Bits Bucket And Craigslist Finds For August 31, 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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Name:Ben Jones
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Pier 1 Imports August same-store sales drop 9.1%
Pier 1 Imports, Inc. reported a 9.1% decline in August same-store sales, saying traffic trends remained below last year. But it added consumer traffic and sales improved during the last two weeks of August, which it attributed to marketing initiatives including new TV commercials. Analysts polled by Thomson First Call, on average, forecasted an 8.1% decline in same-store sales
ethan allen
http://biz.yahoo.com/bw/060830/20060830005718.html?.v=1
“As indicated in our July 27th earnings press release, sales did start slowing in July and have slowed further in August. This quarter we are being impacted by both lower consumer confidence and our initiative, started last July, to reduce the lead time in filling customer orders. As we previously indicated, the faster backlog turnover reduces the forward visibility of delivered sales, and we are subject to more volatility as demand levels fluctuate.
Some news from the Northeast:
New Jersey July Sales Plummet 25%
July was another cool month for the housing market as declining buyer-confidence continued to take its toll on home sales. In July, contract-sales activity declined 11% from the June level and was 25% below the year earlier pace in July 2005. That this slowdown comes in the midst of the prime March-to-August selling season when home sales should still be running hot provides compelling evidence of a market transition wherein home buyers have greater control over final selling prices than at any time since 1991, a 15-year span.
From an inventory perspective, the number of homes being offered for sale now stands 67% higher than a year ago. This equates to a 9-month supply as compared to only 4-months last year at this time. It is however encouraging to note that Unsold Inventory increased by only 1.5% in July following a 47% increase over the 1st 6 months of the year, which works out to nearly 8% per month over that period. This moderation, coupled with recent declines in mortgage rates present home buyers with an opportunity window that will likely close once mortgage rates continue their upward climb.
From a price perspective, market conditions continue to exhibit the greatest weakness for luxury priced homes. As shown in the table at right, Unsold Inventory below $600,000 stands at an 8 month supply as compared to 27-months above $2.5 million. This weakness in the luxury market has been developing slowly for several years now and will likely continue for the foreseeable future. As a result, expect the market for more affordably priced homes to be the first to recover.
I’m on the ground in S. Jersey and I can tell you it is dead. After labor day will tell as no one wants to buy a shore property and carry it through the winter / hurricane season.
in addition
J.C. Penney Co., Inc. said Thursday that sales at stores open for at least a year declined 0.5% in August, hampered by weaker furniture sales
J.C. Penney pointed out that sales of furniture were very strong in August 2005, creating a sales comparison that was difficult to overcome in the current year.
unfortunatly they didn´t give a number on how deep the slump in the furniture sales was
One of my readers found this link.
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1345698
Desperate San Diego “investors” laughing about sticking bandit signs on public spaces.
“Well I’m trying out bandit signs for the first time. It just so happened that labor day weekend was the same week my signs arrived.
I’m hoping that my signs will last a day longer since the city should be off.
So I’m doing 125 “Stop foreclosure” signs. This should cover all the off ramps for the 8, 805, 5 triangle and the 5 and 15 up to the 78.
A good friend of mine let me borrow his truck and Friday night - or Thursday ( I haven’t checked to see what day the city gets off) I’m going to go pound them all in.
I’m working on my script and voice-mail to ensure it goes smoothly.
It should be fun, like I said, I haven’t tried this yet so I’m kind of excited about it.
I would love some feedback from those that have tried this, or those that have good theoretical knowledge or anyone that wants to throw some input on tips, ideas, criticism, etc…
Thanks,
Luke
__________________
Why become a man of success, when you can become a man of value?
-Albert Einstein”
—————————————————————————-
Luke,
Here is some feedback for you.
1) You are a scumbag.
2) You misquoted and misinterpreted Einstein.
3) What you are doing sounds highly illegal, and I hope you end up in the slammer for it.
Too funny! But, you see, they don’t care! The era of easy money has emboldened these people to think, breaking the law is the way to do business.
Face it, it has become the way to do business in the U.S. of A. Prudential bilks customers out of 2.5 Billion and gets fined $600 million. (one of myriad examples) Pretty good trade off. So if this clown does one deal and makes his $100k he’ll gladly pay the fine (at most a few hundred bucks) and laugh all the way to the bank.
Hopefully http://www.causs.org is watching them
2nd. try
a very good breakdpwn on the “better than expected” gdp numbers from roudini
http://immobilienblasen.blogspot.com/2006/08/analyse-gdp-zahlen-usa-roubini.html
the blog from roudini is here
above are the highlights
http://www.rgemonitor.com/blog/roubini/143953
“Beware of these spin doctors. Behind the headline figure, the numbers in the revised Q2 figures are much worse than the initial estimate. Essentially, almost all of the upward revision to the figures comes from a much larger increase in inventories of unsold goods, an ominous signal for future growth as firms saddled with unsold goods will soon start cutting production (as it is happening, for example in the auto sector). Indeed, if you exclude inventories and look at final sales, the figures are much worse: in Q2 final sales of domestic product grew only 2.3%.”
Does it include increases in new home inventories? And maybe BB is getting his soft landing, after you take off that inventory increase?
But then again, maybe not. Inventory left over from last quarter has a way of competing with new production this quarter until balance is restored through price reductions and slower production (i.e., layoffs).
frustrating but true
Nationwide survey shows U.K. house prices rose 0.8% in Aug
LONDON (MarketWatch) — British building society Nationwide said Thursday that U.K. house prices rose 0.8% in August, bringing the annual growth rate to 6.6%. The pace of growth was unchanged from July, when annual house price inflation stood at 5.9%. The average price of a U.K. home now stands at 167,721 pounds (249.000€, 320.000$), the Society said, compared to 167,733 a month ago
>
What am I missing here? How does a 12pound drop in prices equate to .8% increase?
Good catch. If they did the math correctly, they would have calculated an annualized growth rate of
[(167,721/167,733)^12 - 1] X 100% = -0.09%,
not a rapid rate of decline, but not exactly a major incentive to jump on the “buy to let” bandwagon either.
oh.
haven´t checked that. good catch.
The London market is doomed along with the rest of Europe. House price inflation is 185% starting back in 1997. Prices in my part of West London have gone up 15 pc in last 6 months alone. There are some special factors i.e. shortage of land, increasing population etc. but at the end of the day it will be heading down. Same as in US market is bouyed by interest only mortgages, greed, flippers and buy to let. The last category have replaced first time buyers who now cannot afford anything. Two of my wife’s friends have just bought buy to let which in London yields about 3.7 % note BOE base rate is 4.75 pc so must be specualting on capital appreciation.
Has the BOE achieved a soft landing? If so, what is to prevent it from happening here in the USA? Eventually we would collectively wake up to discover that much permanent inflation had occurred between 1998 through 2006 which was somehow missing from the CPI. And those of us who did not buy would be priced out forever.
i think that they will fail to achive a soft landing. it has never worked after a bubble. when you look how desperate some in the uk are now with creative financining etc. looks to me like the endgame. links to this desperation are here
http://immobilienblasen.blogspot.com/2006/08/england-uk_31.html
I have heard that the UK RE market is being helped by significant demand from foreign buyers and this is helping to soften the blow , much the way it could be said that the commodity boom timed nicely to help same in Australia. Don’t know though.I know a realtor in FLA who claims to have Int’l buyers lined up for FLA property , but only waterfront. Will they buy in SLC? As far as CPI not being indicative of true inflation , I have no trouble believing that.
to my knowledge the argument with the foreign buyers is definitly true for london. and london is the largest component of the re market in the uk (have no percentage).
also is london benefitting from the ultrastrong banking/investment activity with massiv bonuses. i think this will end very soon.
A bad investment is a bad investment regardless of what country you live in. Now, if foreigners highly value the honor of having their own nice little flat in London, then okay, I feel kinda sorry for native Londoner’s, but that’s the way it goes in a free market economy. But if they are buying because they think it will make them more money later, it will probably cost them money instead, and that’s just the way it goes.
The FLA international buyers are mostly Central/S. Americans who have a home in Miami as their escape hatch when their home economies or governments tank. Therefore that market can rise or fall quickly depending on commodities and their home currencies.
Rates are going up all over Europe as well a sthe rest of the world.
There is no soft landing. The world news is what effect the US housing collapse will have on the worlds economy.
Aug. 31 (Bloomberg) — European Central Bank President Jean- Claude Trichet signaled the bank will increase interest rates in October, saying economic growth and inflation will exceed its previous forecasts.
“Strong vigilance remains of the essence so as to ensure that upside risks to price stability are contained,” Trichet said at a news conference in Frankfurt after the bank kept its benchmark lending rate at 3 percent. The ECB said it expects inflation to stay “elevated.”
http://tinyurl.com/zkpeu
Gotta read the mortgage babes comments on page two.
http://www.msnbc.msn.com/id/14584569/
O’Dette seems pretty confident that her home will soon provide her with another $300K in “unearned” income. I am guessing she will soon discover the flaw in the marketing line that her decision reflects.
———————————————————————–
“The average life of a loan is less than five years, so why get a 30-year fixed-rate loan which locks you into higher payments?” says Teresa O’Dette, owner of O’Dette Mortgage Group in Tahoe City, Calif. “People are not buying homes to stay in them forever.”
O’Dette could afford a 30-year fixed mortgage on a home in the upscale Lake Tahoe area she lives in but instead chose a negative amortization loan with fixed monthly payments but an adjustable rate, currently at 7 percent. “So far, I’ve added $12,000 to my $900,000 loan, but the value on my home has gone up $300,000 since I took on the loan. If someone offered me $1.5 million on my house, that $12,000 extra is not much of an issue.”
“People are not buying homes to stay in them forever.”
Umm. I think normal people are.
Seems to be a shortage of normal people.
They’re not making any more normal people any more.
Is that the bimbo with the size EE melons hanging out that we saw yesterday on that television show? We the brains sacrificed to fill the empty bags?
She’s a living example of why women with implants are more likely to commit suicide (of only financial)…
Now that I think about it, I know several people who used HELOCs for such “enhancements”. I guess it gives a whole new meaning to Real Estate Bust.
Currently on vacation in my native Holland:
The economic similarities between the US and Holland are intriguing. Holland is also struggling with inflation, while the government is fudging the numbers.
Couple of quick data points:
On last night’s evening news, 3 articles talked about expensive goods, but the uberstory on overall inflation wasn’t even mentioned:
TPG (the Dutch version of USpost) is increasing the prices of stamps from 39 Euro cents to 44 Euro cents (~12%!!). Keep in mind that’s the rate for internal to Holland mail only: From memory, I believe that Holland is about the size of Maryland.
Train tickets are further increasing in price. (Holland has invented the odd concept of “privatized public transportation, with a single provider of goods).
The Dutch utility bill has doubled over the past year. Families are struggling. Corporations are making a killling, and are being scrutinized. Another great story of privatization: The Dutch privatized the energy providers, but made the cities & provincies (~counties) the majority stakeholders.
Lastly then, there was chat about the “economic recovery”, with European GDP growth now outperforming US GDP growth for the first time since 2000, but with the caveat that real Dutch wages have been falling since 2002. I.e. growth the American way: endebtedness.
The housing market here is a big secret; the NVM (Dutch NAR) shares no useful trend info about inventories, prices etc. All publications are of the rah-rah type. However, just a few houses down from my parents’ house, one house has been for sale for over a year. 2 others one street down have been for sale for a 3+ months now. Ridiculous prices, of course.
I’ll keep my eyes & ears open while I’m here. However, I already wonder: Will the Euro prove to be a meaningful diversication medium from the US $?
Thanks for the perspective from Holland.
(Holland has invented the odd concept of “privatized public transportation, with a single provider of goods)
At least you have decent public transport! Amtrak is the most similar entity to what you described as “privatized public transport”, in that they run the commercial rails along the northeast corridor. Here they are money losing and regulated to death.
39 Euro cents to 44 Euro cents [for postage]
Drives more people to email!
Will the Euro prove to be a meaningful diversication medium from the US $?
It sure will be part of a portfolio. Is there a Dutch equivalent of the US Social Security/Medicare problem? ie, how much of a baby boom generation occurred, and was it big enough to give trouble to the social services?
Bulls and bears aired their views in yesterday’s WSJ.
The bull case was laid out by James B. Stewart (Common Sense / Smart Money D3):
“Stocks of home builders like Toll Brothers and Pulte Homes have suffered severe declines; expectations are so low that they seem good values for patient, risk-tolerant investors willing to wait for the market to stabilize.
…
Property itself may also begin to be attractive, either as an investment vehicle or for your own use. In some markets, falling prices for condos compared with rents are beginning to make them attractive to yield-oriented investors. It is a paradox of falling real-estate values that buyers balk at paying far less than they would have in a rising market, simply because they’re afraid the value may decline further after they buy. All of a sudden they’re market timers, aiming for an elusive bottom.
As usual, and especially for first-time buyers, I don’t believe in trying to time the real-estate market. If you like something, it fits your budget, and you plan to be there for an extended period, stop worrying about where prices are headed. Instead, be grateful you weren’t buying a year ago.”
Contrast to the bear case from Karl Case and Robert Shiller (op-ed section — “Full House”):
“As always, the future is uncertain. Many of the underpinnings of the boom are still strong, and the soft-landing scenario so widely promoted by economists and industry leaders is a possiblity if we can avoid a generalized inflation, if long rates don’t rise a lot, and if the rest of the economy stays strong. But that possibility is not enough to give great comfort to all those who worry today about the housing market.
Unfortunately, there is significant risk of a very bad period, with slow sales, slim commissions, falling prices, rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected. Deterioration in that intangible housing market psychology is the most uncertain factor in the outlook today. Listen hard and watch out.”
“Stocks of home builders like Toll Brothers and Pulte Homes have suffered severe declines; expectations are so low that they seem good values for patient, risk-tolerant investors willing to wait for the market to stabilize.”
I got news for him - these stocks are still very high. TOL is only down to it’s Q4 ‘04 level, still up 200% over its ‘02 level and up [b]1500%[/b] above its early-90’s level. Most home builders (Pulte, Ryland, Centex, etc.) are almost identical, so it’s not just one company’s growth.
I’m still shorting a lot of homebuilder stocks, and expect the slow and painful decline to continue for another couple of years or so. I’m not normally a fan of shorting stocks (these are my first), but the opportunity is too good to pass up IMO.
Packman,
I’m in line with your thinking, with one caveat holding me back.
Where are the ‘04 and ‘05 earnings?
Toll made a lot of money over the last few years. They don’t pay a dividend so I assume they’ve invested it into more land, options, etc, etc. These are now assets.
Granted, I think the assets are going to decline in value, but how much? and when will TOL mark them down?
The recent earnings are *great*, but I expect them to go down, a lot, in fact probably into the red. Yes I’m sure they’ve accumulated a lot of assets, however those assets are declining in value as you say. They don’t have a huge amount of cash on hand, so if (when?) they do go to the red, they’ll need to start selling those land assets. TOL seems like a great value on the suface - 4B market cap on a 5.8B per-year revenue and 800M profit is pretty good, however I’m betting that the profit will go below zero, and the revenue below half before this is done, if not more. I’m a “long short” if you will.
The question about TOL is how long before it files for bankruptcy. Over the next few quarters, it seems highly likely that it will run out of cash, be unable to pay its debt and have to file. The market is glutted and they are still building new homes. Over the next several months, the drop in demand for new homes will most likely drop much further than it already has. TOL will have to dump inventory anyway it can, which means deep price cuts. Those cuts will affect the overall market(along with all the other HB price cuts) and TOL will take huge losses until it has no choice but to file. It is hard to realize how inherently illiquid real estate is until the bust arrives but we will see that illiquidity in all its splendor over the next couple of years.
Shorting HBs now is an opportunity one seldom finds in life. Huge profits will be made doing so. Just maintain a goodly amount of liquidity so that you can cope with the short squeezes that come with shorting.
I suggest buying LEAP put options. No liquidity is needed — just a great deal of faith that fundamentals will eventually sink these builder shares back to long term trend or below…
Isn’t that what they said when Lucent fell from 80 to 60…to 50… 40.. 30..15..5 … 2…1…33 (yes, as in 0.33)?
Just because you fell 10 floors after jumping off the empire state building doesn’t mean you’re at the bottom.
Who the heck calls those signs on freeway ramps to make investments? I guess there’s a lot of dumb people out there.
Who makes money on posting hand-scrawled signs that read “Investor Apprentice Needed — $20K/mo Salary,” and how?
Anybody in San Diego? Why don’t you copy that string on SDCIA and forward it to Code Enforcement so they have a heads up ahead of time and can take these down. Asshole.
Done.
I see those “real estate investor seeking apprentice” signs here in Tucson. Whenever I see one, I can’t help thinking that said investor is looking for someone to buy him/her out of the overpriced, negative cash-flow properties in his/her portfolio.
Really? When I see “apprentice”, I think of a Mickey Mouse-like novice getting dumped on by toxic loans, soon flailing and going underwater. (Investor’s/Sorcerer’s Apprentice)
Actually I think it’s a flipper/investor who wants to go in with someone who can get a owner-occupied loan with the promise of making big money on some sort of a flip.They want to use the “apprentice ” name or funds .
Don’t get involved with people like this .
WTF?
Can anyone on here comment on the North Carolina market and what it’s looking like? I see a lot of houses being built but no one talks about real estate really and how the business is.
NC is being overbuilt in an overly ambitious anticipation that every floridian and every boomer in the NE will move there.
Still, there is plenty of undeveloped land all across the state, currently for sale at the local bubble-inflated prices.
Raleigh, parts of Charlotte, and the beaches are getting too pricey for locals. But there is a lot of the state left that is “stable to single digit appreciation”. NC has a lot of small towns an hour or two from the big cities… if that’s what floats your boat and you don’t want high paying work.
Just lately I have seen a repeat of a pattern in the HB stock prices which I first noticed late last summer (right at the beginning of a 50% slide): A propensity of the prices to drop precipitously at the opening bell before recovering to close to the starting price and staying in a very narrow volatility bound of that price for the remainder of the day. Do any of the non-conspiracy-theory posters out there have a good explanation for this curious price behavior? And most importantly, does it signal that another 50% slide in prices is going to occur in the next twelve months?
http://tinyurl.com/mugzl
Could be something as simple as the “end of month ramp job.” Got a little extra cash in the fund, so what do you do? You put that money to work in all your existing positions, perhaps pushing a little more into your worst performers or those with the least liquidity and most susceptible to a month end “pop.”
What does that have to do with the shares plunging by 2% at the opening, then recovering to the starting price? Very little, unless I just completely overlooked your point.
Please only offer relevant explanations, which does naturally excludes standard Wall Street bullsh!t explanations.
Don’t know about opening prices. Most ramp jobs occur in the last 15 minutes of trading, trying to make the closing price as high as possible, hopefully with very little on the offer side, allowing the last print to be “high.” Thus, the fund’s valuation at month end looks better and investors are happy with the fund manager’s performance. Cynical? Yes. But it does happen. It is called “painting the tape.”
As for early morning oscillations, I have no idea unless an investor has decided during the night to “load up” or “sell out” and thus places a large entry at the opening of trading the next day, creating a temporary imbalance between buyers and sellers.
KK - true , I believe it does occur. Both on the daily, monthly ,and quarterly levels. Though the practice is referred to as ‘marking the close’. Painting the tape is the practice of buying and selling a security back and forth between traders to give the illusion of high volume.
Here is another example. Check out how violently the price of TOL shares oscillated at the opening today, below a relatively calm amplitude of S&P 500 price movements:
http://tinyurl.com/leobd
Well I am a conspiracy theory nut , but I throw this out on the back porch , see if the cat licks it up. Many institutional investors (pensions , mutual funds etc) are not allowed to transact business during the day . The idea being that they should be long term investors , and not trying to time the market , nor really be all that interested in intraday price swings. Hence , many inst, orders are placed as MOO , MOC. Market on Open , Market on Close. They are printed either at the opening price of the day , or the closing price. Either way , large orders placed this manner show up as imbalances and the info is publicly disseminated , in the case of MOC imbalances for instance, they are disclosed at 3:40 PM and again at 3:50 PM. There’s a story for anoither day here in how to play this as a trading theory. But anyway , it is a possibility , only mo , that the MOO sell orders could cause the scenario you describe , and as such could indicate institutional selling. Just one of many possible explanations I suppose though. I’ll take another 50% drop though :-).
Elsehwere in the armageddon-folio land , Smith and Wesson - new highs every day - protect thine own !. And silver chart looks good.
Thanks — I like your explanation, except for what factors typically follow the opening plunge to drive the price right back up to near the opening price by the end of the day. This, frankly, makes very little sense to me, but I don’t think like a noise trader, a gambler or a techie, and these are likely the sorts who drive the market to exhibit bizarre price moves.
GetStucco, I’ll just through out another hypothetical. If assuming that the scenario presented were true ,that a decent size MOO sell order came in- the order is directed to the specialist in the stock (we are talking of listed securities , which almost all the HB’s are). The specialist may not have enough , or maybe any, buy orders in hand, to offset. What would happen is that the specialist would purchase the stock, or at least a good part of it, into his own account (doing their patriotic duty of ‘maintaining a fair and orderly market’ , bless them.) Naturally he will gap the stock down slightly, print the seller and then allow (encourage?) the stock to move off these levels as to distirbute the stock he purchased in his own account , at higher levels. There are still a good deal of contrarians buyting the housing stocks imo , and I’m sure the specialist would have a pretty good feel for his ability to profit from the whole transaction. Just a thought.
This fake housing ad that appeared in a north carolina parody paper is completely hilarious, and is a perfect summary of the bubble:
http://www.mountainx.com/disclaimer/
(scroll down to bottom where it says “paid advertisement”)
[photo of completely decrepit house]
Hurry, won’t last!
Raise your family Asheville-style in this charming 2-bed, 1- bath bungalow. This 950-square-foot gem, priced at only 399K, would make a perfect starter home for a doctor or lawyer who just moved to town. Would also be ideal for an unemployed 20-something housing-bubble cashout from California.
This cozy 1923 bungalow was completely renovated in 1973 — wood paneling was installed over crumbling plaster in all rooms, and vinyl siding tacked on over rotting wood exterior. Mold issues will not be a problem for a busy professional who spends most of their time outside of the house working!
New roof added in 1981; granite countertops installed in 2006. House retains much of its original charm including tiny closets and original wiring/plumbing.
Estimated monthly payment: $2,500
Estimated monthly rental income potential: $500
Thanks Mr. Bungalowball
I also enjoyed the Back to School Tips from the Sleepy Umemployed Parents.
Hilarious
Investors: Enjoy negative cash-flow benefits and depreciation for stunning income tax write-offs!
MSN home page has been beating down housing lately. But this new article suggests we are just taking a breather. Apparently searches for “homes for sale” are up big time lately, so they’re predicting an increase in sales soon.
Hope for the housing market?
Maybe more people are hearing about the swelling inventory and saying, “There are how many houses for sale?? Let me look that up.”
On a side note, don’t mean to be a pessimist, but what exactly is to keep a bunch of people from buying soon if they see prices 20% lower? Sure, buying into a falling market is stupid, but we’ve already demonstrated that there are a bunch of fools in this country.
They are probably picking up the thousands of searches conducted daily by Ben’s bloggers in order to post and ridicule in the Craigslist thread!
the UK is confounding ,but OZ is not OZ is kicking ass w china exports- what hold the uk up is a little wierd
Another myth;
Unlike stocks and bonds, owners don’t have to sell their homes, so it’s not a liquid asset.
Well, stock owners and bond holders don’t have to sell either. (Any one want some dell stock I still have?:-)
A market is composed of the assets being offered for sale, not all the assets that exist. Stock trades are priced by the sellers and buyers, not the people who hold them.
I know this is a bit simplistic, but the idea that the for sale homes are not what drives the market, and somehow all homeowner have a bigger impact than they do, is just foolish.
Thanks for backing up my point…
http://www.timescommunity.com/site/tab1.cfm?newsid=17126310&BRD=2553&PAG=461&dept_id=506035&rfi=6
From the Loudoun Times Mirror - another building going bankrupt, leaving bagholders. Sounds just like the one in Bradenton a couple of months ago. Many subcontractors left unpaid.
builder, I mean
I know a lot of Ben’s Bloggers also visit itulip.com. I see the authors over there have a new book out whose title is below. I thought it might be of interest to many here based on some FAQs we often see.
“America’s Bubble Economy: Profit When it Pops”
David Wiedemer
Robert Wiedemer
Cindy Spitzer
Eric Janszen
ITulip is an awesome site. I’ve been on it since 1998 although it went dark for a few years. They also have a Prosper lending group which I am in. Very interesting people. Some reporter is writing a story about our lending group.
I checked out that Lending Group, Tx Chick. I thought the idea was intriguing but noticed that most loans went out at far higher rates than I pay on my credit cards.
maybe postet before but this is really scary
In the filing, WaMu confessed it had bungled the underwriting for option ARMs, improperly measuring some of its customer’s debt-to-income ratios for 2004 and most of 2005. As short-term interest rates rose in those years, the company disclosed, the interest rate at which lenders qualified for loans “was not adjusted upward, which resulted in loans being made to borrowers who were qualified based on debt-to-income ratios calculated using an interest rate below” the prevailing interest rate.
In other words, the applicants looked more credit-worthy than they really were. Talk about violating Rule No. 1 in lending.
Of $43 billion of such loans, WaMu discloses, the unpaid balance for borrowers who were qualified at below the market rates totaled $30 billion.
the full post here on this very very good blog
http://bayarearealestatebubble.blogspot.com/2006/08/wamu-30-billion-in-bad-loans.html
Doesn’t “bungled” inply innocent stupidity or carelessness? Isn’t the truth instead that they were “hitting the numbers?”
what makes me mad that when you look at the stockperice from wm it seems that nobody cares.
the news isn´t quite bad enough….. (yet)
“A WaMu spokesman emails that the company expects that “the credit performance of these loans will not differ materially from the expected performance of option ARMs [customers] qualified” at the correct interest rates.”
Translation: Performance will suck for both groups!
Builder puts cars in driveways of new homes
By Donna Jones
Sentinel Staff Writer
WATSONVILLE — Buy a house. Get a car — free.
That’s the deal being offered by green developer Clarum Homes, which hopes the incentive will speed the sale of the last five homes in its Pajaro Vista development on the eastern edge of the city.
The incentive — a fuel-efficient hybrid Toyota Prius in keeping with the development’s near zero energy homes — is yet another indication of a sluggish real estate market.
“Some of the people who were buying had a hard time selling their current homes,” said agent Dana Sales. “We’re trying to attract people with the ability to go ahead and make that purchase without that contingent sale.”
Pajaro Vista is a senior community, open to buyers 55 and older, and Sales said purchasers typically have been downsizing and have had cash to spend from the sale of their previous homes.
Nicole Gittleson, Clarum’s vice president of marketing, said the developer released the first homes for sale in Pajaro Vista in January. In two subsequent releases, the price was hiked $10,000 to $15,000. The two- and three-bedroom homes now on offer are available for $585,000 to $635,000.
“We really weren’t there very long,” Gittleson said. “It’s been an incredible response.”
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But Clarum is ready to move on to new projects in Danville and Menlo Park, she said, and wants to close the final deals in Watsonville. John Suppes, Clarum founder and president, decided he could do more for the environment by putting home buyers into energy efficient cars than reducing prices, Gittleson said.
Clarum specializes in building environmentally sensitive, energy efficient homes. Pajaro Vista homes are built with sustainable materials and incorporate solar technology and energy and water conservation features.
The family-owned company also built the solar-powered Vista Montaña subdivision on East Lake Avenue.
The use of incentives rather than price reductions to move houses is a national trend, according to an Aug. 25 New York Times story. Typical incentives include upgrades like fancy kitchen countertops and appliances. Though used in the resale market, they’re more common in new home pitches where builders feel the financial pressure of empty homes but don’t want to risk further eroding confidence in the market, the story said.
Linda Haines, associate broker at Raeid Farhat Real Estate Inc. in Watsonville, said there’s no question the real estate market has softened from a year ago, when a frenzy to buy frequently gave sellers the opportunity to choose between multiple offers.
A report compiled by Gary Gangnes of Real Options Realty of Santa Cruz and released earlier this month showed though the median home price in Santa Cruz County rose slightly in July to $768,750, 50 percent more homes — 1,355 — were on the market, than the previous year and the number of sales during the month plunged to the lowest level in more than a decade.
“A year ago sellers didn’t have to do much, and they could be selective on what they wanted to do and what they didn’t want to do. That time has since gone,” Haines said.
Still, while sellers on the resale market are more willing to compromise, paying to fix problems revealed by termite inspections, for example, “they’re not willing to give away the ranch,” Haines said.
A homeowner paying a mortgage in a house they’re living in generally has more breathing room than developers with construction loans to cover.
“It’s a buyer’s market,” Haines said. “But certainly there’s no need for sellers to panic.”
I’m presuming we are talking Watsonville, CA. Anyone else here ever drive through there? The overall effect is not greatly different from driving through the residental parts of Tijuana, Mexico– and right here in the Bay Area! Actually, me and my biking buddy like it for that reason, except no “Avenue de Revolucion.”
Last night our friends who have the ARM house they really can’t afford told us they are putting their house on the market, and have already found an apartment that is nicer and larger than their house for less than their house payments. They told us that knowing that we sold our house and are now renting helped influence them to make this move. We are really happy because they are nice people but the mom stays home with the kids, and the husband doesn’t make enough money for them to really afford even the bottom of the line house they had. Now they will probably come out with 50-60K that they are planning to save for the future from a house that they bought 3 years ago, so it worked out well for them. I am sure that it will not work out so well for the people who buy the house and I am sorry for them, but even if our friends did not sell their house, it wouldn’t stop those people from buying a house right now anyway.
better hurry, 2003 prices are coming soon
hope they get to keep some ca$h !
This is north of Seattle; we are just in the inventory increasing stage. I don’t believe that prices have started dropping yet.
She’s a living example of why women with implants are more likely to commit suicide ( if only financial).
Some negative yoy median prices numbers in Silicon Valley. The real numbers must be down close to 8-10% given the median distortions.
http://www.dqnews.com/ZIPSJMN.shtm
imo, itulip’s 3 or 4 comprehensive housing bubble articles are awesome — guiding lights through bubbledom. glad you agree, chick, as you are obviously one of this blog’s bubbluminati.
I’ll be looking to buy a place in the next 60 days or so and a friend mentioned I should look at new construction, as the builders are practically “giving away” their homes. I have been looking at resale homes, with my thought process being I could find more of a distress situation and a nice home for my family.
Any thoughts on this? Resale or new construction in the Atlanta metro area?
Any helpful comments welcome
If you must buy….buy inside the perimeter. Established neighborhood. No room for new building without teardown. I believe outside the perimeter will get killed due to over supply and endless room for more building. Effect will roll inward but with decreasing impact the closer you are to Buckhead-Midtown in a good area. Not to mention, one doesn’t need to live in their car in these inner areas.
It is unwise to buy a house now. The markets are glutted and the prices are coming down. If you buy now, you will likely be upside down soon unless you make a substantial down payment. Prices will fall 30-50% in the next two years. Don’t be stuck for years in a house that is worth less than your mortgage! Wait. Rent until we hit bottom.
Rent!
Boy, Realty Times’ editor Blanche Evans is full of vitriolic hatred for any openness and honesty in real estate transactions. Check out this column where a reader writes in about their “unfair” zillow experience. Below is one of Ms. Evan’s comments:
“Sellers like you are being swept up in a maelstrom where you no longer have control over the marketing of your home to the public.”
“Get ready — it’s only going to get worse before it gets better. Companies like ZipRealty are gleefully announcing that they will post reviews of your home for all to see. Great for buyers, bad for you. Pretty soon there will be no reason to list your home at all because sellers don’t have any rights anymore. You might as well light a match to it when you’re ready to move house.”
Wah wah, cry me a river.
I love Zillow but not for the Zestimates. I like having the sales history, sq footage and the aerial map.
I think it is pretty funny that at the end of her article is an advertisement for her book, “Bubbles, Booms and Busts…Make Money in ANY Real Estate Market.” Can this mean anything except that the market is in bust mode, but you still can make money by following my suggestions (that will not make sellers the profit they were expecting)?
Awesome find! I think this qualifies for “Crock of the Week.”
Please read the whole thing if you have not already. It’s a whine-fest injected with lots of “you better use a realtor” indignation. Too many great quotes, but I’ll try a few.
Potential buyers showed us a Zillow.com price estimation for our house and told us that our selling price was not realistic
Sounds like buyers, in the absence of a buying frenzy, are beginning to realize their rights. In other words, calling a crackerbox a crackerbox. If the house is really worth close to what the sellers claim, surely some savvy buyer would be on it by now.
Homesellers don’t have as many rights when it comes to privacy or marketing their homes anymore.
Coming from a non-disclosure state where Realtors(R) effectively have a racket on the whole thing, I’d say buyers are clamoring for rights and information long overdue. These folks are scared. I, for one, welcome our new Zillow overlords. And I hope Cote/others are right in saying that Realtors are going away.
excellent peak oil story.
Peak Oil Forecasters Win Converts on Wall Street to $200 Crude
“Kenneth Deffeyes, a geologist and professor emeritus at Princeton University, first pinpointed Nov. 24, 2005, as the peak- oil date and then revised it to Dec. 16, 2005.”
excellent peak oil story.
Peak Oil Forecasters Win Converts on Wall Street to $200 Crude
“Kenneth Deffeyes, a geologist and professor emeritus at Princeton University, first pinpointed Nov. 24, 2005, as the peak- oil date and then revised it to Dec. 16, 2005.”
JL, good post. I don’t know how far off the “peak oil” is, does anyone?
I do know we have in the U.S. about 275 billion tons of recoverable coal. That is 1/4 of the entire globe’s recoverable coal. Can you imagine 30 years from now, having Saudi Arabia and Iran imorting coal from the U.S. for their energy consumption?
Wouldn’t that be the sh*t?
I don’t think the market would permit $200 oil for ver long, do you?
The question is not $200 oil, it is what will a dollar be worth? or relative to the price of gold since 1970 oil has dropped. If the country had the desire to use coal - google coal - news and most of the articles concern China creating DiMethyl Ethane (a manufactured substitute energy from coal) - China will not allow any plant to be built that does not use at least 1 million tons per year. China is the 2nd largest owner of coal after the US.
If you really wish to get angry - see how many Nuclear power plants we have built in the last 30 years and how many China has built. Then see how many China is building and is scheduled to complete by 2025. The technology that China is using was developed in the 1940’s at University of Wisconsin - never used here - apparently not profitable enough, but totally risk free.
Just like the fax machine, the transistor and the integrated circuit - another technology we will be re-importing from overseas.
No such thing as “totally risk free,” though I agree that the risks of nuclear have been exaggerated and it seems to be the only hope for the short-term (though it, too, will ultimately run out of fuel like oil).
I suspect we’ll see oil in around $60/barrel by early next year–before we see $200 or even $100, due to speculators selling off futures contracts and decreased demand with recession. It was $75.78/barrel in early July, it was under $70 Tuesday.
How about infinitely far off? Because once we reach peak oil prices, innovation or desperation will have helped us all break the oil habit (nucular reactors, anyone?).
Nothing will replace oil for air transport, trucking and long to mid range auto. Electric is good for city transport, but not likely affordable by most middleclass and lower in this situation.
Well the answer is to ban fossil fuel-burning cars! Ha! But make oil available for commercial aircraft. Will last longer.
The market will match supply with demand and ability to pay.
Oil reserves do not matter. Production rates do…if we move from 85 million bbls/day to something like 70 million bbls/day by 2012 or so and dropping after that, we will see permanent $200+ oil.
Then throw in the possibility/probability that some time in the future…perhaps after the depression those are so eager to see happen…the ME countries and Venezeula will demand gold or something like that and refuse dollars. Then good bye lifestyle in the USA for most. We will be a third world nation then with some rich and many back on the farm.
Where will you be?
We (Earthlings) will never run out of oil. We will, however, run out of inexpensive oil. I do think oil will broach $100 per barrel in the next few years. I do think it will broach $200 per barrel and we’ll see $7.00 per gallon at the pump. This will be a gradual pain in the next 3 years and a severe pain afterwards, but economically, other sources of energy will, one-by-one, become competitive. For the United States, unfortunately, we will have to endure perhaps 20 years of pain. I’m talking tens of millions of people. Minimum wage employees spending half their income just to get to work. Cost of cooling/heating becoming close to the same as the rent payment or half the mortgage payment. That type of stuff.
I read that Bloomberg article earlier this morning, since I also read http://www.theoildrum.com.
This peak oil is the other shoe about to drop. Real Estate depression is one show. Ironically while RE prices tumble and take the retirement money away from boomers, fossil fuel costs will rise, and take more of the future retirement away from boomers! LOL!
Okay, Ben’s blog is big for 2006, 2007, 2008, and 2009, but the peak oil blogs will dwarf our friend Ben in 2010 and beyond. Much as I’m addicted to this blog. Oh and this will be even though home prices will drop 8% a year through 2012!
I forgot to add this: Matthew Simmons gave a presentation in Arlington VA to the DOD on June 20 of this year. He says for 2006, the total middle east OPEC nations oil output is expected to be 18 million barrels. In 2012 it’s expected to be 12 million barrels. In 2018 it’s expected to produce 9 million barrels. Folks, Saudi Arabia alone produced at most 10 million barrels. This all per day. At that height, China was using much less energy. That was during the first Gulf war. Yes, we’ll see $200 per barrel. So this is why oil drilling stocks, coal, nuclear energy, and precious metals are good investments. I still like to hedge into T-bills.
Todays insightfull thoughts from Realty Times (no not Reality Times):
Brainless San Diego Cheerleading:
“Fall is on the way, just around the corner. Some have started back to
school already. The real estate market has picked up some. I anticipate the fall will actually be more active than the summer has been. It is definitely a buyers market this year! Inventory has grown to almost 23,000 which is more than double the amount of homes for sale this time last year. Sales have slowed and homes are taking much longer to sell. I have found that homes will sell when priced correctly.”
Priced correctly = lowered price? And we’re entering the active fall season! WTF?
Where have all the flippers gone?:
http://realtytimes.com/rtcpages/20060831_califlipping.htm
BTW, I don’t beleive the numbers in that article…..
This one really cracked me up:
“Is the market oversupplied with real estate agents?
One would think not, considering the increase in inventory in many regions — 60 percent to almost 300 percent in some places.”
http://realtytimes.com/rtcpages/20060831_manyagents.htm
Over 20% reduction, new, never lived in! This flipper has assumed the position.
http://tampa.craigslist.org/rfs/200791092.html
just came back from a late lunch. Lead story for the NPR program Marketplace? The lead-in–
“Rrrrr… Rrrr… I’m afraid to say the word. But there’s a group of purchasing managers based in Chicago that puts out a business barometer. This barometer has predicted a recession four of the last five times we’ve had one. Today, the group said we might be in one right now. Marketplace’s Bob Moon tells us more.”
Goes on to interview an economist pointing to fallout from the housing POP.
check it out:
http://marketplace.publicradio.org/shows/2006/08/31/PM200608311.html
The five paragraphs below are from an outstanding article by Case and Shiller which appeared in yesterday’s Wall Street Journal. The last two paragraphs outline the two big arguments now facing economists, a soft landing for real estate or a hard landing.
Long-term expectations for home price appreciation have fallen much less. Americans haven’t changed their basic views on housing as a great long-term investment. Not yet, at least. That won’t happen unless there is a protracted housing price decline.
While our surveys indicate that relatively few expect prices to actually fall, buyers do not want to pay prices that are significantly higher than a year ago. Buyers are waiting and low-balling. Sellers want to get a price increase of the kind they’ve observed in the recent past. The result is that fewer agreements are reached, and sales fall. If the housing market were like the bond market and all houses for sale were auctioned every day, prices would indeed fall precipitously. But they are not. The aggregate indexes based on repeat sales have decelerated markedly but are not yet falling.
The U.S. now has a futures market based on home prices. The market that opened in May at the Chicago Mercantile Exchange is now showing backwardation in all 10 metropolitan areas trading. The backwardation can be expressed as implying a rate of decline of 5% a year for the S&P/Case-Shiller Composite Index by May 2007. Since the margin requirement is only about 2.5%, an investor who is sure that prices cannot actually fall by next May has, on that assumption, a sure return of at least 200% from buying a futures contract, and even more if prices rise at all. But there can’t really be so much “money on the table.” It must be that people really no longer see it as a sure thing that prices won’t start falling across the metro areas.
As always, the future is uncertain. Many of the underpinnings of the boom are still strong, and the soft-landing scenario so widely promoted by economists and industry leaders is a possibility if the U.S. can avoid a generalized inflation, if long rates don’t rise a lot, and if the rest of the economy stays strong. But that possibility is not enough to give great comfort to all those who worry today about the housing market.
Unfortunately, there is significant risk of a very bad period, with slow sales, slim commissions, falling prices, rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected. Deterioration in that intangible housing market psychology is the most uncertain factor in the outlook today. Listen hard and watch out.
Mr. Case is professor of economics at Wellesley. Mr. Shiller is professor of economics at Yale and chief economist at MacroMarkets LLC.
Quick: Name something that comes in slow and soft, or fast and hard???
A recession.
Eventually we will get to read about how some of the hedge funds’ big comissions and outsized gains to their clients’ accounts were funded by robbery of clueless homebuyers whom unregulated mortgage brokers duped into buying with Option ARMS. I can’t wait until these scamsters blow up.
———————————————————————————-
Mortgage fraud is one of the fastest-growing white-collar crimes in the nation, costing $1 billion in 2005, double the year before. A slower housing market could foster more wrongdoing. “With a tighter market, you are going to find there is more incentive to manipulate,” says Tim Irvin of Irvin Investigations & Research Services in Spring, Texas. “Brokers are having a harder time getting business, so they’re getting creative.”
Concerns like these haven’t curbed Wall Street’s hunger for option ARMS. “At a price, you can originate or sell anything,” says Thomas F. Marano, global head of mortgage and asset-backed securities at Bear Stearns. Hedge funds have been particularly active, buying risky loans directly from banks and cutting out the bundlers in the middle. Kathleen C. Engel, an associate professor of law at Cleveland-Marshall College of Law at Cleveland State University, says Wall Street and hedge fund money has helped to finance widespread lending abuses, particularly among the most vulnerable borrowers.
Pros Go Unscathed
Why are hedge funds willing to buy risky loans directly? Because they can demand terms that help insulate them from losses. And banks, knowing what the hedge funds want in advance, simply take it out of the hides of borrowers, many of whom qualify for lower rates based on their credit histories. “Even if the loan goes bad, [the hedge funds are] still making money hand over fist,” says Engel.
Eventually, some of it will go sour. But the Wall Street pros who buy option ARMs are in the business of managing risk, and no one expects widespread losses. They’ve taken on billons in iffy option ARMs, but the loans are no shakier than the billions in emerging market debt or derivatives they buy and sell all the time. Blowups are factored into the investing decision.
http://www.businessweek.com/magazine/content/06_37/b4000001.htm
The other shoe to drop…
http://www.bloomberg.com/apps/news?pid=20601109&sid=arur.i7moHMs&refer=news
$200 per barrel oil.
$2 per gallon? Maybe in October. $4 per gallon in June of 2007.
Did anybody see that story about the “Golden Valley” AZ? Somebody wants to build 60,000 homes ?!?!?!?! Ben is this near Kingman?