Housing Market An ‘Obvious Concern’
Some housing bubble reports from Wall Street and Washington. “Citigroup on Monday cut its price targets on nine U.S. homebuilders. Citigroup said industry demand had pulled back more sharply than anticipated and that the brokerage was now more conservative about its sales and margin assumptions for all the builders.”
From Paul Muolo. “A few days after Merrill Lynch inked a deal to buy subprime giant First Franklin for $1.3 billion, a company analyst issued a report declaring that the ‘yield curve has now completely inverted,’ while predicting a profit ‘recession.’”
The New York Sun. “The ability of the housing market to withstand actual price losses looks like it may be soon coming to an end. In other words, because the housing boom has now evolved into an undeniable housing slump. A futures contract traded on the Chicago Mercantile Exchange, based on the S&P/Case-Shiller Index, shows that traders are pricing in a 2.3% decline in nationwide home prices in November and an additional 1.3% dip by February before reaching the expected 6.3% decrease in May.”
“S&P’s homebuilding analyst, William Mack, notes that if potential buyers aren’t able to finance with lower mortgage rates, they at least want to see lower prices, Mr. Mack points out. The buyers, he adds, are saying, ‘We think we can get better prices. Why should we lock in now?’ And those who are putting deposits down are backing out because they see indications the prices may fall, he says.”
From Business Week. “The U.S. economy should slow in coming months, which should slowly ease inflationary pressures, Federal Reserve Bank of Boston President Cathy Minehan said Monday.”
“One ‘obvious concern’ to the economic outlook, Minehan said, is housing. While she’s ‘comfortable’ with forecasts for a ‘moderate downturn’ in residential building, Minehan cautioned that recent data, including ‘gloomy assessments’ by home builders, ‘remind me that this assessment could well be optimistic.’”
“‘There are clear risks to the baseline housing outlook,’ she said, citing the effect of higher mortgage rates on borrowers, particularly sub-prime borrowers.”
From Holden Lewis at bankrate.com. “If you have an option ARM, here are (some) warning signs that you are assuming a lot of risk. One: You don’t understand how an option ARM works, but you have one anyway.”
“You exaggerated your income on your application. A lot of option-ARM borrowers have stated-income loans. If you puffed up your income, you are more likely to default. You regularly have been making minimum payments, not paying down your debt and, in fact, increasing it.”
“‘It’s a monthly toll,’ says Bob Moulton, president of a brokerage on Long Island, N.Y. ‘I mean, they’re angsting over this change happening each month. This is what I’m seeing,” Moulton says. ‘The worst is if you have that and the home equity (loan) on top of that. You see that going up every month and you’re dying.’”
“House prices in your neighborhood are falling. The danger with falling houses prices is that you could end up owing more than the house is worth. ‘Basically, what you’re going to have on a lot of those pay option ARMs is you’re going to see a lot of customers giving the keys back,’ says Mark Lefanowicz, president of E-Loan.”
according to zillow, my condo in CT dropped $842 in value last week-
that’s 45k / year =.(
more than that dude, Zillow is lagging 6+ months here
off by 60K$+ in my hood
two houses that sold in 04. One is off 80K the other is off 350K from SELLING price in 04, not peak price, according to zillow (two different states).
The girl I play golf with still has not sold her house in Cave Creek. She dropped the price another 15K and now is 70K below her original asking price of 419K. Ha Ha Ha!
You gotta get different golf pals! Lol.
But why? Doesn’t she provide AZgolfer with hours of schadenfreude enjoyment, not to mention supplying this blog with entertaining material? Why mess with a good thing, I say
.
Because soon she won’t be able to afford the green fees!
I think Catherine means that AZgolfer is gonna have to look for golf pals that are going to be able to afford greens fees in 6 months. You don’t want to play with anybody that can’t afford to pay off your $2 Nassau.
damn you feepness…
AZG,
Wasn’t she the one giving you a hard time about not buying / believing in RE?
Waahoo
I came very close to buying a house on a golf course and then found this blog and backed off buying for at least a couple of years. Fran (her name) just kept talking up RE and doing stuff like bringing in her grante counter top samples for her new condo. I kept telling her to put the house on the market when it was hot, but she did not believe me. She also works at a bank and probably makes around 30K so there is no way she could actually buy a 400K house by herself. She got money from her father so I guess she can still pay the green fees and the money for the weekly game. I am really having fun with “I told you so” comments.
Heck, pay her greens fees for her just for the entertainment value!
Thanks for the update AZ golfer. I remember your post months back about this seller bragging to you about her soon to be profits.
Thanks for letting us know.
“‘Basically, what you’re going to have on a lot of those pay option ARMs is you’re going to see a lot of customers giving the keys back,’ says Mark Lefanowicz, president of E-Loan.”
Wow! Mr Lefanowicz is one sharp guy to notice this potential outcome at this time. I think he’s already seeing keys turn up at his office. Makes me want to buy puts on E-Loan?
And the ARM reset thing is just getting started! We’re still in the first inning!
I love this… state what is obvious and present as though it’s a brilliant, insightful prediction of the future… and this brings me credibility?
He also said…. Lefanowicz says E-Loan has underwritten 60 or 70 option ARMs in the past year, a small number that reflects that “it’s just not the right option for a lot of people.”
and his loan officers do not make more money depending on the loan the underwrite….
sounds like they were doing things right
Too late to buy puts on ELOAN, they were bought by a Puerto Rican bank (BPOP) last year while the gittin’ was good. You can still short BPOP though…
yikes 60K - well those cheerleaders who said prices would not drop much will be in for a rude surprise in 2007- fasten your seat belts- girls and boys its going to be a bumpy ride down- eek this sucks…..
Do you really think it will be that bad or is this just over-hype?
‘Basically, what you’re going to have on a lot of those pay option ARMs is you’re going to see a lot of customers giving the keys back,’
But last year lenders were justifying these loans by claiming it was the only way folks could own a home. No one cared that these were suicide loans. Now it’s a big ‘the sky is falling’ deal.
Please pass the barf bucket so I can throw up.
Yeah, and just two and three years before that, they insisted that people WOULD DO ANYTHING to keep their home, so these loans were not risky at all. Don’t worry about ‘credit quality’ or ‘ability to pay’ because people loooooooooove their homes and will go without food and kidneys to stay current on their payments. You remember the stories and segments.
If the govt would abolish laws that prohibit an individual from selling his or her organs, it would solve TWO problems. 1) The perpetual shortage of organs would be eliminated, and 2) the coming foreclosure tsunami would be avoided because FBs would have the money to continue paying their mortgages.
Ultimately, the price of various types of human organs would end up being set by commodities traders. “November lungs up two and a half, kidneys down a quarter…”
There would even probably be a bubble!
Actually, selling an organ in India is legal but it hasn’t cured the organ shortage in that country. Giving up your kidney becomes a sign of low socio-economic status, decreasing postmortem donations. And, relatives end up prefering to pay for an organ than to donate themselves further decreasing the supply.
I wonder if on Indian mortgage applications they ask if you have both kidneys to evaluate your potential for default?
Do you have to pay capital gains on the money or is it ordinary income suject to AMT? Bummer!
From what I know, mortgages (and credit in general) is a recent concept there. Till the 90s, the country was socialist. Capitalism only existed in a limited form - for example, companies were listed on stock exhcanges and could raise capital this way. However, inidividuals had no access to credit for a car or home loan. The main reason was that they didn’t have a way of paying it back - incomes were too low. Those who did have high enough incomes typically just borrowed from family as needed. Only when the country came close to defaulting on its external debt payments (about 15 years ago) did it reform its government, stripping many regulations away, jumpstarting the economy with a fresh burst of capitalism. As the middle class’s income has increased, its purchasing ability has reached the point where people can afford cars and homes on credit. Foreign financial companies (like Citibank) have led the way for making loans to individuals. However, this a relatively recent development in India. Regardless of all this, non-resident Indians have poured significant amounts into real estate, causing Indian property prices to rise to astronomical levels over the last 25 years. A big crash occurred about 10 years ago, but it is going great guns again as all outsourcing has created a new boom.
First folks, organ trade isn’t legal in India either.
Second - as for the question on Taxes - you get to pay an arm and a leg if you made bucks on your kidney.
Third - It was always possible for an Indian to obtain a loan for a house or car, but in all likelihood it was easier to obtain a kidney than a loan. Banks weren’t really into this thing called “customer service” except for the really top end business customers. Things are different now, which explains why there’s a HUGE housing bubble over there. We’re talking about folks paying 1M$ per acre of undeveloped property in the outer fringes of grade-II cities, with no civic infrastructure.
How much would their brains fetch (un-used)?
It could be a great market. Those wanting to insure that a kidney would be available to them in the future could buy options on other peoples’ kidneys. Think af all the $$$$$$ that could be made.
Slogan for Kidney Harvesting Company: A kidney is a terrible thing to waste.
It’s wasteful to have an extra kidney and take it to the grave…
“Those wanting to insure that a kidney would be available to them in the future could buy options on other peoples’ kidneys.”
If ever there were a shortfall, China is just a short plane ride away. Their prisons are the collection point, though I’ve no idea where they get the kidneys.
Some housing bubble reports from Wall Street and Washington. “Citigroup on Monday cut its price targets on nine U.S. homebuilders. Citigroup said industry demand had pulled back more sharply than anticipated and that the brokerage was now more conservative about its sales and margin assumptions for all the builders.”
Homebuilder plunge protection seems to be working very well on this 9/11 anniversary, despite the ongoing deluge of bad news for the sector. But Fannie Mae seems to suddenly be plunging. Can anyone site a reason?
http://tinyurl.com/fzeuw
Well, now Citigroup and Bank of American have cut price targets on home builders, how long before they cut price targets on themselves. We all know without all that mortgage money slushing around, those banks can’t be doing so well.
Actually UBS cut BAC from “buy” to “neutral” today. BAC Looks like a candidate for the “Put” club.
Wow. “Neutral” is about as close to a “sell” recommendation as you will ever see from any major bank or brokerage firm. In fact most investors now regard “neutral” as synonymous with “sell” for precisely that reason.
Wachovia too was downgraded, partly because of the Golden West buy. I read somewhere that Golden West had raised the minimum interest rate on option ARMs, but after the sale went through, they were lowered again…
I always look at the “mortgagee notice of sale” listings in the paper and a most have been securitized, I see JP Morgan in there a lot. I don’t know if they have much exposure, but they are certainly going to suffer when people decide the MBSs they’re peddling are a lot riskier than was assumed.
It looks like “someone” is trying to put a plunge protection floor under Fannie’s share price around $51.80/share, but it is not holding up all that well…
I think the PPT is getting plenty of funds from their Gold shorts today
How does this work? Do they short gold, then somehow crash the price? Sounds like a great strategy for getting goldbugs to help fund operations…
you can bet that the PPT has one major advantage over the other players: they know in advance when some central bank (like the idiots from the Netherlands) is dumping huge loads of gold on the market; perfect opportunity to go short and cover a week later or so. The central banks of countries like NL and UK are under total control from the US FED and Treasury.
Even though Citigroup cut its price targets the price targets still imply an upside of 50%-75% from the current price level. I am I reading this report right?
Is there a point where the gap between HB share prices and on-the-ground reality gets so large that something breaks? (Maybe this has already happened, given the 50% losses since last summer…)
Don’t forget these guys had buy ratings on many of the dot-coms all the way down to bankruptcy. Seriously.
And CNBC with Krammer on the day the DOW crashed 550 points in March, 2000 said it was a “BUYING OPPORTUNITY”
Must have gone to the same used car salesman’s school.
Overpriced baffoons that people actually listen to. A sucker born every minute! PT BARNUM
wow, I’d love to see that clip, and then put it on utube.
GetStucco — every time you post the charts of the homebuilders’ stocks it reminds me of synchronized swimming. I used to have to watch that stuff as a kid (on rainy days) because (a) there were no remotes and (b) Mom liked it.
From the Bank Rate article: You exaggerated your income on your application.
Ummmm, isn’t this fraud?? Also noted in the article, a random sample of 100 stated income loans. The survey found that 90% of the loan applicants had lied about their incomes. Why is this not being noted in the MSM? Why aren’t the feds doing anything about this? Don’t answer, I know why. Very frustrating.
Boy, this is going to get messy come 2007. If there is any justice, all these liars will crash and burn.
About two years ago the BBC found out that in the greater London (UK) area, around 90% of buyers severely overstated their income on self-certified loans (usually by 2-4 times). The banking world first denied everything and when they could no longer deny it they fired a few small players in the field and everything went on like nothing happened. Earlier this year a new investigation found even more fraud (like buying a home with a fake passport and fake income stats, supplied by the broker) and the fraud seemed to be happening all over the RE business. Nobody wants to know.
AFAICT, the stated income problem will be dealt with on the secondary market, and gets back to the question of whether the Fed will bailout the big MBS holders. The real fraud took place if the originators misrepresented the product to the MBS market. You’re already starting to see big buy-backs by originators of MBS products (think H&R Block), some of which that failed within a month of issuance.
As more loans stop performing, the lower quality tranches will buckle faster than the originators can bail them out. Interest rates will jump, the Fed will cut, and lending standards will improve once again. Stated income loans, along with Option ARMS and 100% financing, will be distant memories.
Sorry, the links went bad for some reason:
H&R Block story
Tranches
I agree. Foreign buyers will get spooked from MBS and that will have a much greater effect than the Fed raising (or lowering) rates 1-2%. Interest rates were low in the 1930s, but no one was lending…
What’s really amazing is that the lower quality tranches pay hardly more than the higher rated ones. The people buying these things have no conception of the risk they have.
Max — if the normal “catch me or I’m home free” period is 12 months from the date the paper is sold, then it seems logical to me that the paper sellers knew full what was going on and even cheered it on, because their greatest exposure was never more than a 12-month period within a much longer bubble window, and they were making a lot of hay before the gate shut. So what if you eat a few months’ worth of “returns?” Al Capone, Bugsy and all the boys would be proud, I tell ya.
One of the biggest things that is revealed in most bubble burstings is the revelation that a lot of fraud had transpired in the run up….happened in 29 and, in World Com, Tyco and Enron, happened in 2000. This one won’t be any different other than the fact that it was mostly individual fraud rather than corporate (then again, that overlooks the role of mortgage brokers in the process, doesn’t it?).
‘Basically, what you’re going to have on a lot of those pay option ARMs is you’re going to see a lot of customers giving the keys back,’ says Mark Lefanowicz, president of E-Loan.”
But with the new BK laws, it WON”T be a matter of just giving the keys back. People are going to be stuck with wages garnished, cars taken, etc.
>>>>>But with the new BK laws, it WON”T be a matter of just giving the keys back. People are going to be stuck with wages garnished, cars taken, etc.>>>>
Actually, that matters on the state. From the way I understand it, in CA, they don’t get anything more than the property.
That depends, there’s some debate on whether HELOCs change the “single action” of Calif.
If home prices plunge too much, there’s also the other side of the “single action” — and that is not to foreclose, but go after collection. It would be radical.
I think it is assumed in California because the Law is sintered around the “State Median Income”, and a lot of FB’s make less than the Median. Therefore they can walk away after a BK, no payback schedule needed. What happens if you make say 75K?? UH OH!!!!!
If there is a State specific California Law that allows them to walk, I am ignorant of it and would appreciate the education. Ignorance is only a lack of knowledge, if more people would just get over themselves and not see the word “ignorant” as a personal attack we would all be better off. Stupid on the hand is a different issue.
Calif. is a ’single action’ state. The mortgage holder can EITHER foreclose or seek collection debt. Unlike most states where the holder can both foreclose and seek collection of debt. In Calif. you can essentially walk if the bank forecloses because they aren’t allowed to both foreclose and collect.
However, I’ve heard this doesn’t apply to HELOCs; and many Dumbifornians are in for a rude awaking. But I have no source on that.
ps, IANAL
It also depends upon whether or not you’ve refinanced the property. If you’ve refied (as most Californians have in the last 5 years), you lose the “no-recource” protection, as you have essentially re-bought your house. That’s where those new BK median income qualifying rules get, shall we say, “interesting”.
RIght ,It doesn’t apply if you refinanced . Also even if you didn’t refinance you can’t avoid the IRS tax on the amount that was short at foreclosure sale .
I heard it only didn’t apply if you got cash-out on the refi, no? It was a comment I heard in passing, so I’m not sure here.
How many people didn’t get cash out on the refi ?Very few I bet .
nope. It’s classed as debt forgiveness & subject to a 1099.
My understanding that if you took loans out that were above the original purchase price of the house, you can’t just walk away. Say you paid $200,000 for the house, and house went to $400,000. If you refried at $300,000 and get foreclosed, you lose house and still go to collection.
My understanding that if you took loans out that were above the original purchase price of the house, you can’t just walk away. Say you paid $200,000 for the house, and house went to $400,000. If you refried at $300,000 and get foreclosed, you lose house and still go to collection.
“Refried.” I love it! Very apt!
If the FB lied on his loan application, the lender can pursue a dischargeability action for their debt under section 523 of the bankruptcy code. And they’ll win.
Txchick is right as usual. In CA, there are two classes of home loans - recourse and no-recourse. The purchase money is no-recourse, so you give the home back end of issues. But if you refi or HELOC, then there is recourse and you are on the hook for the entire deficiency (through wage garnishment, 7-10 years on credit, etc.). Further, in the past, you could BK and then buy another property after seasoning of BK (depending on the loan program), however, now that there are so many recourse loans, those judgements will still be out there in case the people ever want to buy again. Even though the judgement wont be on the credit report after a time, it will still show up on title report, and thus keep them from ever owning a home again until the debt is paid, otherwise the new home loan would be subordinate (junior lien) to the foreclosure judgement.
You also may want to check (state by state) whether the no-recourse exclusion applies to non-owner occupied loans (may not apply to purchase money for non-owner occupied).
Also, even in states like TX and FL with homesteads, the new BK law puts restrictions on that as well (you have to have lived in the home so long, etc. for homestead to apply).
Also as someone already mentioned, if you lie on the loan app, the creditors will argue that you cant discharge the debt thru BK (even if you otherwise would have had the right to do so).
An example would be stating that the loan is owner-occupied when it is not. By the way, this is easier to prove than you might think. The presumption from a loan underwriting standpoint is that if you apply for a loan for a home much smaller and cheaper than the home you currently live in, then you need a written explanation as to why you are doing so, otherwise generally the loan would be frowned upon, or not funded. Further, a good attorney could tear that owner-occupied lie apart with just some basic discovery (review of loan file, utility records, cable bills, private eye, etc.). Its not inconceivable for a lender to pay $5,000 upfront for discovery when there is say $100K plus on the line.
Another common lie would be with the stated income (liar) loans. If you lied (exaggerated) on the loan app in this area, you can forget about discharge in BK. I would argue (as the creditor’s attorney) fraudulent conveyance, the taking of money thru deceit; loan fraud; etc.
I think its going to be a lot harder to get out of the foolish debt than people think…
x-lent post, Chris
Chris’s treatise reminds me of a personal experience in the late 1970s. Sold a house in metro Orlando to a Central American guy who offered full price, no inspection, etc. but with a paltry $1,500 deposit. What the heck, let’s do it, says schmuck me. Time for closing comes and goes and this guy is long gone to his home country. Meanwhile, my house is off the market. Fortunately, one of my best friends was also my attorney and an excellent one. “Sic ‘im.” We confiscated the deposit and notified the buyer. Buyer sued to get his deposit back, assuming the “cloud” would keep me from selling the house (true). We counter-sued for loss of opportunity to sell the house for a long time (true). Got to keep the deposit and got a judgment against the guy for legal costs and maybe a bit more, and *recorded* the judgment on the country records. Well, what do you know, about 15 years later this jerk tries to buy another property in the same county and Wham! the judgement bites him in the butt. My attorney buddy called about it and I was delighted at the justice — told him to get what he can and keep it all.
I think a lot of these “vindication” moments are in the wind, whether for individuals or for corporations. Not everyone gets away with their misdeeds.
I am starting to take a different view of ARM lending. Basically, I think its starting to resemble credit card lending. With credit cards, lenders prefer borrowers to pay the minimum payment. Now translate that into ARMs. Wouldn’t banks prefer debt that will last beyond the traditional 30 years? So when ARMs reset, why not just create a new loan for the borrower? Another ARM wtih prepayment penalties. Isnt that the equivalent of credit card predatory practices? Only now, housing is the vehicle for it.
As far as your house being worth less than the outstanding debt, who cares? Again, looking at the CC industry, its the equivalent of just getting another credit card.
So, given that, will resetting ARMs really matter? With this just another credit card? Arent ARMs not meant to buy a house, but instead to commit a borrower to a lifetime of debt?
I think some signs of this actually happening have already occurred. Prepayment penalties, refinancing ease, absolute minimum payments, ease of credit. All of these are very reminiscent of the CC industry. In the coming of months we may see even more signs, such as resetting ARMs easily being refinanced into more predatory loans, banks being more leniant on late payments while at the same time charging late payment fees that CC love to charge.
The only difference is that instead of having a shiny platinum card, you have something even more valuable to protect, your home.
These people are not going to lose their home, but instead enter serfdom with debt being the master.
Good points
I.e. slavery (except we call it Pride of Homeownership)….
this is one issue that always amazes me in this blog: foreclosure is treated as bankruptcy. these are 2 different things. although one can say that the former can lead to the latter. but it is entirely possible that one can have a foreclosure without going into bankruptcy.
Aaah. I love the smell of napalm in the morning.
Someone explain why this pig WCI is up 15%? I can’t believe becuase they are going to use shareholder $$ and buy back stock.
Short interest out the wazoo.
These two stocks have the most short interest among the housing stocks. This means if some one wants to get out of a short position, they need to buy the stock to close the position. The same for Joe. Given what’s happening in Florida, these two companies are in serious trouble. However, some one is making money on the short term bounce. Anyone who plans to short or to buy puts should try to buy on the top of such bounces. Of course, finding the top is not that easy.
Puts expire on Friday, so this is the normal put expiration ramp by all the big boyz who wrote ‘em. I have a bunch of them going to put heaven, sadly.
Note to self: Cash out any and all put options before expiration week…
Doesn’t help on the long expirations… transaction costs will kill you every month.
Better method, ease into long term positions on Friday afternoon’s expiration.
Typical fluctuation. Txchick really called it though. Feep’s portfolio very sad today. Long gold and puts. ;(
Gonna try to grab more later this week.
That’s my job. I still would stay away from shorts and puts on the HB and mortgage lenders. Try the money center banks instead.
I have major $$$ puts on Pulte for Jan, 2008. I just can’t imagine the HB’s holding up another year of this crash. I see BK as a planning tool, just like the airlines, for these HB’s to get out from under their debts, and restructure. It looks like they are usuing every available loan committment to build every house they can, not caring if it sells or not, then Bankruptcy.
“House prices in your neighborhood are falling. The danger with falling houses prices is that you could end up owing more than the house is worth. ‘Basically, what you’re going to have on a lot of those pay option ARMs is you’re going to see a lot of customers giving the keys back,’ says Mark Lefanowicz, president of E-Loan.”
It is about time for Congress to pass the “Home Mortgage Payment Assistance Act” to help protect our national economy from future waves of foreclosures.
“Home Mortgage Payment Assistance Act”
… and for taxpayers it’ll be a HUMP for sure.
That’s right — the HUMP Act would be a more appropriate moniker. (Any thoughts on what the U could represent?)
Unpayable?
Unwise. Yep, that’s what I should’ve suggested.
Usurious.
Underwater.
uneducated
yes, just look at the ‘NHG’ (National Mortgage Insurance) in the Netherlands which does exactly this. Free housing puts for everyone, except for the most expensive homes.
Today I read that last weeks hiking of the NHG fee from 0.3% to 0.4% of the mortgage is not because of ‘increased number of customers’ (as stated by NHG) but because of a significant increase in the number of foreclosures on homes that are covered with this insurance.
Foreclosure rates have doubled every year for the last four years in the Netherlands; last thing I heard was that they started declining again this year so this is a bit strange. I also heard that lately a lot more people are getting this nearly free NHG coverage with fraudulent paperwork, which probably leads to unexpected losses for NHG. I’m curious by how much Dutch homeprices have to fall before the NHG is out of money (some estimates are that a 10% drop will do; of course they will never really run out of money, the taxpayer will get the bill).
Went to 2 open houses yesterday.
BOTH realtors said that they expect prices to fall - said wait 6 months. When I went a few months ago, all realtors preached “soft landing”. They must read the NAR reports and regurgitate them verbatim.
Got into a discussion with one realtor about the yield curve, secondary MBS market, etc. He said he had never heard anything about it, but was interested in learning more about the financial market. When I told him the story about subprimes and the credit spread they enjoyed over the past few years, his eyes widened… He basically told me that him and the realtors that he knows are begging their sellers to reduce prices because they need to move these properties.
This discussion occured in a 2 bd / 2 ba. 3 level condo on Sunset Blvd. (90069) with a hilltop view of LA. Listed for $900k.
When I told him that I was only interested in low ball offers, he said “oh, absolutely”. Realtors are getting desperate - this has changed fast.
I should mention that I was jogging in the neighborhood (I rent a house in 90048). On Sundays, when I jog, I usually stop in on a few open houses.
My, has this ritual changed in the 3 years I have been doing it.
As I’ve said many time, Realtors are interested in making sales. For years ago that meant convincing buyers to overpay, now it means convincing sellers to lower prices.
They are just middlemen and don’t care either way.
Yes, well they are getting impatient at the moment as their volume has disappeared.
But that is one of the reasons for the stand-off ,nobody trusts the real estate industry or lenders anymore . People are looking for the truth so they can make long term decisions . I don’t blame the buyers one bet for backing off in a market like this .
great point housing wizard.
This was a sellers agent telling you that? Talk about biting the hand that feeds you.
Anyway it’s going to be interesting how they are going to spin this market. Will they privately be telling the sellers “lower your price, prices are dropping” and the buyers ” better buy now, it’s only a temporary lull”? What will they say officially?
I think he knows that the hand won’t be feeding him unless he bites it.
He told me that he and many other agents where pleading with their sellers to lower the price. That particular townhouse was on the market for 3 months. The agent was very nice and just seemed a little frustrated.
i lived in 90069….
that 2/2 needs to get to about 400-500 before it is right-priced….
if it is in birdland - as opposed to a block N of the Whiskey and the noise, tack on another 100 for panache. That is it, dude.
After reading this… Wow!
“S&P’s homebuilding analyst, William Mack, notes that if potential buyers aren’t able to finance with lower mortgage rates, they at least want to see lower prices, Mr. Mack points out. The buyers, he adds, are saying, ‘We think we can get better prices. Why should we lock in now?’ And those who are putting deposits down are backing out because they see indications the prices may fall, he says.”
People don’t forfeit their deposit because they think prices may fall, they do it becuase they see prices falling already. Duh.
Sorry this is a few days old (9/8/06), but Steve Kerch, marketwatch.com real estate editor, offers an interesting take on the paradigm-shift bomb the NAR recently dropped on its Realtor (TM) constituents.
———————————————————————————-
THIS WEEK’S REAL ESTATE STORIES
Stop the presses. The National Association of Realtors is predicting
home prices will fall in the U.S., if only temporarily. Such a display
of pessimism from the trade group that represents more than a million
sellers of property is truly a man-bites-dog story. How are the agents
on the street supposed to keep up their sunny dispositions now?
You know a Realtor’s favorite answer to the question, “When is the best
time to buy a house?” “Yesterday!” But that is kind of hard to say with
a straight face if you think home prices are going to drop, if only
temporarily.
Maybe the economic forecast out this week from the NAR will put to rest
some of the criticism that the group is subjected to for being eternally
sunny. When you’ve got to keep a million folks pumped up about the
prospects for home sales, especially when the bulk of those folks will
collect only something like $25,000 a year for their efforts, you might
be inclined to sugar-coat some of the hard economic truths. Or at least
that’s what the critics believe.
But those who call the Realtors on the carpet for that sort of thing
somehow have confused the motivational seminars that dominate the trade group’s gatherings with its economic forecasts, which have always been pretty much in the mainstream. In fact, in the current housing boom, the Realtors’ outlook each year turned out to be short of the actual jump in sales and prices — not the stuff of a pump-and-dump scheme.
At any rate, even if it takes some courage to predict that home prices
are in for a rough period it doesn’t take any particular insight. Sales
have been slowing and inventories have been building and prices have
been rising at an unsustainable pace for way too long. That is a recipe
for only one of two things to happen: Sellers can’t sell or sellers cut
prices.
And this isn’t necessarily a change of viewpoint for the Realtors or
any of the other housing groups that keep tabs on the market. There
hasn’t been a housing economist who hasn’t described the home-price
gains of the last three years, which have averaged nearly 10% nationally
and more than 25% in some hot coastal markets, as “unsustainable.”
That’s pretty much an admission that the growth would come to halt, one way or the other.
Now, of course, the question remains as to how deep a correction the
housing market is in for. Will it be over “in a few months” or are we in
for a prolonged decline?
If you believe in the power of demographics, which form a pretty good
underpinning for housing, and if you don’t foresee a complete economic
collapse then housing could be back on track in the not-too-distant
future, although that future looks like it won’t be here much before
next spring.
If, however, housing becomes the engine that pulls the rest of the
economic train over the cliff, it’s going to be impossible to concoct
any plausible rosy scenario. At the point, yesterday is going to look
like the worst time to buy a home.
Steve Kerch, real estate editor
P.S. Kerch (or his minions) really ought to check out DL’s .ppt slides, which indicates four or more years is a more likely time horizon for falling prices to play out than the few months from now until next spring.
“Growth will be back in the spring”
(Chauncey Gardener)
There hasn’t been a housing economist who hasn’t described the home-price gains of the last three years, which have averaged nearly 10% nationally and more than 25% in some hot coastal markets, as “unsustainable.” That’s pretty much an admission that the growth would come to halt, one way or the other.
But they never, never though it would drop. They saw 6-8% price gains forever. No end, no return. It was gonna be different this time!!!
There’s nothing hard to understand about option ARMs. For a teaser period you pay whatever you want. After that, you pay whatever the BANK wants.
Heh heh.
“In Soviet America, ARM breaks *you*.”
From Market Watch
Yet not all the analysts who cover home-builder stocks are so negative, and the loudest bull right now who sees value in the beaten-down stocks may be Stephen Kim at Citigroup.
“We believe the group is poised to rally in the next 1-2 months, and that the time to buy the stocks is now,” Kim wrote in a research note Monday.
Negative news surrounding the home-builder group “appeared to reach a fevered pitch late last week,” Kim said, adding that he’s reduced estimates across the group in line with his view that more warnings can be expected.
“Recoveries in the home-building stocks are notorious for being highly anticipatory, and if investors wait until Street estimates stop declining or order trends turn positive, we believe they will miss much of the group’s initial upside,” Kim wrote.
Yeah, I saw Kim on video. Funny how he didn’t mention foreclosures, bad loans and such. My take (as someone who has been in the investment gig for 25yrs) is that Kim is a typical “young gun”. He thinks because these stocks are “oversold” they’re “cheap”. As to the economic fundamentals mentioned here that will have to change in order for his predictions to come true? I didn’t hear a word about such things from him.
Anyone who wants to bet on Kim should probably check out what analysts were saying about Enron in 01-02
more to the genious stepehn kim
http://immobilienblasen.blogspot.com/2006/09/analysten-wall-street-zu-kb-homes.html
At least things are going to make sense again.
well said Mike. We will all suffer from what’s coming just as we all benefited. Just in varying degrees of pain.
Some of us haven’t benefitted. I’ll feel sorry for innocent victims (like the children of the greedy parents who just had to have more), but not for the true gluttons. Not for the ones who bragged and threw it up in my face about how much better they were, etc. Do I wish for a huge economic collapse? Of course not. Can I control it? Of course not.
Tough times don’t last.
Tough people do.
The same fire that melts butter hardens steel!
whatever does’nt kill you only makes you stronger
So I think the posters are just in some way relieved that they weren’t crazy after all
_______________________________________________
AMEN!!!! I was persecuted by all the pro real estate business associates I encountered over the last few years. I am so sick of the new paradigms, its different here, etc.. crap. It feels good to know that my financial sixth sense was right.
Rejoice and give thanks that thee was thus persecuted! For all man shall know thee true and ye shall find comfort in HBB!
LOL. Glad too see someone picked up on my amen and persecution link!
He is the same asshole. “Don’t Feed the Trolls.”
Some have mentioned pulling all their money out of stocks to prepare for what is coming. That is a safe thing to do. A better way might be to buy some Double-Inverse ETF’s. Very effective way to short the market in an IRA or 401k. In all these you are actually buying not shorting and a very effective way to use leverage in a non-margin account.
1x Short the NASDAQ-100 (PSQ)
1x Short the S&P 500 (SH)
1x Short the S&P MidCap (MYY)
1x Short the Dow Jones Industrial Average (DOG)
2x Long the NASDAQ-100 (QLD)
2x Long the S&P 500 (SSO)
2x Long the S&P MidCap (MVV)
2x Long the Dow Jones Industrial Average (DDM)
2x Short the NASDAQ-100 (QID)
2x Short the S&P 500 (SDS)
2x Short the S&P MidCap (MZZ)
2x Short the Dow Jones Industrial Average (DXD)
Keep in mind the volume on many of these products is very light and the bid-ask spreads can be wide.
grim
volume is light, but getting bigger everyday. The spread is narrowing. I trade the QLD and QID everyday and usually don’t give up much on the spread.
thanks, foz!
Some info on these funds…
http://www.proshares.com/
foz… could you expand on this?
I would like to understand what you just said here, how and why it would work, etc.
Brian go to that link that Destinsm posted, that will give you a good background on them. These are leveraged 2/1 so if the SP or QQQ or Dow go up or down they will go up or down twice as much. Say you wanted to go short the tech sector. Instead of shorting the QQQQ (naz 100) you would go long the QID and get twice as much bang for the buck. In an IRA or 401k that is a good way to go short the market by actually going long. I personnally just daytrade them using a system because I want to be in cash every night. But as a way to hedge an account they are very effective.
Thanks for this info, foz. I’ve known you can make money on the way down, just as you can make money on the way up, but I wasn’t sure how to do it other than by shorting individual stocks.
It’s amazing the wealth of general investment knowledge of people on this site. It’s much more insightful than most of the analysis in the MSM financial sites. I hope we all find a way (or two or three) to profit from what all of us have seen coming for a long time.
A large share of the blame here has to go to the lenders, people “selling” loans to people who they know can’t ever carry the debt. A person making $50,000 a year should be buying a home for $150k under normal banking standards, and the fact that those homes don’t exist anymore is the fault of the lenders with the exotic loans, ARMs, and so on. A sensible person would of course turn down that kind of loan, but all 25 of us are probably reading this blog, and everyone else will take ever cent offered to them, and distort the whole economy for a decade. Now every ordinary family out there has to have the big house, the granite, Sub Zero refrigerators, etc. In my area, the people with the biggest house and fanciest cars almost always have a negative net worth. It just couldn’t go on forever.
The rule of thumb from Stanley and Danko’s “Millionaire Next Door” was that if you want to someday become affluent, your mortgage should never be greater than 2 times your annual realized income.
But, as Mike says, those mortages don’t exist anymore. (unless you move to flyover land where there are few jobs) Just as work expands to fill the time available, prices expand to fill the credit available. And credit itself has been expanding without limit for years now. My only reward for “acting sensibly” will be a single-wide in a trailer park where everybody speaks Spanish.
Well, I kind of live by that standard. I make sure that my rent is no more than 20% of my annual income. I am at about 7% right now (I just changed jobs) and will be moving into a property in the next few months that will take me closer to 15%. I think 40% for housing is crazy! I can’t imagine living like that, to be totally honest, and my gross HH income is about triple the average in my area. I just don’t know how I feel that buying a home would be too finacially burdensome right now, but people making 1/2 to 1/3 are lining up sign their lives away.
Mind boggling.
When my parents bought their first houst, in the 50s, the rule of thumb was 1x earnings (really). In California, they must be at 8-10x earnings.
I disagree, it can go own forever. Just like credit card debt.
The home improvement industry has literally made a killing off this bubble. There are granite countertop, kitchen/bath cabinet, and tile dealers everywhere here in Santa Monica, West L.A. and in and around Sherman Oaks. It’s gotten to the point where, you go in and spend 200 dollars on a Grohe water faucet, and the salesman looks at you with sympathy or contempt, because that is now the cheapest non-Home Depot faucet available. They now range up to 2000 dollars, which is double my mortgage payment. Glass tiles are the new thing - 30 dollars per SF. I can’t believe everyone coming into these showrooms makes double or triple what I make, and can afford all these narcissistic indulgences without borrowing!
Don’t forget the home furnishing industry who have been pushing “No payments or interest for two years” to get people to buy for their new McMansions. I know its just a small straw on the camels back but I wonder how many people who bought in 2004 are receiving their bills now for what is now used furniture.
I think it’s mostly borrowed money. People think they are entitled to the best of everything now. If the easy money ends all of these high end status boutiques are going to fold also. The reason I think the housing pyramid can’t go on forever, is that unlike credit cards, where there is always another card to apply for, the home equity loans are at least in some way tied to home values. If the values stop rising as they already have, and then drop, as they already are, you can’t borrow any more against equity. Let’s see how many $2000 faucets sell then.
why couldnt you borrow against more than your house is worth. Lenders would be more than happy to lend you more money with prepayment penalties, ARMs, interest only, huge late fees, etc.
They already do this with credit cards, and thats with no assets to back that debt up.
It’s been happening - 125% loans.
“They already do this with credit cards, and thats with no assets to back that debt up.”
Credit card debt is usually a $10K to $25K max loan…not a $600K to $1.5M loan like debts secured by RE. Assuming that a bank or investor would be willing to risk that much on an unsecured loan, who would be able to qualify at the 22% (or more) interest rate…even at interest only? That would be $11K a month on an interest only loan of $600K.
Nope, I don’t see it happening…
I know they do it with credit cards, I don’t know how they make any money. As far as I see 1/2 of the population doesn’t pay back credit cards. With home equity loans they have to get an appraisal, underwriting, be able to resell the loan, etc. So if you already owe $300k on a $300k house and it goes up, you can borrow more. If it goes down, it would take a conspiracy of crooks to loan you more money. Not to say it won’t happen. : )
its already happening, arent we already seeing appraisals of 125%? Arent we already seeing the ease of these kind of loans being resold?
It may not occur in mere refinancing, but HELOCs. I have been thinking of why Merrill Lynch paid so much for First Franklin, this may be the reason.
So why aren’t you now seeing 150% loans? 200% loans? 300% loans? There’s been plenty of time for these to show up to keep the party going.
Think about it this way…people can *already* do what you are talking about just by getting a lot of credit cards and using those to help make their monthly mortgage payments.
The reason that this is not happening in a big way is that there is not enough free capital running around with the stomach to risk making a $300K (or more) *unsecured* loan at a rate that would allow Joe Sixpack and Nancy Pinot Noir to ‘afford’ the payments. Again, recall what the rates are on credit card debt - 18%, 20%, 25%? An interest-only monthly payment on $300K at 20% is $5K. If you can no longer afford your Option-ARM because of a reset, refinancing into unsecured debt won’t buy you much time.
Enough People pay credit cards even their minimum Payments They also charge stores to use the credit card machines. This means they make money on both ends. I don’t see home loans as doing the same thing unless prices seriously come down because credit cards charge nearly everyone a huge intrest rate if home lenders did that with curent prices their would be no buyers at all not just foolish ones…..Oh wait I guess their aren’t any buyers now.
You’re right but eventually as more and more people start to see an asset as worthless, nobody will want to get caught holding the bag. Liquidity will dry up in the loan resale market, and some lenders will tank. Manias always look like they will never stop…right before they do. California is worse than Florida - isn’t the median income out there something like 10-15% of the average home price? So on the face of it, no normal person can afford a home?
I have no doubt that housing prices will tank. My theory counts on housing values and the housing mania tanking. See my comment about a hundred comments up.
I think it is safe to say that the economy is running purely on debt at this point. There is no way in hell that all these people are making 100-150K a year, and if they were how many, with any sense, would spend 2k on a water faucet. Purely insane. As a side note, just went to my brother and sister in law, who bought my old home in January, and I couldn’t believe how much work they did. I can almost guarantee this was not paid with cash only. Even more incredible he is out on workman’s comp and she thought she might be pregnant. On top of all that I know they can’t be earning more than 75-80K a year and the house cost them 400K. Whew! How do people sleep at night.
You sold your house to your brother at the peak?
(Actually 6 months after, which I think looks even worse)
Actually, my brother in law, my wife’s sister is his wife.
I misread that at first as “My wife’s sister is my wife. But you’re OCDan, not St. George Dan.
What terrifies me is a repeat of the state mortgage moratoria of the 1930s. Legislatures in liberal-leaning states (Minnesota was one of the pioneers) basically ordered the courts to stop processing foreclosure actions. (This was before non-judicial foreclosure became common). The underlying indebtedness remained, but the foreclosure remedy went away. After FDR threatened to pack the Supreme Court, the Court conveniently determined that these moratoria did not, after all, violate the Obligation of Contract clause. Which of course they did, but being a Justice means never having to actually pay attention to what the law actually says.
The natural result, of course, was that lending dried up almost completely, and banks were imploding right and left. Banks couldn’t liquidate bad investments, which resulted in their having no cash to fund new lending or pay nervous depositors.
There is no recession that a well-meaning government can’t turn into a rhino of a depression if it really sets its mind to it.
Excellent points, Thomas.
There was a mention above (or in another post/topic) about India and how its mortgage and lending market has taken off since they’ve ended their socialist ways some decade or more ago. I’m not sure that in India lending was illegal under the old rules, though; it was just too risky, as it is in some other countries still, because there was no recourse for the lender (e.g. foreclosure) to recover the collateral in case of default.
Once lenders cannot actually take back the collateral lpedged for loans, the loan/mortgage market suddenly becomes nothing more than long-term unsecured debt like credit cards. What lender in his right mind would lend someone five years of income, unsecured, at a fixed rate, and with no prepayment penalty?! They’d be crazy.
Those that did decide to lend would charge exorbitant interest rates because of the default hazards. Then you can expect howls of usury, followed perhaps by mandated rate caps — thus guaranteeing that nobody will lend anymore. Lending stops, sales stop, everything lurches to a halt, and prices tumble because the only buyers are cash buyers. Great Depression II.
I don’t think that’s a likely scenario, mind you, but it is one possibility in the rare event that legislators can’t learn from the lessons of the past. They do learn from the past, right? Don’t they?
“You exaggerated your income on your application. A lot of option-ARM borrowers have stated-income loans. If you puffed up your income, you are more likely to default. You regularly have been making minimum payments, not paying down your debt and, in fact, increasing it.”
You also committed mortgage fraud, a felony.
This is a worldwide problem. I have just been reading about the same thing happening in Ireland.
Ireland has seen massive growth in the housing market with over 77% of the Irish people owning their own homes. The thought of them going through a major housing downturn is not something to be relished. People have paid enormous prices for their homes with not much spending money left each month, should they need to protect themselves in a housing recession.
The thought really depresses me because of the consequences involved.
But I guess there is always someone worse off in the world.
Kindest thoughts
Aine - originally from Dublin - Ireland