Bits Bucket And Craigslist Finds For September 18, 2006
Please post off-topic ideas, links and Craigslist finds here!
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Who Bears the Risk?
“The housing boom would never have lasted as long as it did if mortgage lenders had to worry about being paid back in full. But instead of relying on borrowers to repay, most lenders quickly sell the loans, generating cash to make more mortgages.
“For the past few years, the most voracious loan buyers have been private investment banks, followed by government-sponsored housing agencies, like Fannie Mae. The buyers carve up the loans into mortgage-backed securities — complex i.o.u.’s with various terms, yields and levels of risk. They then sell the securities to investors the world over, at breathtaking profit. The investors earn relatively high returns as homeowners repay their mortgages.
“The process has encouraged homeownership and created wealth. But there is a downside, too, which demands attention.
“As the boom thundered on, the pool of available credit grew larger than the pool of creditworthy borrowers, resulting in an explosion of risky mortgages with features like no money down, interest-only payments and super-low teaser rates. Investors — including mutual funds, pension funds, hedge funds, insurance companies and foreign central banks, to name a few — currently hold $2 trillion in mortgage-backed securities from investment banks, triple the amount from three years ago. Investors also own $4 trillion in mortgage-backed securities from government-sponsored agencies.
“In a market so vast and dynamic, everyone knows that if mortgage defaults should rise, damage could reverberate throughout the financial system. So far, defaults have inched up. But many homeowners are at a dangerous juncture. Interest rates on adjustable mortgages are rising as home values are weakening, precluding for many the chance to refinance. Economists calculate that $750 billion of outstanding mortgage debt is now at measurable risk of default — about 7 percent of the total.
“No one can predict the depth of the housing slowdown or its effect on the global economy. Even the Federal Reserve has taken, for now, a wait-and-see approach. Meanwhile, markets seems to take comfort in the belief that if housing hit the skids, the Fed would exert damage control by aggressively lowering interest rates. There is no guarantee, however, that interest-rate easing would have the same powerful effect it had in the past.
“What if it didn’t? Market makers and central bankers don’t talk about that, for fear of unleashing a self-fulfilling prophecy. But we sure hope someone in charge has a fallback plan.”
Hence, the moral hazard of the Greenspan Fed/Put and it’s cowtowing to Wall Street. If this ends badly, the best we deserve is a disbanding of the Fed and a reorganized hard currency. But that ain’t going to happen. I’m sure we’ll get a worse Fed with even more intrinsicts moral hazards.
“What if it didn’t? Market makers and central bankers don’t talk about that, for fear of unleashing a self-fulfilling prophecy. But we sure hope someone in charge has a fallback plan.”
Were they thinking of Divine Intervention?
just a glimpse of similar problems from the Netherlands where the housing bubble is still growing:
Most of the recent mortgages and about 30% of all mortgages in the Netherlands have a ‘mortgage insurance’ from a semi-government fund that insures the homeowner can never end up with a loss; in practice this works out as a free put option for homeowners. Today a newspaper reports that probably one third of recent mortgages that are covered by the NHG fund are based on a fraudulent appraisel that is much higher than the actual value of the home, in 10% of cases the difference is more than 20%. Because of this the fund will incur large losses on these homes when the owners no longer pay the mortgage. The strange thing is that this happens while home values are still climbing …
Obviously some clever businessmen have discovered that they can use the fund to get lots of money for nothing; they sell cheap homes for high prices to people with no money, and as a result after a year or so the home is foreclosed because there are no mortgage payments. The previous homeowner gets far more than his home was worth and the fund (the government) pays the bill. This comes on top of earlier stories that people also managed to get this insurance while they purchased homes that are far above the official ceiling for this insurance, with very high leverage (which is officially not permitted) and even with 110 or 120% mortages.
Free money for everyone who owns/owned a home; up to now none of the cases has been taken to court and I don’t think Dutch politicians are going to do something about this fraud. But we sure will hear more stories like this in the next months, and even more when prices begin to slide.
Two questions about the Dutch mortgage insurance:
1. Does this insurance cover the homeowner or the bank?
2. Will the money used to pay the claims come from a tax-backed fund, or from a securities-backed fund?
1. the fund (insurance) pays the difference between sales price and mortgage to the lender. This insures that the (former) homeowner can never end up with debt, and the lenders get all their money back.
2. the money comes from a securities-backed fund. The homeowner pays 0.3% extra on top of the mortgage rate to get this insurance. But because the insurance is considered full proof the mortgage rates are usually at least 0.3% lower than without insurance, so effectively it is for free. Some people have calculated that this fund will quickly get into serious problems when house prices start declining. Trouble is that the fund is semi-government, most officials are (ex-)politicians and they have an implicit government guarantee. Just like with Fannie and Freddie, politics cannot afford to have this fund go bust.
I just wished the author would have linked us the economists predictions, or at least given a reference. Does anyone here know of a link where I can get numbers such as “percentage of morgates that are underwater”, etc. from a reliable source?
here is at least one manager that is not in the “goldilocks / happy times” camp.
Federated Investors’ Lehman Prepares Fund for Stock-Market Rout
http://www.immobilienblasen.blogspot.com/
I’m fully bearish on the economy, but I’m bullish on the market. Bullish to the extent if we get deflation, I don’t think the market with out deflate any other asset. And if we get inflation, the market will outpace inflation.
my feelings exactly. i feel that the powers that be in this country have become so dependant on foreigners purchasing our worthless debt and investing in wall street that they will have no choice but to go with wall street and let main street take the gaspipe. consequently wall street will be the last thing to go if the economy crumbles
How so? When you look at a chart of the major indices, they were clearly lifted out of their declines when Greenspan cut rates back in the 01-02 timeframe. Wouldn’t one logically presume a resumption of the decline we saw then?
basically my point was not about the fed raising or lowering interest rates but about the decline of the united states as an economic power.
The contrarian inside me believes that various bloggers’ bullish optimism about the continuance of the Greenspan put under Bernanke’s watch portends its imminent demise.
well certainly not ‘imminent’: the general market has been magically resilient to decline after Bernanke took control. I’m sure there is more PPT activity going on lately than in the Greenspan days.
“…not in the ‘goldilocks / happy times’ camp.”
LOL - I like that.
more evidence that the us consumer might hit the wall
Yum says U.S. blended same store sales fell in Q3
Yum said Monday that it estimated blended third quarter same store sales at its Taco Bell, Pizza Hut and KFC restaurants fell 2% in the third quarter. It estimated that KFC’s sales were flat, while sales at Taco Bell fell 2% in the quarter and fell 5% at Pizza Hut
tacos and pizza?- I’d think the $ 15 and up resturants would take a hit
I guess all the new realtor employees at Taco Bell are eating too much food for free and sneaking it out the back door to their starving realtor friends on the outside — hurting sales on the front end.
Alright! Finally some indication that the consumer may be hitting the wall. Pizza no less! Nike reports later this week also. I got a feeling the bugle will be sounding shortly and the “Games” will be on!
“bugle will be sounding shortly”
Too soon…1/2 a year to a year.
I am in the three to six month camp.
I have been liquidating my Russian positions over the last two weeks and plan to be completely liquidated in about two weeks. Liquidation has taken a bit of time as the majority of my portfolio was acquired for vouchers during privatization and involves the transfer of the securities from my name to my broker which is time consuming (a lot of paperwork and personal appearances at the share registers).
The only reason another retailer, Best Buy, has met its numbers recently is because so many FB’s have been buying plasmas to include as ‘free’ with the purchase of their overpriced condos.
Now that that trick isn’t working anymore, I suspect we’ll see Best Buy start missing its numbers too.
they have a plan[ the US taxpayer
wow, here’s that 7% number again
Economists calculate that $750 billion of outstanding mortgage debt is now at measurable risk of default — about 7 percent of the total.
the trend in the heloc is growing faster q/q
Last week, Moody’s Investors Service reported that the delinquency rate in the home equity loan market rose 11 percent for the quarter ended in April from the same period a year earlier.
The figure was up from a 9 percent rate for the quarter ended in March over the comparable period in 2005. If this were a contest between homeowners and debt, debt would be winning.
add to this the explosion in subprime delinquencies
http://immobilienblasen.blogspot.com/2006/09/subprime-delinquency-rate.html
Keep those numbers in perspective. Recent USA Today article says fully 34% of all homes are owned outright- no mortgage. 7% of the dollar total is indeed at risk, but I bet that’s considerably less than 7% of all mortgages. How many of those mortgages are second and third home “investment” properties, which are vacant? The vast majority of homeowners (I’m guessing at least 95% nationwide) are secure in their homes and will be able to ride this downdraft out.
We will see. It is important to keep in mind if the data includes helocs or not. A house could be “paid for” mortgage-wise but heloced to the hilt. There is a lot of interdependency in the economy and we will find out how vulnerable each homeowner really is in the coming years. We can think about Buffet’s analogy about receeding tides…
The vast majority of homeowners (I’m guessing at least 95% nationwide) are secure in their homes and will be able to ride this downdraft out.
Not! Despite the huge run-up, homeowner’s percentage of equity is at an all-time low, and that number is skewed by those 34% that have 100% equity.
According to the last flow of funds data, the lowest % equity was reached in 2002, we’re a little but not much higher than that. If you assume 34% of home value (which seems agressive I’d guess that paid off homes are well below median value on average), LTV on the remainder is about 85% right now. That’s some but not a whole lot ofof cushion to ride out a nasty storm.
It doesn’t matter whether the market is glutted with a bunch of primary, second, or third homes. As long as there a lot of houses on the market (being sold by ladlords carrying unoccupied properties, for instance), and there’s not much demand (from renters who are getting a great deal), then prices will tend to revert to the mean.
Besides, I disagree that 95% of homeowners are probably secure in their loans. I’ve been reading conflicting numbers lately, but I know that “an awful lot” of homeowners have taken 2nd mortgages out (HELOCs, mostly) in order to purchase new cars and take their kids to McDonald’s. That’s money for which there’s nothing to show.
May will have to sell their homes to pay off their new mortgage debt — or they can try to sell back the car. The car has lost value. The Big Macs have already been eaten.
Unless a lot folks start going for the 50-year mortgage (an equally bad deal), they will probably have to sell at a loss.
These guys have little choice.
Hope and Housing
“Housing is one of those emotional terms in the suburbs, like terrorism and global warming, that bring out a weird sort of anxious fatalism in people. Everyone knows that affordable housing is scarcer than ever, that counties like Westchester have become practically off limits to young people and the working class. The usual responses are passive acceptance or abject surrender: turning half of one’s gross income over to a mortgage or moving to the Dakotas.
“But not everyone is giving up. A report in July by two nonprofit groups, the Citizens Housing and Planning Council and the Regional Plan Association, offers a big-picture dissection of the housing crisis that can leave a reader feeling not overwhelmed, but hopeful. While acknowledging that the housing situation poses a serious threat to the region’s economy and quality of life, and that things have become worse in recent years, the report, “Balanced Housing for a Smart Region” (available at chpcny.org or rpa.org), is bursting with strategies and tactics for attacking the problem on multiple fronts.”
from barry ritholtz an example of how they sell mortages
http://bigpicture.typepad.com/comments/2006/09/exotic_mortgage.html
I am currently receiving about 3 of these calls per month. You? Okay. I am being offered various rates, all with a 1% handle. Most require you to go thru a voice menu if interested after hearing a recorded mini-pitch, so they’re no fun. But the ones that have piqued my interest are the ones where a hairball of a mortgage broker comes on the phone, live, calling you by your first name and immediately congratulating you on your stellar mortgage-payment record which, wouldn’t you know, has now qualified you to participate in his “program”.
A couple of weeks ago, I played along out of curiosity But when we got to discussing the rate, 1.2%, I believe, I asked him how or why he would want to lend money at that rate when FED funds were officially targeted at 5.25%. His response, “I don’t wanna’ talk about FED funds. This program is about interest rates.”, caused a loud guffaw and simultaneous hang-up from me. Sound familiar? I’ll bet.
But the best ever was the weasel that phoned me last week. The pitch started out the usual way, except he called me “Dawn”. Whatever. Right off the bat, he offered me an “opportunity to cut my monthly payments at least by half”. How? By signing up for the deal of a lifetime, a “1.7% FIXED mortgage”.
Me: “Fixed? What’s the term?
Him: “30 years.”
Me: “Okay. So this means that my payment is the same every month for 30 years?”
Him: “No. It resets after 5 years at 7.25%.”
Me: “So how is that a 30-yr. fixed if it resets in 5 years?”
Him: “Listen. This is a great program. I can cut your payments in half.”
Me: “I can’t understand how you can offer this with FED funds at 5.25%. Is a feature of this program something called negative amortization?”
Him: (Big pause because I think I caught him off guard with the mention of n.a.) “Yes.”
Me: “So this means that every month, my outstanding balance is growing, right? Why would I want to sign up for something that puts me further into the hole every 30 days?”
Him: “Don’t worry about that. Your real estate will continue to appreciate and take care of it.”
Me: “Let me ask you something. Since you can currently lend money to the US government and get nearly 5%, why on earth would you wanna’ lend me money for 1.7%?”
Him: “The banks don’t pay me to lend money to the US government.”
I guess you can get a longterm fixed mortgage near 1.7% in some other countries (Japan maybe?); in the Netherlands fixed mortgage rates start near 3.25% (effectively a little over 1.5% if you are a Dutch citizen). Of course there is some currency risk involved
Since this is my third NYTimes post of the morning, I guess it’s safe to say that the Times is paying attention to the housing bubble. Just as well, since it’s all the media’s fault!
Someone’s Spoiling the Party, the Housing Market Says
“TO hear some people in the real estate industry tell it, one of the biggest problems with the housing market is what is being said about it in the news media.
“Agents and industry executives say reporters, editors and news anchors are making a cooling market sound worse than it is. While the number of sales may have dropped from 2005 (which was a record-setting year, the end of a five-year run) and more homes stay on the market longer, real estate professionals note that sale prices in much of the country are still higher than they were a year ago.”
Vikas was formerly with the Dallas Morning Snooze so he should know all about housing busts.
Where are the other NYTimes posts? I read the paper online every day but missed that one.
FOREIGNERS BUY $10.1B IN TREASURYS, SELL $1.6B IN STOCKS
U.S. Q2 NET FINANCIAL INFLOWS $154B VS. $171.5B 1Q
U.S. 2Q DEFICIT ON INCOME RISES TO RECORD $4.1 BILLION
U.S. 2Q CURRENT ACCOUNT DEFICIT $218.4B VS. $213.2B Q1
So the total for the first 2 quarters was $431.6B, and last week we were told that the Trade Deficit for July was a new record at $68B.
We are now mid way through September, so we are virtually at the end of Q3. So the Q3 CAD is already baked in.
Net income transfers haven’t changed much, and it’s almost impossible to imagine how the income (= interest) deficit could decrease with the outstanding balance still going up.
So we can expect another new record quarterly CAD Deficit for 2006Q3, perhaps as high as $230B but let’s go with $220B for this exercise. So that’s $650B for the first 3 quarters.
Looks like the $829B yearly record for 2005 will likely get eclipsed comfortably (or actually unconfortably).
I wonder what the chances are for a Trillion Dollar CAD in 2008?
combine this with
U.S. JULY CAPITAL FLOWS LOWEST SINCE MAY 2005
U.S. JULY CAPITAL FLOWS FALL TO $32.9 BLN VS $75.1 BLN JUNE
good news for the $…..
only the centralbanks are buying. because they have to. the rest isn´t really interesting….
Capital flows into the U.S. fell sharply to $32.9 billion in July, the Treasury Department reported Monday. This is the smallest inflow since May 2005. The drop was led by a sell off of Treasury bonds and notes by private investors. Foreign central banks actually increased their purchases of Treasury bonds and notes and government agency bonds in July. Chinese holdings of Treasury securities increased to $332.7 billion in July, the tenth straight monthly increase
after all this “bullish” news the $
is unchanged.
I’ve got some bad news, guys:
You are officially owned by the Chinese.
If they stop buying US bonds…
The 213.2 Billion that you are quoting was revised upwards from -$208.7B - admittedly not a huge difference whats a few billion between friends?
:-)!
Here’s one that’s in foreclosure before anyone ever moved in!
http://dallas.craigslist.org/rfs/208743310.html
Compared to real bubble areas, that’s actually a very nice house for a good price. $225k won’t even buy you a 700sqft 1br condo in DC.
One of the more annoying sales pitches in this bubble has been “instant equity”. Makes me want to smack a RE agent.
Check out all the interior columns. The builder was too cheap to open up the living areas with beams. lol.
I’m always puzzled when I see phrases like “Garage Door Opener with remotes” when describing the “extras” on a $200K+ house. $150-200 worth of door opener. As if that can possibly have any influence on a buyer. Why not throw in “brass drawer pulls, or two-tone front doorbell?”
Whatever happened to large living rooms? Kitchens are getting bigger at the expence of the living room.
House seems to be way out in the boonies, past Plano.
My guess: the original buyer couldn’t sell their old home & chose to forclose on the new one.
more on the markets in general from fleckenstein
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/BewareMarketsWithNoReasonToRally.aspx
I like Bill’s columns, but what exactly is he trying to say about precious metals here?
It seemed as though gold would never stop going up — just as gold, of late, seems unable to stop going down. This doesn’t tell you anything about what the ensuing rally in the metals will look like. But as I said earlier, it’s useful to keep in mind that markets often mislead at turning point
There are so many indicators out there that scream to me that a flight to quality should be happening, but yet metals are taking a beating?
I think Bill is saying “expect a fake”. That is, metals are going down, but that is just a feint: as the stock market tanks, expect metals to rally.
Seems to me that gold bugs ignore fundamentals. The price of gold, like anything is a function of supply and demand. As the price of gold rises, it becomes more profitable to mine for gold and thus the supply of gold increases. The supply of gold has increased manyfold recently. If demand doesn’t keep up, prices will drop. Duh.
True gold bugs (which I am not) believe that demand is artificial suppressed by false supply created by the central bankers or other cabal to manipulate its price to hide inflation and other currency woes. Hence a true gold buy doesn’t believe in supply and demand, they are waiting for True Demand to break the Shackles of False Supply
the supply of gold increases only meaningfull when the central banks sell gold.
the mines have problems to increase supply and replace their reserves.
intersrtingly is the volume of the gold etf (underlying with real gold deposits) not falling. (to my knowledge).
that tells you that the demand from people who want safety in real gold is stable and growing.
the decline comes from the futuresmarket where mainly traders/momentumpalyers are active.
when somebody knows more about the etf volume please post. the data i have is a few weeks old.
What is etf?
Gold is the one of the worst investments. Check out the inflation adjusted return of gold since its last peak back in the 80s. Like anything and everything else, it is about timing. BTW..they are hawking gold on info-mercials…that should be warning enough..right up there with the RE get rich scams.
yes timing is important, but you can say exactly the same for stocks, bonds and real estate. There are relatively small periods of time when investing in them is profitable; but most of the time it could take far more than 10 years to break even (adjusted for inflation).
Mindblowing:
If “they” only spent 1 week in my office…
“I am quite new to real estate investing. It would seem that I know 1/10 about RE investing as many of the regular contributors to this board and even less than the “experts.”
“Sometimes, however, I think that the “experts” should just spend one week in my office observing the financial profiles of our refinance applicants. I believe their outlook would be much different.
“Most people simply cannot believe the profiles that we see.
“I am the sales manager of a branch office of a top-10 national lender.
“My office of 7 loan officers takes +/- 100 loan applications per week, 90% of that coming from cold calls.
“Of the last 100, I have taken some simple statistics and have found the following:
“68/100 had LTV’s over 80% at time of application
16/100 had LTV’s over 100% at time of application
78/100 had back end DTI’s over 55%
31/100 had back end DTI’s over 70%
23/100 had FICO’s under 500
81/100 had credit card debt above $10,000
54/100 had credit card debt above $20,000
18/100 had credit card debt above $50,000
66/100 had Pay-option ARMs
27/100 had Pay-option ARMs and mortgage lates
22/100 were either in forbearance or had been in forbearance within the past 12 months
“We took 14 applications today and we cannot qualify a single borrower for any type of loan. We are sub-prime, in fact, sometimes I say we are sub-sub-prime. We can qualify almost anyone for a loan. Not today.
“Let me tell you about just one borrower from today:
“Husband and wife
Husband on fixed income military retirement $1800/mo
Wife makes $9500/mo as a registered nurse
5 properties with $3,400,000 in mortgages
All mortgages currently have prepays
8 interest-only mortgages
1 option ARM deferring $3500/mo
3 in Chula Vista and 2 in Escondido
No more than $75,000 equity in any of the homes (verified by comp checks with 3 appraisers)
All properties with front end LTV over 90%
$65,000 credit card debt $672 Mercedes payment
One property had 3 mortgages, one of them hard money
621 mid FICO
2×30 in the past 12 months
Not a dime in the bank
“They have been making mortgage payments with their credit cards and refinancing to pay off the credit cards. They are at the end of their rope, but refuse to throw in the towel.
“This is not even an “extreme” example. I could show you dozens of these every single week.
“I just wish the experts would see what I see. I think the statistics released would be different.
“Granted, I only see applications from San Diego and Imperial Counties, but this is just getting out of hand.”
yea. saw this too. (thanks txchicks)
this is really unfiltered news from the frontline. one of the best stories i´ve seen the last weeks.
when this is really representive we soon will see panic
she makes ninety-five hundred dollars a month as a nurse!!! where can i sign up for nursing school?? my husband makes 100K a year as a senior design engineer doing top secret “black” government work. looks like he should be schlepping bedpans instead.
wait susan…100k is not far from $9500 per month. 100k is $8250 per month. Yes, nurses are in demand. Your brother should actually go into contract engineering and be a soldier of fortune like me. That is, if he has no dependents and can move around. I’m a software engineer and can up and leave within a week and be on the other side of the U.S. starting another engineering contract within 8 days. Nurses make a great deal of money because there is a shortage of them, and it’s going to get more severe (shortage). If you know any young person considering college, I don’t care if it’s a female or male, tell them to go into nursing. I would not doubt they can start earning $70,000 per year right out of college at 22. But your brother with a security clearance has a good job and if he can go into contracting he can probably easily earn $150,000 per year (no benefits though).
Before anyone goes into nursing keep in mind that at least 50% of nurses are working evening and night shifts, and weekends. Plus many nursing jobs have a certain type of stress that I doubt a person feels in engineering. I remember walking into a hospital room once when I was a nurse and finding that the person in the other bed, not the person who had turned on his call light, was dead, which was quite startling for me at the age of 20.
I know people that gave up nursing for lower-paying IT jobs. Unless you can get into administration or public health or something, it’s an absolutely brutal job with a very high burnout rate.
9500 a month, with two caveats - either she works about 80 hours a week, or she works through a “traveller” agency, where nurses are shuttled around the country to areas of high demand - very hard to do if you have family. Base pay for nurses in strong areas is closer to $60K/year
wouldn’t that $9500/mo be a simple typo?
… or maybe they got a self-certified mortgage? In the UK they also have people with entry-level jobs who claim a salary of $15.000/month.
She’s probably a head nurse or close to it. It’s a hard job.
Nice post….
Wow, RNs make alot more than I thought unless they get OT and she’s working her fannie off. Hell, get the husband off his duff and get him his RN or at least LPN and put him to work.
Saw this SDCIA piece in a post here yesterday — printed it; saved it; forwarded it; marveled about it; love it. “It’s true, Virginia — we’re gonna’ get a pretty nice house someday before long, and at a very affordable price.”
You know, that’s so sad. With their incomes of $1800+$9500/month, they shol dbe living a decently prosperous, content life (er, financially, that is, and forgetting the nursing stress, of course).
Instead, they have: 5 properties with $3,400,000 in mortgages and tons of credit card debt, and their lives are surely living hell and soon to get worse. That’s a shame, really is. But it’s their own greedy fault for jumping into the RE market like that, no doubt looking for quick riches.
Quick! Buy this house! Already been on the market 120 + days! Seller already bought another house elsewhere, can’t afford two mortgages! Can you help them please?
http://orangecounty.craigslist.org/rfs/208762973.html
Wow, these sellers must be super-motivated … they’re willing to entertain ALL offers between $635,000 and $655,000!! For a butt-ugly, POS, 1,250 s.f. crap-box in Mission Viejo?? That has to be one of the ugliest houses I’ve seen …. I would be depressed as hell living in that ugly little house after paying $300,000 for it, much less $600,000-plus!!!!
i wouldnt pay more than 100K for that crap.
Yeah, I wouldn’t pay over $100k for that piece of … oh, wait … it has granite countertops? Why didn’t you say so? Okay, $800k, and that’s almost my final offer.
LOL… =)
“Seller already bought another house elsewhere, can’t afford two mortgages”
I’m begining to see a LOT of these here on the central cali coast. The agents usually say “bring *any* offers”.
Ordinarily I don’t look at these. Unfortunately I did look at this one. Yes, it is just trash. It makes one wonder how ANYONE could have got a large (around $600k?) mortgage for that.
Incredible.
They paid $607,000 for in it Nov. 2005. Looks like there is a parking lot behind it.
“No investors or agents.” LOL…for a POS like that, they shouldn’t be turning down help as they need all the help they can get.
Entertaining ALL offers (for no less than $635K).
hmmm …
Bambooo hardwood floors? Bamboo floors are nice floors but bamboo is not hardwood.
It must be all in out minds!
Someone’s Spoiling the Party, the Housing Market Says:
http://www.nytimes.com/2006/09/17/weekinreview/17bijaj.html?_r=1&ref=business&oref=slogin
Here’s some insight in the flipping game from the Miami Herald:
Condo slowdown trips up bulk buyers
http://www.miami.com/mld/miamiherald/15536801.htm
Excerpt:
The story of The Formula offers a glimpse into the billion-dollar game of large-scale condo speculating that played out from South Florida and the Caribbean to Las Vegas, waged in the shadows of the condo frenzy far from the eyes of ordinary buyers. It also raises questions about how much of the condo market is built on the greed of gamblers — and how deep and long the downturn will go because of it.
That’s a scary article. I wonder just how many condo projects have been “infiltrated” by bulk buyers.
Committee: US Senate Committee on Banking, Housing, and Urban Affairs
Title: Calculated Risk: Assessing Non-Traditional Mortgage Products
Date: 9/20/06
Time: 10:00 AM
Agenda:
U.S. Senate - Committee on Banking Housing, and Urban Affairs
Subcommittee on Housing and Transportation and the Subcommittee on Economic Policy
Witnesses
Panel 1
Ms. Orice Williams , Director, Government Accountability Office
Ms. Kathryn E. Dick , Deputy Comptroller for Credit and Market Risk, Office of the Comptroller of the Currency
Ms. Sandra F. Braunstein , Director of the Division of Consumer and Community Affairs, Federal Reserve
Ms. Sandra Thompson , Director of the Division of Supervision and Consumer Protection, Federal Deposit Insurance Corporation
Mr. Scott Albinson , Managing Director for Examinations, Supervision, and Enforcement, Office of Thrift Supervision
Panel 2
Mr. Robert Broeksmit , Chairman of the Residential Board of Governors, Mortgage Bankers Association
Mr. George Hanzimanolis , NAMB President-Elect, Bankers First Mortgage, Inc. testifying on behalf of the National Association of Mortgage Brokers
Mr. William A. Simpson , Chairman, Republic Mortgage Insurance Company testifying on behalf of the Mortgage Insurance Companies of America
Mr. Michael D. Calhoun , President, Center For Responsible Lending
Mr. Allen Fishbein , Director of Housing and Credit Policy, Consumer Federation of America
A co-worker approached me today (Monday, Australian time) and asked me for the name of some US RE websites. I gave him this one (of course :)), and asked the reason.
Seems he is considering selling his own property, paying down his loans, and moving into one of his rental properties, because the tenancy is up and he’s worried about a US housing-led downturn impacting on Australia.
Now this is a guy who had RE-ligion in a big way, and doesn’t normally pay much attention to international matters. He is pretty shrewd though, and very down to earth.
With no disrespect; if HE has heard enough, and is worried enough, about the chances of a US housing downturn to actually modify his investment strategy, then the news is getting out there.
From our Milwaukee paper this morning:
“Yet there also are enough differences between the macroeconomic context in which real estate booms ended in Australia, Britain and the U.S. to remain concerned that the average domestic house price could soon be falling at the fastest rate in 70 years.”
I know we’ve discussed this before, but it might make for an interesting weekend topic again. The author is wondering whether we’ll see an economic slowdown only or something far worse.
http://www.jsonline.com/story/index.aspx?id=498455
This is the type of article I read while playing Dwight Yoakam’s “Wild Ride.”
Hey everyone, I started putting videos on a new myspace site. Check it out:
http://www.myspace.com/housingbubble. Let me know if you find any new videos and I will keep it updated. You can add me as a friend if you actually use MySpace!
-Mark
Link doesn’t work for me.
Tips for selling your home (cupcakes? seriously?).
In addition to the standard advice of removing all clutter, putting on a fresh coat of paint and new carpet - “Designed to Sell,” sponsored by Coldwell Banker, shows sellers how to use decorator’s techniques to place furniture in more attractive arrangements, put in new kitchen countertops and floors and upgrade landscaping with flowers and pavers.
“Curb Appeal” suggests making a bold statement in the front yard -with new grass, upgraded walkways, small trees, flower pots, freshly painted fences and attractive lighting and maybe a fountain or some form of centerpiece - anything to make the property look fresh and clean. Muted paint colors also make a house look more expensive and valuable. The show’s Web site suggests starting early and planning your improvements - keeping them well in line with your skill and budget.
http://tinyurl.com/po7ql
Whereas Ben Jones’ blog gives you the best advice a seller can get - LOWER THE PRICE!
I’ve been waiting for some news on hedge fund losses due to exposure in the energy markets. CNBC is now reporting Amaranth loss of 35% after being up 22% YTD due to natgas exposure. I expect that more hedge fund announcements are forthcoming. Unwinding is in process. Expect financial experts to offer comforting words to the effect that “huge” losses pose no systemic financial risks.
Think about the hetrodyning effect. All these hedgies are all doing this. I call it trading $5000 cats. Fine until somebody stops buying $5000 cats instead of just trading them. How many times have I expressed my confusion why oil ever got above $48. Now we know, $5000 cats.
They -expect- to unwind and lose 57% from current valuations. The problem is they are unwinding into an unwinding position. They may not get out without even more loses.
details to the blow up
AMARANTH SAYS YEAR-TO-DATE LOSS AS HIGH AS 35% AMARANTH HAD “SIGNIFIGANT LOSSES” ON ENERGY LAST WEEK6 AMARANTH SAYS IT HAS MET ALL MARGIN CALLS TO DATE AMARANTH SAYS IN TALKS WITH PRIME BROKERS
AMARANTH HAS NEARLY COMPLETED DISPOSING OF NATGAS EXPOSURE
I don’t think I’ve seen the word “heterodyne” since the Heathkit build-your-own radio days of the 1950s. I wondered how gas prices could move SO fast and this seems to explain much of it. As JSP might put it, “Sumbody’s been gamblin’ with my gas money ‘n it sucks.”
Did no one who was rolling around like a pig in the mud that is the housing bubble ever stop to consider that this crazy runup in prices might eventually lead to higher property taxes?
“…I just don’t get the economics of what’s going on. How would they be getting by if there wasn’t this huge increase in property values?”
Two things spurred Lopez to speak. Besides his home he owns a condo, which his son now lives in, and the tax bill on that went up 20 percent. And he wanted to move to Palm Beach County to be closer to his job, but balked when he discovered his tax bill would go from $5,000 to almost $20,000 for a comparable home.
http://tinyurl.com/ote22
“Did no one who was rolling around like a pig in the mud that is the housing bubble ever stop to consider that this crazy runup in prices might eventually lead to higher property taxes?”
In Florida, very few did and there is a good but indefensible reason: listing sheets in Florida show what the current owner is paying in property tax. Excited buyers of used housing failed to ask the agent what their own taxes would be at X purchase price. The agents generally weren’t anxious to screw the deal by volunteering the information. The sellers, more often than not, had been protected from increases by “save our homes” and were paying one-half to one-tenth the taxes that would beset the new owner. Thud.
This is probably true in any state that has both a high average property tax and an absolute-amount protection feature like save-our-homes. I think Robert Cote was right a few months back when he predicted a potential Prop 13 crisis in Florida, as a result. What could preclude that (and a no-brainer) is a very fast and deep correction in prices, coupled with some serious un-electing of politicians who do not cut the governmental budgets back accordingly. Add in a heaping tablespoon of suits to roll back appraisals.
Realtors and mortgage brokers getting pink slips:
http://news.yahoo.com/s/nm/20060918/bs_nm/economy_brokers_dc
Housing Slump in U.S. May Lead to First Drop Since Depression
http://immobilienblasen.blogspot.com/2006/09/housing-slump-in-us-may-lead-to-first.html
‘Stiglitz, a professor at Columbia University in New York and winner of the Nobel Prize for Economics in 2001, is less upbeat. “There’s a real problem not just for the housing sector but for the whole economy,” he says. “There is a significant possibility of a slowdown so large that it falls into the category of a recession.”’
I have been reading sections of Stiglitz’s book, “The Roaring Nineties.” The name resonates with “The Roaring Twenties,” which of course was the decade in American history preceding the Great Depression. Stiglitz apparently either does not think the current risks posed by the greatest housing bubble in US history are as severe as the 1920s stock market bubble, or else he is avoiding the risk of catching the blame for pointing out any obvious similarities.
Chapter 4 in his book is entitled “Deregulation Run Amok.” Although he does not specifically address the effect of deregulation on the housing market, I believe the general theme of this chapter has played a central role. In particular, the severe erosion of lending standards is symptomatic of a hands-off regulatory environment where the standing assumption is that the free market will do a more efficient job of policing the lending business than the heavy hand of government intervention. Too bad you cannot have a rule of law without a government enforcer to back it up.
I think we’re about to find out just how dangerous an unregulated financial environment is. Both sides are out of control - the lenders with their deceptive practices and the borrows lying about their incomes.
Many of us prefer greater disclosure to more regulation.
Now how are you going to get greater disclosure without more regulation??
Fair question and point — by regulation, of course, I meant the type that directly interferes with the loan process. By disclosure I meant the very simple process of requiring a huge-font sheet, to be signed by all parties (and by buyers at loan acceptance), that shows all possible payment scenarios, from best case to worst, including the effects of neg-ams or anything else that could force a re-set. Technically, then, you are correct. But it an elephant and a mouse.
More bearish news from the home builders is expected this week. This year has turned into a Series of Unfortunate Events for them. Of course their share prices are rallying strongly this morning on the grim outlook.
—————————————————————————————————
ECONOMIC PREVIEW
Housing starts expected to fall again
By Rex Nutting, MarketWatch
Last Update: 12:01 AM ET Sep 17, 2006
WASHINGTON (MarketWatch) — The fragile U.S. housing market probably weakened further in August and early September, economists said, looking ahead to the coming week’s economic data.
Home builders have turned very sour on their industry as inventories of unsold houses soar, canceled orders pile up and prices sink.
The week’s calendar will offer two views of the home builders: what they do and what they say. In both cases, the story’s the same: grim.
http://tinyurl.com/rurns
That bad news should be good for oh, say, a 30% pop up in HB stocks when it comes out (the way things are going)…
Hedge fund Amaranth closing amid natural gas losses-Report
NEW YORK (MarketWatch) — Greenwich, Conn.-based hedge fund Amaranth Advisors LLC is shutting down and returning investors’ money following heavy losses on natural gas investments, according to a report Monday on CNBC television. An Amaranth spokesman was not immediately available to comment on the report. The report said the fund was down about 35% for the year-to-date due to heavy losses in the volatile natural gas market. Early last month, MotherRock LP, an energy hedge fund run by the former president of the New York Mercantile Exchange, said it was shutting down after suffering big losses in natural gas markets in recent months
i bet/hope that there is more to come…………
sorry have missed that this was posted earlier
Bunch of one trick ponies! The tide is going out!
“shutting down and returning investors’ money”
Correction: “shutting down and returning 65% of investors’ money”
What’s sad is they collected their 20 up until this implosion. Lemme see how many clients hold Amaranth….
Correction: “shutting down and returning 65% of investors’ money”
Look at the bright side — it’s more than you usually get back in a divorce.
I guess we CAN tell the forest for the trees!
“RailAmerica said lumber and forest products carloads were affected by the continued slowdown in the housing market”.
http://www.bizjournals.com/southflorida/stories/2006/09/11/daily18.html
Good post. One more dot to add to the game!
Has anyone else noticed a huge increase in spam from stock touts? Maybe it’s just what happens to get through my filters, but that’s what I see.
I get the feeling that the boiler room guys are trying to get another stock mania going, now that the housing bubble burst is well known.
I have noticed this. Not sure if it’s more effective techniques getting through my filter or just over-zealous spamming, but it seems I no longer need penis enlargement or hot teens on webcam as much as I really need to check out stock XXX or YYY before tomorrow’s big runup.
None at all. Guess they have a clue about your net assets.
Yes, and they all seem similar I’m disappointed SpamNet isn’t catching them.
very good.
On Saturday, Union-Tribune columnist Logan Jenkins posted a piece [1] suggesting real estate values in downtown San Diego would enjoy long term support. The reason he gave was surprising. He thinks, based on a story in the current issue of The Atlantic, that there is a megatrend in America for smart and creative people to cluster together in a few desirable locations, keeping prices permanently high but crowding out the less worthy citizens. Were this analysis sound, it would be horrifying. Luckily, this MSM-promoted trend dissolves immediately on inspection. I’ve decided to respond to Mr. Jenkins so he can stop predicting bad science fiction movie scenarios and get back to analysing SD’s inventory overhang and levels of speculator exposure in downtown condos
http://housingdoom.com/2006/09/18/jenkins-open-letter/#more-199
How does that Jenkins piece square with this one (where he insinuates that he is a financial simpleton)? I have to doubt his qualifications for assessing whether fundamentals justify the huge oversupply of downtown SD condos already built with more under construction.
———————————————————————————————
The brainy ones driving up house prices?
September 16, 2006
Memo from a financial simpleton (aka Logan Jenkins):
If the real-estate market made sense, it would work like this:
You’d put money down, take out a mortgage and buy a house for X number of dollars.
Over the long haul, its value would steadily increase depending on variables such as interest rates and sweat equity.
On a psycho-financial level, the homeowner would enjoy control over his/her shelter as well as tax benefits and the pleasant daydream of one day burning loan documents.
In a word, home ownership would be predictable and accessible, a sort of economic democracy.
The reality, at least in these parts, is quite different. Real estate can seem as predictable as a runaway roller coaster.
During periods of bubbly exuberance, prices can shoot up 20 percent or more a year. It’s like every homeowner is a lottery winner, drunk on dumb luck. Gimmicky instruments such as interest-only loans allow speculators to feed in a frenzy. Houses get flipped as fast as In-N-Out burgers during lunch hour.
http://www.signonsandiego.com/uniontrib/20060916/news_1mi16jenkins.html
“there is a megatrend in America for smart and creative people to cluster together in a few desirable locations”
Which means, drumroll please, “It’s different here”.
“there is a megatrend in America for smart and creative people to cluster together in a few desirable locations”
Perfectly exemplified by the cluster of posters finding their home at HBB.
In the two latest stories in San Diego papers about truly screwed condo buyers, their occupation was “scientist”!Smart and creative indeed.
Yeah, they’re really just lab techs.
He thinks, based on a story in the current issue of The Atlantic, that there is a megatrend in America for smart and creative people to cluster together in a few desirable locations, …
Wouldn’t that be a reason SD will NOT enjoy such a trend?
LOL.
From Las Vegas:
http://www.reviewjournal.com/lvrj_home/2006/Sep-17-Sun-2006/business/8850620.html
“That means Las Vegas is 28 percent overpriced, in Winzer’s view.”
“Their conclusion: Las Vegas home prices, at a median of $282,600, are 41.8 percent higher than they should be.
“Neither analysis sits well with local real estate watchers.”
MjM
“
U.S. CEOs downbeat on economic outlook
BUSINESS ROUNDTABLE Q3 CEO SURVEY LOWEST LEVEL SINCE Q3 ‘03
BUSINESS ROUNDTABLE Q3 CEO SURVEY 82.4 VS 98.6 Q2
Chief executives at major U.S. corporations were more pessimistic about the economy than anytime since the third quarter of 2003. The Business Roundtable CEO economic outlook index fell to 82.4 in the third quarter from 98.6 in the second quarter. “We believe that we are beginning to see the effects of energy and interest rate pricing pressures reflected in the business outlook,” said Harold McGraw, Business Roundtable chairman and the chairman and CEO of The McGraw-Hill Companies. Chief executives “see things slowing down,” McGraw said in a press briefing with reporters
add to this the cfo´s and you are on the way to dow 36.000…..
http://immobilienblasen.blogspot.com/2006/09/cfo-confidence.html
Fannie Mae could be hit hard by housing bust
the investor berg talked his book (short fnm) but the facts are really worth reading. especially the expansion in the subprimemarket.
http://immobilienblasen.blogspot.com/2006/09/fannie-mae-could-be-hit-hard-by.html
Very interesting article however “bought” does not always equal “retained” on their balance sheet–if it matters for Fannie Mae. I am not up to speed on their obligations in relation to mortgages sold off further. Default rates on subprime will go through the roof at probably twice the rate presently perceived.
When I recently read a story indicating that hedge funds were heavily into buying subprime mortgage debt, I had no idea they were referring to Fannie. After seeing this story, I understand how bad the US taxpayers are at risk of getting reamed.
——————————————————————————
“Subprime exposure
Fannie has traditionally specialized in higher-quality, fixed-rate mortgages, which are less vulnerable to interest-rate fluctuations and volatility in the housing market.
But the company has been investing more in subprime MBS in recent years. Subprime loans are sold to home buyers who fail to meet the strictest lending standards, so this area of the mortgage market is expected to be hit harder by any housing downturn.
Fannie and Freddie bought 25.2% of the record $272.81 billion in subprime MBS sold in the first half of 2006, according to Inside Mortgage Finance Publications, a Bethesda, Md.-based publisher that covers the home loan industry.
In 2005, Fannie and Freddie purchased 35.3% of all subprime MBS, the publication estimated. The year before, the two purchased almost 44% of all subprime MBS sold.
Three big lenders, NovaStar Financial , Deutsche Bank and BNC Mortgage, part of Lehman Brothers , sold more than half of their subprime MBS to Fannie and Freddie this year, said Andrew Analore, editor at Inside Mortgage Finance.”
One of many unanswered questions: How was Lehman Brothers, one if the Mega Insiders, able to flog more than half of their subprime mortgages (guess which half!) to Fannie without any upfront MSM attention to that whatsoever? Has anyone analyzed the management family trees of these two organizations to see if there is, horrors, any incest? Are the taxpayers SO utterly stupid as to not at least question this?
I hate to ask, but could Fannie Mae actually turn out to be the PPT incarnate? The fact that they are buying subprime debt by the boatload suggests they have played a key role in driving up prices while also putting many low income households into the path of a moving locomotive. Great job at spreading the benefits of homeownership, Fannie!
I agree with this. Fannie has been given authority to create money from thin air, and, if they lose it, to print more. Fannie cannot fail because of secret deals and government malfeasance.
PS, after they get done with the FBs they are coming after pension funds and private savings. Noone with less than a half a billion US$ will be able to buy as much as a stick of gum soon. /Tin foil hat off.
Phew! You had me scared there for a second
Getstucco — whatever lies at the end of this pit, I think it is a biggie of insider stink. Thanks for raising it here and hopefully other intrepid bolggers will be able to get to the bottom of it all. Like you, I surmise, I think the cancer is not benign.
How Low Will Home Prices Go?
Terri and Her Sister Tour Open Houses
To Gauge the Local Real-Estate Market
September 14, 2006
My younger sister Melissa and her husband Joe are ready to move.
Today the couple live in an apartment in New Jersey just across the Hudson River from Manhattan. At 33, Melissa’s had it with city life, tired of dragging bags of groceries up steep flights of stairs, frustrating hunts for a parking space and worrying about having her new car stolen or broken into.
And they know what they want: a three-bedroom, single-family home near us in Monmouth County, N.J. Melissa wants to move closer so our families can spend more time together. Joe lived in the area as a child, and he’s eager to return.
But our neck of the woods has seen some of the steepest home-price increases in the nation over the last several years. In the second quarter of 2006, the median price for a single-family home in our region was $393,600, more than double the median of $188,200 in 2000, according to the National Association of Realtors.
Those price increases have reflected fierce competition, something my sister knows all too well. Last summer Melissa and Joe found the perfect place — a roomy home near us on a fair-sized lot for a hair under $250,000. (Roomy was key — standing 6 foot 5 plus, Joe’s a guy who needs space.) After making an offer, they thought the house was theirs, only to see it snatched out from under them at the last minute by a counteroffer for $10,000 more. That was too much for my sister; deeply disappointed, she and Joe stopped looking. Still, they did keep an eye on real-estate sites, hoping for signs of a letup in the insanity.
Recently she’s seen reasons for hope: Far more homes were showing up in their price range, and others she’d seen a year ago were being relisted at reduced asking prices. Melissa decided it was time to look around again, and last weekend she asked me to come along on a tour of open houses in her price range. My sister had a list of homes she’d found online, but I suggested we tour as many open houses as we could to get a feel for the market.
What we saw was bleak news for sellers in our region, but good news for buyers like Melissa and Joe: block after block of open-house signs. In fact, we were hard-pressed to find a street that didn’t have at least one home for sale — and many had more than one. What’s more, most of the 20 or so homes we visited were vacant — a sign that homeowners have moved on and are motivated to sell, or that speculators are looking to unload properties before prices go any lower. (Asked why one home was vacant, one agent said frankly: “This was a ‘flip’ that flopped.”)
http://tinyurl.com/z5by4
Brooklyn Flambée: Development Boom=More Fires
The return of the Saturday night special…
Lumber prices getting cut down by cooling housing market
http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=mktw&guid=%7B05DF174B%2DAED1%2D4C1D%2D9F90%2DB94173BDE819%7D&keyword=
ouch!
Amaranth Says Funds May Have Lost 35% on Natural Gas
http://www.bloomberg.com/apps/news?pid=20601103&sid=aALzo5qoyPBw&refer=us
Is anyone else seeing this?
Over the last week or so, real estate bulls/cheerleaders are increasingly turning from denial to anger. There’s been a big surge from what I’m seeing.
Is anyone else seeing that?
It is the normal progress of individuals’ reactions when they realize that they made the wrong bet and that the size of their loss could be humongous. The anger should go on for a good long while. Then comes depression/resignation. Someone here posted a list of these stages, a while back.
It’s getting more and more amusing lurking in the SDCIA forum, especially when Txchick or other housing bears rain on the parade. They’re desperately trying to prop up each other’s morale, but the fear and alarm are palpable.
From Tampa; Overheard in the lunchroom today:
“I know four couples who got together and bought a condo in the Trump Tower, they are screwed”.
Four couples and one condo that none of them can afford
individually.
Denial is not a river. These guys sure know how to put a brave face on a freefall:
“Homebuilder confidence hits 15-year low
“U.S. homebuilder optimism sank for an eighth consecutive month in September to the lowest level in more than 15 years, with a surge in the backlog of unsold homes putting development on ice, an industry survey showed on Monday.
The National Association of Home Builders said its index of homebuilder sentiment sank 3 points in September to 30, the lowest since February 1991, when the economy had slipped into recession. August’s figure had been revised upward to 33 from 32.
A reading below 50 means more builders view sales conditions as poor rather than good.
Seiders last week told Congress that the slump in home sales and production will not bottom out until mid-2007, even though growth in jobs and income is supportive of the sector. House prices are expected to be flat in coming months and declines are a “distinct possibility,” he said.
The NAHB’s gauge of prospective buyer traffic was unchanged at 22 in September. While stable, the level does not indicate stabilization in the market, Seiders said.”
http://money.cnn.com/2006/09/18/real_estate/homebuilder_sentiment.reut/index.htm?cnn=yes