Bits Bucket And Craigslist Finds For September 6, 2006
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The Housing Bubble
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U.S. WEEKLY MORTGAGE APPLICATIONS RISE 1.8%
U.S. MORTGAGE APPLICATIONS DOWN 26.1% IN PAST YEAR
U.S. WEEKLY PURCHASE MORTGAGE APPLICATIONS UP 3.7%
U.S. WEEKLY REFINANCE APPLICATIONS FALL 0.9%
ARMS ACCOUNT FOR SMALLEST SHARE OF MORTGAGES IN 3 YEARS
adjustable-rate loans accounted for just 26.2% of loans, the lowest ARM share in nearly three years.
The 40 basis-point spread between the 30-year and the ARM matched the tightest spread since January 2001. The spread widened to as much as 297 basis points in August 2003, a key factor in propelling
U.S. WEEKLY MORTGAGE APPLICATIONS RISE 1.8%
Well, not really. The applications were up 0.4% but were seasonally adjusted to +1.8%. Anyone care to explain the SEASONAL differences between the 3rd week of August abd the fourth week?
the best summary as always from calculatet risk
http://calculatedrisk.blogspot.com/2006/09/mba-home-purchase-applications-rise.html
3rd vs. 4th Week…Here is TouristLand, the month of August is VACATION CITY. However, like various insect mating periods, the time is short-lived. The blow-out is the 3rd week. 4th week everybody is gettin’ the kids ready to go back to school, so people end up back in port, doin’ business as usual.
The 3 day Labor Day weekend is on the skids as far as tourism goes. People are now usin’ it to simply recover from daily commute battles and get their heads together for the comin’ fall & winter battles.
Everybody’s batteries are runnin’ low IMHO.
roubini on how nasty the correction in the sp500 could be
http://www.rgemonitor.com/blog/roubini/144686/
i’m at -
CASH 271,000 21%
BONDS 181,000 14%
STOCKS 838,491 65%
obviously, i’m not a doom and gloomer on the stock market.
“More money has been lost anticipating bear markets than was ever lost in them.” – Peter Lynch
Watch out for Peter Lynch’s advice. He made his fortune during the height of a 60-year bull cycle which ended around Y2K.
i’m not a big fan of Peter Lynch (I’m a Vanguard Cultist with most of my equity positing LONG in the Index 500 Fund). While I don’t want a 28% correction in the S&P 500, I’m young enough to ride it out and I’ll just dollar cost average right through it just like I did from 2000-2003. (started in 1995). Unfortunately, you can’t dollar cost average into a house!
Gekko, I could have written the very same words as yours! But in addition to Vanguard 500 Index, I have the High Yield Corporate bond fund and the small company growth index fund (VWESX and VISGX), and of course the Vanguard Prime Money Market Fund.
I’m a Vanguard junky too. For fun, try figuring out the what the “assets” of the Vanguard Prime Money Market fund are. I’d estimate the Prime MM is well over 50% in mortgage securities, one way or the other, even though MBS are considered intermediate term investments.
There are very large, mysterious assets, and for the life of me, I can’t figure out what they actually are. I *think* they are mortgage backed securities that are bundled together by fly-by-night outfits, that sell them in 1-6 month chunks to VMMXX. When the last shareholders report came out, I looked into a bunch of them listed, and there was virtually no information on the web about them, even though they totaled billions of dollars.
I don’t know about you, but I get very nervous when I can’t figure out an “investment”, even MM cash. So I dumped most of Prime MM and put it into the Treasuries MM fund. At least I understand what the assets are, just treasuries, plus you don’t have to pay state income tax on the interest received.
VMMX holdings.
I don’t see MBS anywhere on that list; so I guess they’d have to be in the 10.3% other list?
Are you sure the large, mysterious, unlisted assets weren’t commercial paper?
I had the same worry about Schwab Advantage so I took half of my cash and put it into 3 month CDs. Now I’m thinking I should have put it into T-bills. I can still do that with the other half of the cash. Anyone have any comments on Schwab Advatage?
Doh! I just looked at the annual reports, an it looks like there’s a lot of Fannie & Freddie in the “Government Agencies” category, which is 22% of VMMX.
So we’re still not up to 50%, but it looks a bit worse then I thought.
I wonder if this is what people mean when they talk about systemic risk?
“Watch out for Peter Lynch’s advice. He made his fortune during the height of a 60-year bull cycle which ended around Y2K. ”
True, beware the messenger. However, there have been multiple reviews of data from the past which cooberate this. In fact, (this is off memory, so slightly incorrect I think), I believe that if you missed only 11 DAYS invested in the last several decades, you lose a significant portion of the overall stock returns.
I do believe that the stock market is a “random walk” as Burton G. Malkiel describes. You may know the eventual mid to long term destination (in this case recession and lower stock valuations), but the more short term stuff can defy all logic. (both fundamental and technical analysis for example).
Not that I am huge on stocks right now, and I am quite ambivalent about them. I have most of my 401k invested in stocks, primarily because I get the immediate return (employer match), and there is either stocks or crap in there. (the non-stock options are even worse, like money market funds that return like 0.5%)
But that said, I’ve been bearish on stocks since about mid 2003 with the ‘jobless recovery’, and since that time I’m up significantly. even this year of sideways trading i’m up around 6%. not great, but better than i would have thought.
darned if you do, darned if you don’t.
timing is hard.
and you gotta put your $$$ somewhere.
I’m a diversification guy. I am constantly confused as to where to stash my money. so I have some in domestic index funds, international mutual funds, gold, silver, gold/silver stocks (like CEF), cash (emigrant direct/Hsbc/Ing), and thinking about foreign currency as well.
If you can’t beat them, join them all! Not sure if this is the wisest choice, but I’ve been burned before with PERFECTLY RATIONAL reasons why something should happen…. only for it to happen 1-2-3 years too late!
clouseau
I should clarify: I’M not ’sideways trading’, I don’t trade at all. I meant to say that the overall stock market/indices has been sideways trading.
clouseau
Do studies of dollar cost average’s effectiveness include data for the US from 1929-1945 or for Japan from 1990-2006? Because I believe there are times and places in history when this strategy is a loser.
GS:
Yes, you are correct. I didn’t mean to imply that dollar cost averaging always works.
I meant only that timing is notoriously difficult, partly because the equities market tends to make rather abrupt large jumps (either way) seemingly without warning, or at least with little relation to the warning.
My ‘damned if you do damned if you don’t’ comment was meant to confer this.
DCA doesn’t always work. Over LONG periods of time (decades) it has tended to work, at least since the Great Depression, when (coincidently, I think not) we’ve had the biggest overall bull run in financial history in stocks. But other’s have posted the phenominal quote of the people who got burned DCA’ing all the way down the plunge of the Great Depression.
the problem lies in that the alternative (timing) rarely works either.
If I would have timed the San Diego RE market, I would have sold in late 2003 (when I felt the SD market was out of control). then in 2004 I would have doubly sold when reports of “housing goes up $1000 a day” were in the Union Tribune every weekend. But in the end I sold in 2005, which in HINDSIGHT seems to have been near the peak. (I sold because of a move, and because I was freaked out about the market by this time)
If I had sold when I initially thought it was “time”, I would have left about $150k on the table.
Likewise, I have felt that stocks are overvalued since 2000. I lost a ton of money from 2000-2002. But I kept in (I didn’t know what else to do, I was financially illiterate at the time). In 2003 and 2004 and 2005, I still felt that stocks were way overvalued. But my returns have been pretty darn good over that time. And even 2000-current my returns are pretty darn good. (I haven’t calculated recently, but in the range of about 8.5-9% annual return since 2000, including losses. I’m even up 6-7% this year so far I think) That said, getting 6% with the risk of stocks irks me when my Savings account is like 5.25%.
Likewise, I’ve tried to time too. I timed Berkshire Hathaway purchase, and made out like a bandit. I timed the purchase of CEF, and did well once, and did poorly once (my last purchase of CEF was at 9.65 a few months ago, it’s at 9.25 now)
last winter, I pretend-timed a put on KBH and TOL to see if I was ready for ” the big time”, and had I done this I would have lost it all. (classic short squeeze or PPT or something!)
As all of us are trying to figure out: WHERE DO WE PUT OUR MONEY??? WHERE IS “SAFE”?
Almost every asset class seems overvalued to some degree. Thank you credit bubble.
thus, I diversify. It is a capital preservation maneuver. I feel like I know what’s going to happen> but not the timing or sequence. And there are fuzzy areas. thus timing is difficult at best. What if I feel that I should go all cash. And then we have hyperinflation? or what if I feel that we will have hyperinflation and time a gold purchase… later to see gold made illegal, or prolonged deflation? What if I time an oil contract, only to see recession with decreased oil usage and fall in oil price?
I can get it all correct, and still lose out due to TIMING.
clouseau
“I believe that if you missed only 11 DAYS invested in the last several decades, you lose a significant portion of the overall stock returns.”
This is often stated by the “buy and hold” crowd, but notice what that statement neglects…it says NOTHING about what happens if you missed the 11 most DOWN days. Without taking down days into account, this little factoid seems meaningless to me. It would have been more useful (although maybe only marginally so) to do the analysis with BOTH the top 10 up days AND the top 10 down days omitted.
It’s a wonder that the timers are not more successful trumpeting, “what would happen had you missed the top 10 down days”. After all, that is what market timers are trying to accomplish.
There is an adage that has worked for the last 50+ years. If you sold the stock market May 1st and invested in Tbills ’til Nov 1st then bought back into the market, the investor would have done 25X better than the individual who “bought and hold”. The random walk is not so random.
“There is an adage that has worked for the last 50+ years. If you sold the stock market May 1st and invested in Tbills ’til Nov 1st then bought back into the market, the investor would have done 25X better than the individual who “bought and hold”. The random walk is not so random. ”
Your “sure bet” didn’t work last year as far as I can tell.
Last year, if you would have sold SPY (S&P ETF) on May 1 and bought on Nov 1 you would have:
1) gotten 117.09 on May 1
2) bought at 120.49 on Nov 1.
(120.49-117.09)/117.09*100=2.9%
(that’s a 2.9% increase in 6 months, or about 5.8% annualized rate of return, right?)
The May 2005 3 month T bill was only at 2.86% yield
The August 2005 3 month T bill was only at 3.45%
The May 2005 6 month T bill was only at 3.1% yield.
http://mortgage-x.com/x/indexes.asp
http://finance.google.com/finance?q=spy
So you would have done more poorly by your technique in 2005.
————————
The problem with these “rules” is that they work as long as nobody (or few) knows about them. Once the rule is known, everybody buys in anticipation of the rule.
A common example: the “dogs of the dow” then renamed the “beating the dow” strategy. It worked really well when nobody knew about it. Once it was disseminated, it no longer worked, as the expectations were “priced in” to the market already. In fact, I first read of the “dogs/Beating the dow” strategy in a book written in 1996, “The Motley Fool Investment Guide”. They talk about it as a sure winner, since the beginning of time. (they didn’t create it, I think Charles Schwab or Peter Lynch or somebody created it. I heard about it in this book). However, by the time they revised the book in 2001 it no longer worked.
why? because the new expectation was priced into the market.
Thus, the Motley Fool went through retooling after retooling of the strategy… and as soon as they retooled it (within 1-2 years) it no longer worked. It worked in HINDSIGHT, or when it was UNKNOWN only.
This is why things are “random”. If a rule is KNOWN to work, then people will buy in anticipation of that known rule. I mean, if there was a sure fire NO RISK way to earn 25x the regular market returns, you’d be insane not to buy.
there is no free lunch.
If something is investable by a surefire no risk easy rule, then people will invest in it. (bringing returns down).
but perhaps my math is wrong?
My return was about 20% since May ‘06 — it’s the stocks you pick that matters not the market.
Uptown you are correct, and HIC, I am sure I did not state clearly. 1) Buy nov 1 then 2) sell May 1. So buy nov 1, 2005 then sell may1, 2006. Buy Nov1 2006 then sell May 1 2007. etc. Over the last 50 years this has resulted in 25X greater return than just buying and holding. Most drops in the stock have occurred between May 1 and nov 1.
Thanks Hoz.
I’ll look into this. (seriously)
I’m a little worried about the market in general anyway!
clouseau.
There was not a “60-year bull cycle” from 1940-2000. Look at 1969-1981, for example.
I second the recommendation for Malkiel. My top three book recommendations for investors are Charles MacKay’s _Extraordinarily Popular Delusions and the Madness of Crowds_ (written in the mid-1800s), Burton Malkiel’s _A Random Walk Down Wall Street_, and John Allen Paulos’ _A Mathematician Plays the Stock Market_.
Thanks for the recs Jim.
i’m looking at Malkiel’s book right now on my shelf. one of my favorites. He wrote a pared down version as well (for those of us who aren’t as financially literate) called “A random walk Guide to Investing”.
I’ll check out your other 2 books, I love those sorts of books
clouseau
“the problem lies in that the alternative (timing) rarely works either.”
This has been the mantra of the bull market mania, mainly because most of the time there wasn’t anything to time, and also because mania defy logic. Now I don’t believe that you could have found anyone saying that in 1982, after more than a decade of up and down getting nowhere. I don’t believe that anyone will be saying it in 6 or 7 years from now either.
“There was not a “60-year bull cycle” from 1940-2000. Look at 1969-1981, for example.”
How did the market in 2000 compare to the market in 1969 (the peak level for the example you cited)? And how did stocks do compared to bonds from 1969 through 1981? When I said “60-year bull cycle”, I meant stocks did better relatively better than everything else in a way that standard finance theory (”no arbitrage opportunities”) does not explain very well (hence the “equity premium puzzle”), not that stocks did not have some ups and downs…
Peter Lynch’s claim to fame was made in the Magellan Fund- what most people do not know what that the bulk of the gains made in that fund under his watch wer made when it was very small in size and closed to new investors. He made rather large bets on a few companies- granted they panned out- but don’t be fooled. Look up the numbers. When they opened back up that fund, the returns were average. When he left, his successor made a series of mistakes that resulted in sub par returns.
He is a smart guy, but IMHo he is more media legend than anything. I would take John Templeton or Bill Davis over him any day.
Re: a “60 year bull market”- hogwash. Over the past 100 years there have been mostly 15-20 year super cycles with several mini cycles in them. The last bull cycle started in 1982 and went until 2000. We have been in bear cycle since.
Vanguard is one of the best low cost providers of financial products. They have excellent managers and offer unbiased research.
Dollar cost averaging is great in bull markets and absolutely terrible in bear markets. If the market goes sideways or down for 5-10-15 years you are losing money, regardless whether you invest it all at once or over time.
Market timing for 99% of investors does not work. I prefer market sector and allocation changes. Rule #1 is don’t fight the Fed. Rule #2 is don’t follow Wall Street. Rule # 3is don’t invext in anything you do not understand. Rule #4 is limit your losses.
Couldn’t have said it better Big Daddy63. Selling is where most screwup - I had to learn that lesson the hard way.
1) Always set a percentage drop that you will sell at.
2)Always know what top you will sell at.
3)They’re only stocks - don’t get attached.
This is what most of us do in our retirement accounts with a monthly payment. It works great in a market that goes up and down, because you buy more shares when they are cheap.
Of course dollar cost averaging is not good for markets that only go up or always go down–but most of us have not seen that kind of market.
For dollar cost averaging to work, the market needs to go both ways. My dad put 5 sons through college and also dollar cost averaged in mutual fund accounts for 50 years, about 50 or 100 dollars/month–but he put extra money in when the market was down three months in a row or more. He finally reached 1 million at age 76, 10 years after retired (and only for a while) in the late 90’s.
short sp500, short all major homebuilders, short $, long gold, long goldmines (hui), long suncur su
50% cash (euros)
but i have to admit that my timing is normally awfull.
i am always too early
Not on major homebuilders…
jmf:
I know you’re in Germany/Austria somewhere (welkommen).
Do you (or others) happen to know: is Everbank the only/best way for an American to save in non-US denominations? I’ve been thinking about allocating a SMALL amount of cash to either Euro or Swiss Franc or Australian $.
Thanks in advance
clouseau
hello from germany,
i don´t know everbank but i think there a multiple channels available for you. i would pass on this questions to the experts located in the us.
via my online brokerage account in germany i can invest in a lot of currancys. (swiss,british pound, can$, us$, aussie$,yen etc.)
i also herad from some on the board about some “weaker $ funds”. i have watched some time ago something on financial sense from the merk hard currancy fund.
http://www.merkfund.com/
unfortunatly thats all i can say.
Vielen Dank. Ich genieße Ihre Posten. Meine Familie kommt aus Deutschland (Frankfurt am Main), und aus Österreich (Schladming). Ich versuche lesen Ihr Blog. Leider, mein Deutsch ist schrecklich!
But I understand all the English parts!
clouseau
your german is as good as my engllish
thanks / danke für die blumen
Clouseau: There are some ETFs based on foreign currency. Rydex has a few (e.g., FXE, their Euro-based fund); Citigroup has CAQ (Asian currencies, not including yen).
I was all set to put 20% of the profit from selling our house in Forex CDs in Everbank, but when I saw the personal data you need to send them, I nearly got a heart attack. I guess it’s Homeland security requirements, but still way too much….
Even though they offer $100k FDIC insurance, I wonder what will happen if (when) the S*** really hits the fan? Would investment in Forex be deemed non-patriotic and FDIC insurance cancelled?
“Leider, mein Deutsch ist schrecklich!”
http://babelfish.altavista.com/
Sometimes the translations are horrible, but you can usually piece together things from context…
Homebuilders are sinking today more rapidly than the major indexes. I can hardly wait to see what happens to the builders stocks if Roubini’s prediction (-28% S&P 500) comes to pass, as their high betas suggests the builders will drop by even more…
i think one of they key to the builders will be when tol and others are adressing their massive?! writedowns on their landposition. tol will adress this on the next call.
My brokerage account consists of medium term put options, mainly on 8 of the major builders, 5 specialized subprime lenders, about 8 retailers, and 10 real estate leveraged banks. I am also buying Oct, Nov, Dec and Jan Spy (S&P 500) puts. Looks good today, especially since we are still in the turn of the month bullish days.
I think that HOV (Hovanian builder) reports after the close today. They already warned last month, but it will be interesting if they are still too high or if they try to be honest about early 2007.
In this week’s Barron’s several columns and letters gave reasons why the housing down turn may not be as bad as feared. Perhaps new data will show what most of us already know and strike some real fear into traders.
Right now the volatility on the S&P500 options is the lowest since 1993. Low volatility means that the options are cheap and this often comes at market tops. There is a lot of complacecy in the market. Anyone holding a lot of S&P 500 index could buy relative cheap insurance in the form of SPY puts in a margin account (but not a retirement account).
from roubini. a must read!!!
The Contribution of Housing to Recent U.S. Employment Growth: 27% to 40%
http://www.rgemonitor.com/blog/roubini/144500/
a short summary
http://immobilienblasen.blogspot.com/2006/09/anteil-immobiliensektor-am.html
Great post on a law forum, I think alot of people will be in this situation:
“foreclosure vs. short sale - which is better?
What is the name of your state? CA
I have two investment properties I bought 100% financing owner occupied that are both now about 6 weeks from foreclosure auction. I’m about 5 months over due and my credit is now badly damaged. I never refi’d the properties, but I’m probably 100 grand upside down in each one, plus the cost of taxes, liens, etc, which brings the total I’m upside down to about 250k between the two properties (some of the conditions of the properties were not disclosed to me when I purchased- a situation which I have a pending lawsuit over). Anyways that all aside, I’m just wondering if I would be better off giving up and letting the properties go to auction. My realtor has not been able to get any negotiation on a short sale from any of the lenders (2 on each property), and I have another professional trying to get the lenders to negotiate, but already doesn’t think we’ll get anywhere. Are there any advantages to foreclosure? Will I see a 10-99 either way?”
Link here
That is some funny thread. This is one of his posts. He says “the rents are much lower than they should have been.”
SHOULD HAVE BEEN!!
Who are these people?
there were several details on the properties i didn’t know about when i bought them, and now i am suing for non-disclosure. in the mean time the rents are much less than should have been and the property values are the same. also the original purchase price represented an inflated appraisal which my realtor was very good at making look like a good deal and reasonable value. we have the properties listed for about 70-80k less than i paid and only a couple offers have come in and they were both about 100k under what i paid.
Unless the Realtor was a licensed appraiser, the Realtor did not do an appraisal. She gave him a “Brokers Opinion of Value” or a “Competetive Market Analysis”, neither of which are appraisals. A Realtor can not represent their opinion of value as an appraisal unless they meet the federal guides of USPAP. What details did he not know about? He claims the rents were much lower than they should have been. He should have taken that into consideration when he made is offer to purchase. This guy sounds like a real idiot.
“This guy sounds like a real idiot.”
He’s a flipper, what did you expect?
“the rents are much lower than they should have been.”
Yes, way to do due diligence. “When shoeshine boys start offering you stock tips…”
Anyone else see the irony in this flopper’s pending lawsuits after he admits to having two ‘investment properties I bought 100% financing owner occupied’?
America - what a country!
Read the later comments. They noticed this and tell the flipper to talk to a lawyer as he/she may have some criminal liability.
He does have liability. He purchased the properties on an owner occupied basis. He said they were investment properties and did not live in either of them. He has committed mortgage fraud!
1991, here we come again — two owner-occupied mortgages on investment properties. With underwriting standards such as they are, I wouldn’t be surprised both mortgages were held by the same lender.
How many homes is it possible to “owner-occupy” at the same time? Is the owner committing fraud by “occupying” more than one?
Good question - I don’t know what the laws are about this, but it seems like it’d be feasible to owner-occupy more than one house. An example would be snowbirds that spend their winters in FL and winters in NY, thus occupying each about 50% of the year. Seems like the govt’s criteria for “primary residence” at least is that you only have to actually be in the house 40% of the time, e.g. the rule of equity gains being non-taxable if you’re in the home 2 out of the last 5 years. However that’s probably a different scenario and the same occupancy % rule may not apply.
“I’m upside down about $250K.”
Translation: In an abolute miracle situation, if I could sell the properties at what the last decent sale went for, and close in a couple of weeks, I could probably limit my losses to around $300K total. If my hand is forced, eiother through foreclosure or auction, I am facing a minimum $500K loss. Could even push a mill.
I just don’t understand how people could think there was no risk in buying real estate.
From the same forum - i wonder how many more we will see like this
Heck, I couldn’t get past the first line in this mess.
Someone let someone else use their credit to “invest” in homes?
Goodness, people are stupid!
Here come the auctions….
http://www.boston.com/realestate/news/articles/2006/09/06/going_once/
Going once…
In echo of ’90s bust, auction set for 34 unsold luxury condos in Hub
By Kimberly Blanton, Globe Staff | September 6, 2006
The developer of a new luxury condominium project in Boston’s financial district is resorting to a tactic last seen in the real estate bust of the 1990s: It’s holding an auction for the 34 remaining, unsold condominiums.
The units on Broad Street — 11 of them penthouses — will be sold in a live auction at the Seaport Hotel in South Boston on Oct. 7. The developer of the 14-story Folio Boston project hoped to capitalize on completion of the Big Dig tunnel and construction of the Rose Kennedy Greenway, which has been delayed but would clear the way to the waterfront for pedestrians.
There is nothing like a multi-unit condo auction to totally screw up the comps. Dumping the 34 remaining units en masse will tend to obscure whatever uniqueness factor the rest of the development appeared to have back when the market was hot.
Not only that, those GF that bought last year are now officialy under water for the delta amount of the auction, as there are so many of them they will turn to be the new comps for the neighborhood. There goes that refi!
Maybe the current owners can return the favor to the soon-to-be new owners and get foreclosed on en masse and set the bar even lower.
Chili — hopefully in October you’ll re-post this, along with the actual prices received.
With the unemployment rate at a rather low 4.7%, the Phillips curve relationship would predict accelerating future inflation.
Did the Phillips curve die, or has it just been dormant? This “Before the Bell” bulletin from marketwatch.com suggests the latter.
————————————————————————–
September 6, 2006 8:47 A.M.ET
BULLETIN
U.S. UNIT LABOR COSTS UP 5% IN PAST YEAR, AT A 16-YEAR HIGH
The official unemployment rate is a scam. BushCo changed the way they count unemployment. They do a household survey and ask “Are you looking for work?” not “do you have a job?”
Real unemployment is probably near 6%.
Actually the methodological scam you mention predates BushCo. But you are right — ignoring the so-called “discouraged workers” (fit to work, but gave up looking) has the effect of lowering the official unemployment rate.
Is anyone else experiencing CELL phone calls from mortgage companies. My carrier is Sprint and I thought they didn’t sell numbers. These are cold calls so maybe they just go down 900 listings.
the amount of email SPAM from US companies offering ‘cheap and no questions asked mortgages’ is definitely increasing (and I’m in Europe …)
I’m getting faxes all night long offering refi’s, arms, etc. It’s really annoying since I have a home office which sits adjacent to my bedroom.
Boise Idaho was no. 2 in the nation for home price rices in the 2nd quarter: http://www.idahostatesman.com/apps/pbcs.dll/article?AID=/20060906/NEWS0203/609060312
“But in the Treasure Valley, the report proves the housing market remains strong despite a drop in sales since the second quarter ended June 30, said Dan Givens of Windemere Capital Group, a Boise-based real estate firm specializing in residential resale and new construction.”
“Quoting statistics compiled by the Intermountain Multiple Listings Service, which tracks area home sales, Tallabas said 1,247 new and existing homes were for sale Tuesday in the popular $250,000 to $350,000 price range — and they are sitting on the market an average 45 days. “That was unheard of a year ago,” Tallabas said. “A year ago it was two or three weeks (on the market) at most. And what I’m hearing from (real estate) agents is that they’re struggling, that their (sales) numbers are clearly down.”"
It is nice to know that most of the brain-dead flippers who lucked out on California real estate will lose their shirts in Vegas, Phoenix, Texas, Idaho, New Orleans, and/or Hawaii.
“Paul Ashworth, chief U.S. economist at Capital Economics, told the Guardian.
Ashworth claims that since 2001, some 30% of all jobs created in the U.S. have been linked to housing - anything from work on construction to employment at a store like Home Depot. The paper says a housing decline could see businesses cut some 73,000 jobs a month in 2007.
Morgan Stanley’s chief economist Stephen Roach believes that the housing slowdown - which is cutting into construction spending and robbing homeowners of ready cash from their properties - will slice about two percentage points off 2007 GDP growth, taking the United States close to recession.
The Guardian quotes Roach: “For a wealth-dependent U.S. economy, the bursting of another major asset bubble is likely to be a very big deal,” he said, warning that, with U.S. fiscal and trade imbalances now larger than five years ago, the fallout for the rest of the world could be more devastating than the aftermath of the dotcom boom.”
I apologies if this one was already posted…
http://sacramento.craigslist.org/rfs/202833081.html
It’s gone, but this one is pretty funny:
http://sacramento.craigslist.org/rfs/203558960.html
That is funny, some of you bears are real mean.
The truth hurts though.
“some of you bears are real mean”
Hee hee hee, only when it’s really funny.
Make sure you all click on the “best of” link to nominate this one!
Did you do this, fiat?
According to the NY Times, investors are still snapping up mortgage backed bonds.
http://www.nytimes.com/2006/09/06/business/06place.html?ref=business
“No one has gone cold on this market…There has been speculation that banks would pull away from it or someone else would, and nobody has. Part of the problem is what else is out there?”
“Mortgage bonds are attractive to investors because they pay more than Treasury securities and have proved only somewhat more risky — at least so far. For lenders and homeowners, the securities have become a rich spigot of capital that has lowered borrowing costs. But there is the potential for growing strain in the close relationship between homeowners and their financial patrons. If investors stop buying or sell their holdings, either because of troubles in the housing market or an unrelated financial calamity, the cost of home loans would shoot up. Homeowners, meanwhile, could cost portfolio managers millions or billions in losses if too many of them default on payments.”
Etc. Etc.
Central Banks Favor U.S. Agency Debt Over Treasuries (Update1)
By Michael McDonald
Sept. 4 (Bloomberg) — The central banks that own one quarter of the $4.3 trillion U.S. government bond market are showing a growing preference for debt sold by government- sponsored companies such as Fannie Mae and Freddie Mac.
Central banks from Romania to South Korea have bought almost $116 billion of so-called agency debt this year, more than two-and-a-half times the $44 billion of Treasuries they’ve purchased, according to Federal Reserve data.
The shift to agency bonds, which offer on average an extra 0.3 percentage point in yield, may temper a rally in Treasuries that has pushed yields to five-month lows. Washington, D.C.- based Fannie Mae and Mclean, Virginia-based Freddie Mac sell the bonds mainly to support home lending.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ay5ccAu8jY9g&refer=worldwide
Only somewhat more risk? Depends what tranche and what type mortgages back the MBS, sure, but ultimately if you analyze risk the way they are, tiddlywinks and russian roulette have equal risk up until a certain point of time. Only the upper tranches of mortgages though are truly on par with the risks of treasuries.
More from the Times article:
“Still, there is a slim premium, or spread, between the returns earned by the higher-rated portions of mortgage bonds and the subordinated classes. For instance, bonds backed by subprime mortgages are offering yields of 5.48 percent for the AAA class, 6.33 percent for the BBB class and 7.23 percent for BBB– rated bonds, said Anthony V. Thompson, a managing director at Deutsche Bank in New York. By comparison, a 10-year Treasury note had a yield of 4.78 percent on Monday.”
A slim premium indeed. To calculate the expected return, you have to factor in the expected level of defaults — the premium is actually slimmer. And if defaults exceed those expectations?
The good news is the article says hedge funds and foreign investors are buying the lowest tranche, rather than pension funds. That money is toast IMHO.
How does PMI work with these mortgages? Are these bonds somewhat insured by that?
and some of those hedgefunds are probably owned by foreign pension funds (like those from the Dutch ABP). If they loose money, government (= the Dutch taxpayers) will bail them out for sure.
The oil find in the Gulf is the big news. This does not change my gloomy outlook on upcoming oil shortages. The consortium of companies, led by Chevron, found what may be the biggest new discovery since Prudhoe Bay. Note that Prudhoe Bay oil is still producing but is well below peak. Its peak lasted only 4 years. Also less energy was used in those days. Today we have more autos, more people, and more foreigners (China and India) buying cars. It’s a hopeful (or hopeless) chase to satisfy the world’s oil appetite. I do certainly hope this discovery will stave off the economic crisis. the news reports say it won’t be online until past 2010. It is 4 miles below the gulf and it’s very expensive to drill. They have to drill more exploratory wells. Yesterday news reports suggested 29.5 billion barrels. Today I hear from 3 billion to 15 billion. At 7 million barrels a day, 29 billion barrels will be all used up in 13 months.
The field will probably have a similar peak to Prudhoe Bay. At its maximum output, it will probably produce 1.5 million barrels a day for three years, then go below 500,000 barrels a day and be capped after 8 years of production.
good posts! i’ve come to the same conclusion. the rough gestimate was 3-15 billion barrels, which translates into a possible 3 month (min) to 2-year (max) supply for u.s. oil use. barely adds any slack to the worldwide output, but certainly a very nice cushion for the u.s. interests.
“At 7 million barrels a day, 29 billion barrels will be all used up in 13 months.”
Bill, I think you left out a decimal in there. 29,000/7, not 2900/7. Looks more like 12 years.
Indeed I have. thanks. Then let’s hope the original estimate of 29 billion holds. This will buy us time to build dozens, if not hundreds, of nuclear power plants. As individuals, it will give us time to prepare by saving in precious metals and treasuries, and allow us to continue funding our 401ks in stock funds. Yet be aware the U.S. uses 5.7 billion barrels per year of oil. Prudhoe Bay deposits were discovered in 1968. The oil started being extracted in 1977 - nine years later. The peak output of 1.6 million barrels per day was actually going on about 7 or 8 years and then sharply dropped to currently 420,000 per day. This Gulf oil field could take about 8 years or so before the first drop is extracted. that may not lower oil prices, as the Middle East super giant fields will sooner or later sharply drop their production, due to the natural aging of their fields. Slaughter, Texas’ peak was like a spike. Different fields have different characteristics. We can hope these oil companies drill prudently by not extracting too much at once, as that ages an oil field faster and far less efficiently (leaving more oil permanently unreachable) than by extracting moderately and with conservation in mind. In comparison, Ghawar has been online for 50 or 60 years and produced hundreds of billions of barrels of oil already.
Have you noticed that thing in the sky on those hot days in Phoenix? It’s called the “sun” and you can produce electricity using solar cells at a very reasonable return as they last a long time, with little ongoing costs; unlike nuclear which costs a fortune to build, run, and to dispose of for 10,000+ years after.
To equal the amount of energy produced by one nuclear power plant, it would take a five mile wide band of windmills from Los Angeles to San Francisco. I’m sure similar observations could be made about solar power (the space it takes).
Plenty of desert available for all kinds of solar farms in Arizona. Might even provide some jobs for all those people moving out to Chandler;-)
Not to mention roofs….even if people switched to solar powered water heaters, that would be a considerable dent in our oil consumption.
I’m amazed at how little solar power is utilised here in the sunny West Coast. Heck, back in the UK some things are solar powered, and they get much less sunlight per annum than Los Angeles!
Just wait until Castro croaks. Betcha there is mucho mucho oil under the crust in the area between Florida and Cuba. Watch Sam schmooze Cuba.
U.S. AUG. ISM SERVICES EMPLOYMENT 51.4% VS 54.5% IN JULY
U.S. AUG. ISM SERVICES PRICE PAID 72.4% VS 74.8% IN JULY
U.S. AUG. ISM SERVICES NEW ORDERS 52.1% VS 55.6 JULY
U.S. AUG. ISM SERVICES ABOVE CONSENSUS 55.4%
U.S. AUG. ISM SERVICES 57.0% VS 54.8% IN JULY
i wonder how they rate the components. semms to me that almost every component in weaker but the index is higher.
of course it is better than expected…..
Builder Chops New Home Prices by 40%
Talk about a hard landing. In an apparent attempt to clear its glut of unsold homes, Ryland Homes is offering 40% off the price of homes purchased by December 31st.
Buyers who qualify for financing through Ryland Homes will receive 40% off mortgage payments, 40% off options, and 40% off closing costs.
In effect, they are slashing the cost of their homes by 40%!!
Kudos to Ryland for taking such drastic measures to clear their glut. This will draw in buyers from the sidelines, but at the same time, will crush comps in the areas in which they build.
Here is a link to Ryland’s website.
http://www.ryland.com/find-your-new-home/23-washington-dc-virginia/web-promotion-dc.html
as i understand ist they are not advertising a price cut on the homes.
i also couldn´t read the fineprint on the loanterms. i bet something like optioan arm ore only for a limited timeline etc.
tol said on their last call that they prefer the incentives via the lower rate becouse of comps and it cost them only 14.000 p.a.
the offers are normaly for 1 or 2 years.
The 40% off the mortgage is only for the first year - however, Ryland is offering very significant price cuts on their inventory homes up to 25% - they are not heavily advertising it, but they are - and they are renogotiating prices with current contract holders to keep thme in the fold. Smart moves, i think.
They have not lowered their base prices on homes yet - they are trying to preserve that base, I would assume, so that can resume higher profits if a soft landing happens - not likely IMHO.
Nowhere in the ad does it say that 40% off the price.
40% off mortgage payments for how long? Entire period of the loan or just
one year? Watch out for these tricks.
“In celebration of our 40th Anniversary, we are passing on an anniversary gift that will save you thousands! Through September 30, you can receive 40% off options, closing costs, mortgage payments for a full year and more. See your local market for specific details*. Don’t miss the opportunity to purchase your dream home at a great savings during Ryland Homes’ 40th Anniversary sales event!”
http://www.ryland.com/home/ryland40th.html
David
http://bubblemeter.blogspot.com
Hey, if it really is a 40% cut, that would take most bubble markets back to fair value!
And if Ryland isn’t declaring Chapter 11, makes you wonder how fat those margins have been.
I have an 8 minute drive to work and listen to the all sports station. 1 commercial for the NAR, 1 for a lender and 1 for a home builder. They are getting desparate!
Just a note–many posters here observed that their local inventory dropped around Labor Day. Ours did too, but is now back above the level it was on Aug 30th. Now that my mom has called me to tell me I was smart for not buying, I know that everybody must have heard by now, so I expect to see an even grater inventory build in the coming month(s). Almost nothing is moving here in the Balto metro area, and very, very little above $300K.
http://sacramento.craigslist.org/rfs/203558960.html
Unrelated question for everyone: The CME now offers residential real estate futures and options on futures, and they cover 10 major US metro areas (big housing markets, i.e. New York, LA, San Fran, Vegas, Boston, San Diego, etc.). Has anyone out there traded these? They’re based on the Schiller index and are marked to market twice daily. I’m considering opening an account and buying puts on the Cali markets, but just wanted to see if anyone had already looked into this.
last I looked they were betting on lower prices on all cities
I have been watching San Diego futures
http://www.cme.com/trading/dta/del/delayed_quote.html?ProductSymbol=SDG&ProductFoiType=FUT&ProductVenue=G&ProductType=hng
since they started. San Diego has been dropping steadily, but the May ‘07 value has been going up a few times recently. Not much trading going on though, so you might not be investing in the true values unless you hang in there for a long time….
Thanks. I know these options are relatively new so it’s tough to find historical info. According to the CME website, they offer options on these futures as well, but I’ve been unable to find any pricing info. Will head to the local Scottrade office over lunch and see what I can dig up. Future is a $50K buy-in, but if the options are cheaper, may be worth spending a few grand on puts.
here is a very good piece (as usual)from russ winter
http://www.xanga.com/russwinter/526602370/todays-pig-is-tomorrows-bacon.html
From the LATimes:
How high housing costs drive people to ridiculous extremes.
Now This Is a Tough Commute
“Like thousands of other California workers, Ann Inman spends more than two hours getting to work, trekking westward from her suburban dream house to a high-paying job closer to the urbanized coast.”
“But Inman isn’t battling bumper-to-bumper traffic on the 101 Freeway. She’s aboard a Southwest Airlines flight from Las Vegas to San Jose, preparing for the first of eight days of mostly 10-hour shifts as a trauma nurse at Stanford University hospital.”
Between this and the story about the “Hoover Dam houses,” I feel like I’m living in the Bizarro World now.
Several consultants and myself commuted back and forth by plane between Phoenix and Los Angeles weekly. It’s nothing new. Years ago I read about people regularly flying between Albuquerque and Los Angeles. Work in LA, live in an apartment on the beach 5 days a week, fly back home for the weekend. Per Diem makes it worthwhile. Companies in LA love it because they get the engineers who would not want to buy a home in LA. Consultant engineers love it because rent is cheaper than buying in LA.
Evidently consultants and engineers who don’t have families or want to spend much time with them.
a bit off-topic but anyway …
today I stumbled across some data about home valuations that really surprised me. As regular readers know I have been reporting about the insane price gains for Dutch homes in the current housing bubble, but this data shows just how ridiculous valuations are. The home where I lived when I was much younger (current valuation: around 600.000 euro) was purchased in 1970 for just 4500 euro; it was in not-so-good condition, but this price includes the land which alone is now valued at +/- 75K. Nearly 150x price gain in 35 years, not bad isn’t it?
Because of a historical project, there are records for the whole street that date back more than 200 years in some cases. If I can get the full data I will post it here as a nice example of bubble mania, and to show how low prices can go in bad times (1970 was not particularly bad in my country). Could take some time to get all the numbers and permission to use them …
P.S.: that’s an average appreciation of 15% YOY for all those 35 years!
“Nearly 150x price gain in 35 years, not bad isn’t it?”
What is the Dutch word for house…”tulip”?
last year or so many Dutch ‘investors’ lost a huge amount of money by investing in a fund that was dealing in tulip bubbles …
people never learn!
sorry, that should have read ‘tulip bulbs’ but you get the idea …
NHZ — the Euro did not exist in 1970. That house was purchased in Dutch Guilders. If it was purchased for 4,500 Guilders, then only if Guilders were exchanged 1.00 for 1.00 on the adoption of the Euro, would this math be correct. Please explain.
I have converted the original price to keep things simple; the house was purchased in 1970 for 10.000 Dutch guilders which is about EUR 4500,-.
P.S.: for interpreting older historic sales data it’s fortunate that the Dutch guilder existed for many centuries (until 2001).
Wow, this Ponzi scam just keeps getting bigger and bigger!
Kinda off topic, but does anyone else think the Dems will take back the House and Senate this year?
Does it really matter at this point? Ain’t much more than a dime’s worth of difference between the parties on the things that really matter.
Vote third party!
(but they don’t have a chance of winning)
Who cares! Vote third party!
Agreed — only if as many incumbents as possible are unelected, will the remainder of them listen to, and act upon, a single word you say. Clean house.
I always liked the Liberterian proposed 3rd option.
None of the above and the office goes unfilled for that term.
They might, but then again, this is the last chance (”you can’t fool all the people all the time”) Karl Rove and friends have to play the terrorism card, so be prepared for a huge scare just before November.
HOME REAL ESTATE MARKETS UNIFORMLY WEAK ACROSS REGIONS - FED
SOME SIGNS OF UPWARD PRESSURE ON WAGES - BEIGE BOOK
AUTOS, HOME BUILDING ARE POCKETS OF WEAKNESS
FACTORY ACTIVITY EXPANDING IN ALL REGIONS- BEIGE BOOK
BUSINESSES UNABLE TO PASS ALONG HIGHER COSTS - BEIGE BOOK
CONSUMER SPENDING INCREASING SLOWLY ACROSS U.S. - BEIGE BOOK
FED BEIGE BOOK FINDS SLOWER GROWTH IN MANY U.S. REGIONS
More ammo for another pause, or maybe a precautionary 1/4 pt easing?
Did anyone catch the Property Ladder episodes on TLC last weekend. I couldn’t contain my laughter as the end credits were rolling and the caption on the screen states that the flipped property still has not sold. My favorite episode this weekend was the one about the guy who bought a house in CA and had NO MONEY to rehab. He had to call mommy & daddy to lend him money. He bought thinking he was going to make $100K plus on the deal and, if I remember correctly, he just about broke even or lost money when all was said and done.
Yep, I caught Property Ladder and Flip this House last week. A year ago, the flippers couldn’t lose no matter how stupid they were - they would just raise the asking price by $200,000 to make up for their underbudgeting.
Now we are finally seeing episodes in which the flipper can’t find a buyer, the home sits for week after week with no showings, more mortgage payments come due and the flippers profit gets slashed. One flipper didn’t have anybody show up to his first open house - no body. Another flipper said she just wanted to get out without a loss.
What a hoot! A few more months from now and I suspect we’ll see more and more flippers with outright losses on their flips. And I’ll be tuning in to see it.
I suspect the new titles will be something like “Toss That Salad” or “Grab Those Ankles”
This is late for getting noticed in the bits bucket.
But this article of a woman commuting from Vegas to San Jose, CA is a sign that the top of the bubble has passed.
http://www.latimes.com/business/la-fi-commute6sep06,0,1528085.story?coll=la-home-headlines
Found this over the weekend on Craig’s List in Manhattan Beach, describes the heloc’d South Bay buyer of the past several years perfectly. Looks like a scam, but this guy will be wiped out soon anyway.
MB FB
Not on mkt. Present liens $2M. Market value $2.6M. Almost 4,000 sq.ft, gorgeous home prime Hill Section - incredible curb appeal, 1993 built, large corner lot with mature landscaping, hardwood floors, granite kitchen, 4+4 - huge master with sitting area and balcony. Need new 1st loan to $1.7M - 1 yr term - if I default 2nd CWide (will subordinate to allow new 1st), is wiped out, and you get a Hill Section MB home for approx $1Million under mkt. Serious & confidential. Will refi to payoff loan within 1 year.
mrincomestream:
I finally found the info on that loan that a few of us in the OC had heard on KNX ($300K loan with a $63/month payment) about posted about last week. It is from Priority Lending. Here is their website that discusses the loan (somewhat vaguely - at one point they talk about a minimum payment of .25% but in the sidebard they say the minimum is 1%).
http://tinyurl.com/hg6nt
I’d be interested in your thoughts on this insane type of loan.
Oh, I heard that one and just about drove into a tree. WTF are people thinking????? $63/mo for $300K…and how long until you are foreclosed on?
I thought this listing smacked of desperation:
Location Location !! Opportunity Opportunity!!
REDWOOD CITY- MT. CARMEL $809,000!! . . this is NOT a mis-print. . YES. . . $809,000!!
Good location but not much of a house. Well, it is pending after one day on the market. This bubble thing isn’t quite done yet. Sigh.
Could be a fraud deal mad tiger . If I was a lender I wouldn’t lend on it unless there was a hell of alot of other recent comps to support it .
I am sure someone had to have posted this already, but I thought it would be worth it anyway :
Have you guys read the NAR’s anti-bubble reports?
http://www.realtor.org/research.nsf/pages/anti-bubblereports
This is funny stuff - they spin each city, often times using contradicory reasoning which conveniently works for each respective city.
Yeah, those are pretty old news from about 6 mos ago.
I am suprised that they haven’t taken them down yet.
Kinda embarrassing, if I was one of them.
Did anyone else catch the Fox News story about the guy taking buying homes with stolen information and when he was confronted attacking the reporter? It was classic. What story’s are to come?This thing is gonna get fun!