work in finance and I am seeing it with clients. I have a manufacturing client who’s factory is almost sitting idle as they wait for orders. I have a diner owner client that said someone turned off the customer spiggot in June.
We have a deflationary situation in housing. An inflationary one in consumer goods. The average family in this country has a negative savings rate. We are a society that has maintained it’s “financal standard of living” by changing to a dual income family dynamic from a single income family dynamic. That means we need more cars, gas, daycare etc but family buying power remains largely the same. We pay for our lifestyle by mortgaging it.
Mabe thats what we should call CCs. “Lifestyle mortgage cards.” I like it.
Seriously I am getting to the point where the glee I am currently experiencing as I what fb get f-ed may be replace quickly with overall concern.
Still feeling a lot of glee though.
“We are a society that has maintained it’s “financal standard of living” by changing to a dual income family dynamic from a single income family dynamic.”
There’s the solution, we need to go from dual income households to treble income households.
We did. Haven’t you heard of liberating home equity wealth through the magic of cashout-ATM home equity financing? And it is probably the sudden drying up of that third income source which led to a plunge in consumer confidence.
Damn , I thought he was talking about threesomes or something.
What are we talking here? Polygamy?
No, that would be the fourth, fifth and sixth income sources…
Well, we WERE talking about Utah.
I was going to propose it, but I think most men would rather lose their homes in foreclosure than have 2+ wives.
Now, in St. George, that would be a good guess.
Sister-wives for everyone!
Haven’t you heard, the fibbies just arrested the polygamist, and I feel so safe now.
Yeah, clearly the introduction of child-labor laws was the death-knell of the American economy. We should get those kids back in the mines where they belong!
Anything to save the housing market.
“We have a deflationary situation in housing. An inflationary one in consumer goods.”
Hey Nicksun,
Once the rubber hit’s the road with the housing, the consumer good will fall in the deflation line….. trust me “no mon no fun”
No use in any glee. I hope you are in a good place with your house and your money…. but we will all be less for wht is about to unfold.
This is it guys. I am convinced that what we are seeing are the gathering clouds of a financial storm the likes of which most of us have never seen.
I am not an alrmist. I work in finance and I am seeing it with clients. I have a manufacturing client who’s factory is almost sitting idle as they wait for orders. I have a diner owner client that said someone turned off the customer spiggot in June.
We have a deflationary situation in housing. An inflationary one in consumer goods. The average family in this country has a negative savings rate. We are a society that has maintained it’s “financal standard of living” by changing to a dual income family dynamic from a single income family dynamic. That means we need more cars, gas, daycare etc but family buying power remains largely the same. We pay for our lifestyle by mortgaging it.
Mabe thats what we should call CCs. “Lifestyle mortgage cards.” I like it.
Seriously I am getting to the point where the glee I am currently experiencing as I watch fbs get f-ed may be replaced quickly with overall concern.
Still feeling a lot of glee though.
‘We are a society that has maintained it’s “financial standard of living” by changing to a dual income family dynamic from a single income family dynamic.’
Don’t forget to mention the all-important third family income source since 1998, which was housing ATM wealth. This is the part the housing bulls just don’t mention — you know, the ones who say that even if prices fall, only recent buyers will be hurt, because the rest of the owners have this massive equity cushion to fall back on…
I think the Ivory guy is probably trying to act in fairly good faith. I heard through family that Ivory was explicitly trying to keep speculators out of his developments starting about a year ago (Ivory Homes is one of the biggest Utah-based builders around). This may be because they are taking a long-term view — not all builders are looking for the short-term hit. But then again, I may be wrong.
I agree that SLC is lagging behind other markets in terms of sales slowdowns. Haven’t seen any stats yet for July, but first 1/2 of 2006 was pretty strong. Friend of mine just sold his house (within past few weeks) and had 7 bidders and the winner ended up paying over list price. Of course the home was on the low end ($170k) which is getting rare around here.
Our price appreciation (if you want to call it that) has been about 60% over the past 4 years, which isn’t too crazy (just a little)– but Utah has been in the top 2 ranking repo states this year in the first 6 mos. Also, exotic loans are being used extensively here — just heard a radio ad today for a 50 year mortgage “with payments just like an interest only mortgage so you can buy a more expensive home”.
Looking at all of the new homes with boats and brand new RV’s here makes me think there is a lot of ‘funny money’ behind this apparent wealth and that things are due for a fall soon.
Salt Lake is going to be hit just like everywhere else, we can’t expect the magic California money to come in an prop up this real estate market anymore.
jb
“Our price appreciation (if you want to call it that) has been about 60% over the past 4 years, which isn’t too crazy (just a little)–”
Whaaaaat??? Just a little crazy?!? 60% overshoots 4% annually by about 43% I think Utah was moving along at a normal rate until 2 or 3 yrs ago, then ka-ching.
60% is way above expected avg, but not as wildly crazy as the stuff in certain other markets, such as St. George. Agree, that things are still bubbly here and will probably fall hard soon.
“Looking at all of the new homes with boats and brand new RV’s here makes me think there is a lot of ‘funny money’ behind this apparent wealth and that things are due for a fall soon.”
I drove through there several months ago. I hadn’t been through there in about 5 years. I could not believe my eyes as I drove around and saw an astounding number of new homes and new commercial buildings. I saw high line furniture stores, way too many restaurants, lots of expensive cars and about any equity cash-out option that you’d find in SoCal. I thought I was looking at parts of SoCal sometimes! Most of the billboards along I-15 were RE related. Throw a rock and you’d likely hit a realtor or a new housing tract.
No one I talked with could understand why there might be a problem. They see all this money supposedly coming in and think that good times are finally here to stay, this time. Wages haven’t increased, but lots of retail jobs have showed up. Speculators aside, many people there have been augmenting their lifestyles with MEW and using exotic financing to get that bigger house or second house. They’re gambling just as much as any speculator that the Utah article is so concerned about.
“. I saw high line furniture stores, way too many restaurants, lots of expensive cars and about any equity cash-out option that you’d find in SoCal. I thought I was looking at parts of SoCal sometimes! Most of the billboards along I-15 were RE related. Throw a rock and you’d likely hit a realtor or a new housing tract.”
All to true. Not only that but filled with snobs. Un-real that rat whole wasteland. Due to a Job offer I shopped the greater area 2 years ago, I went to many new home sites. I was told to pound sand and rot untill, they decided to smile upon me.
No info, No price, no move in date, no jack. I hope they board up the whole town. I was inertrupted several times by owners slithering to get their fix by asking “how muchg the next faze would selling for in thier model”
I wanted to puke, now I only feel sorry for the lot of them. Thank God I was spared.
MFB has the following: “Utah is second worst in the nation for mortgage fraud. Experts say unscrupulous real estate deals are taking money home buyers and artificially inflating the price of homes. Utah is second worst in the nation for mortgage fraud. Experts say unscrupulous real estate deals are taking money home buyers and artificially inflating the price of homes.”
Yes, by all means run off to UTAH and buy that house now!
Along with that Utah wages blow. At least my experience in it and being from there. These prices won’t hold up, unless they have some serious wage inflation which imo won’t happen. I guess that goes for most of the US>
Gee, I didn’t know you could get a post to stutter, echo, or hiccup!
Did anyone read Jass Jain’s (he used to comment on Silicon Valley economy/housing) latest essay:
The Pause that depresses: Recession to begin within six months and depression prior to 2008/Q2
http://tinyurl.com/lu6hy
(I had posted the link earlier in an older thread)
“‘I basically have let my people know that if they sell to an investor and they knowingly do it, they are going to have trouble with management, and that means their job,’ Ivory said.
—————————————————————————
What a load of serve serving BS! This guy would sell to his dog if it would “make his numbers” and he could get away with it.
Builder’s agent: “Are you an investor?”
Speculator: “Nope, it’s just a second home.”
Builder’s agent: “Well, that’s all right then.”
UHAUL RATES
TAMPA, FL to COLUMBIA, SC $1,523.00
COLUMBIA, SC to TAMPA, FL $400.00
MIAMI, FL to RALEIGH, NC $2,003.00
RALEIGH, NC to MIAMI, FL $422.00
SAN FRAN, CA to OK CITY, OK $2,456.00
OK CITY, OK to SAN FRAN, CA $ 788.00
What is the standard for the Uhaul Rate Index? A 17′ Truck?
Boston, MA to Dallas, TX: $1676
Dallas, TX to Boston, MA: $712
An inverted yield curve hurts bankers every time.
It use to be way back after WWII an average Joe could graduate from High School, get a job at the factory, get married, buy a house, buy a car, start a family, let the little lady stay at home. All on one income. In the last 30 years thanks to inflation the husband and wife both had to work. Now the husband and wife don’t make enough to buy a home!
Did you know from 1800 to 1928 the US had an inflation rate of 0%.
That’s right 128 years with 0% inflation. Once the Federal Reserve was created, and our money was no longer backed by GOLD all hell started to break loose.
Demand the dollar be backed by gold or silver. Do away with the private company called the Federal Reserve. I feel the only way to get back to a normal state of economics is for the US to go through a depression of Biblical scale.
Thanks for a serious idea, Ms/Mr. Smuckie La Pooh-Pooh!
Quick question,
Who are the biggest public players in the morgage lending industry. Preferably with the largest commitment in S. Fl/Arz area?
I know this has already been discussed, but I am looking to get some short positions on several areas directly relating to housing. I have seen some of the home builders get killed in the past few months; but I think they are going to attract too much short money in the next few months; as more people become aware of their very shaky position.
Thanks for any advice.
Try Washington Mutual. Big if not the biggest. Look for small regional banks with high mortgage exposures. I wish I had more money. Good opertunity there.
Not sure if anyone else had commented on this yet, but I think I found the next bubble…
http://money.cnn.com/2006/08/29/technology/nextbigforeign.biz2/index.htm
The mad chase for easy wealth is on again.