Bits Bucket And Craigslist Finds For September 23, 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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Bad Blood Over Bad Loans / mbs
from business week about the bigger mbs buybacks.
to most of us old news but at least a good summary
http://immobilienblasen.blogspot.com/2006/09/bad-blood-over-bad-loans-mbs.html
“Analysts say buybacks were a major factor in the collapses of Acoustic Home Loans, an affiliate of California lender Metrocities Mortgage, and Texas-based QuoteMeARate.com. Metrocities declined to comment. QuoteMeARate.com’s Web site and phone number are no longer in service.”
“Metrocities” — They misspelled “Atrocities.”
jmf’s note on option one in a previous thread was nothing short of mind boggling. But I’ll spin my error into a “greater truth” that this business week article reinforces. I’ve never seen early payment defaults over 1% for subprime loans from depositories, including the finance company arms of bank holding companies. For that matter, I can’t think of any over 0.5%. But option one, with early buybacks around 10%, and all the lenders named in this business week article, are subprime lenders that are not attached to depositories. An article last Sunday in the Cleveland Plain Dealer identified Argent as another company with astoundingly high early defaults, and again Argent is a non-depository sub-subprime lender (owned by same holding company as Ameriquest, apparently does the deals that not even Ameriquest will do). This is really reinforcing what I’ve heard, namely that depository subprime lenders are doing the less risky (in relative terms) stuff and the non-depository lenders are doing the really risky subprime stuff. Since the interagency guidance on exotic loans will only apply to the depository lenders, not only does it miss a large chunk of the subprime market (30% according to one testimony at last week’s Senate hearings) but it misses the scariest piece of the market.
here is a great piece from mike larson in the next bubble in the reits sector. and another example that fundamentals don´t matter at wall street
In short, you’ve got a fundamental picture that’s deteriorating. On top of that, you have many REITs trading at valuations that are absolutely bonkers. Three examples:
Simon Property’s shares are selling for a grossly overvalued 57.7 times earnings. That’s more than triple the S&P 500’s 17.3 times earnings. Worse, Simon’s indicated dividend yield is just 3.32%. That’s an incredible 1.4 percentage points less than the yield available on a risk-free 10-year Treasury Note.
Prologis’ indicated yield is even worse — 2.82%, based on the stock’s recent price. That’s almost the lowest in history. Compare that to the situation back in 2001, when the stock was yielding 7%!
Vornado’s overvaluation is the worst in eight years. Like many REITs, the company also reports a figure called funds from operations (FFO). This is a “core” profitability figure adjusted for various REIT-specific costs. Vornado’s FFO rose only about 6% year-over-year in the most recent quarter, but its share price surged more than 21%, or over three times more. That’s way overblown.
rest of the story with great charts. very good.
http://www.moneyandmarkets.com/press.asp?rls_id=433&cat_id=6&
Yeah, there was an idotic movement into REITs just when they were peaking. Wall St told investors they needed to diversify into real estate (even though most investors wealth is already tied to real estate, i.e., their home) and commodities.
There are to good answers:
ProFunds Short Real Estate Inverse (SRPIX)
Profunds Short Precious Metals Inverse (SPPIX)
Being short was never so easy…
“Yeah, there was an idotic movement into REITs just when they were peaking”
..just more chasing of returns….(oh, I’m sorry, I meant seeking aplha)
being stupid was never so easy, either.
Use SRPIX with caution. As the credit derivatives market begins to unwind, your exposure may be at some risk by way of solvency.
As for precious metals, short them at your peril. When the dollar weakens, precious metals rise. And the dollar is headed into the toilet.
Does anyone have an opinion about Rydex Weakening Dollar fund?
High risk using derivatives, options and shorts. I’d like to see them beat UNWPX or beat gold.
PMs aren’t as overvalued as the REITS or RE is.
How do you know the dollar is not the next bubble?
Good point!!!
A dollar bubble would necessarily be precipitated by the soundness of the US economy and our government’s sound fiscal policies. Both oxymorons right now.
It was not necessary for the Japanese economy to be on a sound fiscal and monetary basis in order for deflation to take hold. How do you know it is different here?
propertyshark.com has just now listing actual sales prices for all nyc/manhattan co-ops/condos for all sales since 2004! this is major innovation in the formerly secretive manhattan market — and worth repeating.
(NOTE: i mistakenly put ‘propertyshark.com’ in the ‘url’ slot in my above post. i am not associated with propertyshark in any way.)
They’re down right now anyway: “PropertyShark.com is now moving its servers to a new Data Center. We apologize if this causes any inconvenience to your service. We feel that after this initial disruption you will be very happy with the difference it makes to the speed and reliability of our services.”
An excerpt from the book ‘A Random Walk Down Wall Street’
The market was crashing in October 1929 and this economist from Yale was telling everything would be fine.
HAH! ……
Great comparison, Arwen.
The more things change, the more they stay the same.
What has been will be again, what has been done will be done again; there is nothing new under the sun.
(Ecclesiastes 1:9 NIV)
Considering that more than a million illegal immigrants are sitting in US prisons for felonies (murders, rapes, etc.), at a US taxpayers’ cost rivaling that of the Iraq war, and that their arrests and convictions cost tens of billions on top of that, and that hundreds of billions a year are spent on free medical care for illegal immigrants and free medical care and education for their children . . . well, are these are the beneficent effects of doing jobs Americans supposedly don’t want to? Mr. Lereah clearly has no conscience or moral compass, and simply panders to selfish business interests with no regard to the consequences. Cheap, unskilled, illegal immigrant labor may be building all those overpriced condos he loves so much, including the ones he flips himself, but the builder gets what he pays for, or rather doesn’t pay for: stapled together junk construction (can we all say “particle board, styrofoam, and stucco?”). And millions of naive buyers are going to get stuck somewhere down the line.
Most poor illegal immigrants are not buying 500k houses. Some do so, but not in numbers justifying a 4X increase in property prices.
Yes the building industry loves illegal workers (cheap labor = bigger profits), but everybody else picks on the tab. Sort of a high price to pay to prop up the real estate industry so builders and flippers can line their pockets.
Mr. Lereah, from the content of his NAR-posted biography, appears to have had his fingers in every aspect of money-manipulation; what does not come through is anything indicating humility, humanity, or the slightest shred of dignity. The biography comes closer to a gushing paean than anything else, and only an ego beyond comprehension would allow it to be published by the NAR.
Beautiful analysis of Mr. Liarliarpantsonfire.
Well said! Colorado finally has a stand-up politician, Tom Tancredo, who is pointing out the true costs of illegal immigration and trying to get the Federal Gov’t, under this most clueless of Presidents, to honor its obligations to secure our borders and deport lawbreakers.
Good luck. This president, the Senate, and much of the House has sold out to business interests (translate lobbyists and their donations) and couldn’t care less about the harm they’re doing by not upholding the laws they swore to uphold. Campaign contributions outweigh honor and honesty any day of the week. On the left, we have the problem of legislators who don’t want to be called racists by illegal, illiterate, Mexican immigrants (there is no such thing as a Mexican race). Isn’t that funny? They’re more concerned about their own fake image as “tolerant” and “compassionate” than they are with the safety of the country, and the fair well-being of its legal citizens. What’s in a name? Apparently everything to egomaniacal twits.
Here is the bush plan for the mexicans. Just fyi.
http://www.augustreview.com/index.php?module=pagesetter&func=viewpub&tid=4&pid=14
If the Repubs don’t get serious about immigration and the border, I’m looking more towards the Reform Party. They seem the only party serious about protecting our borders and stopping illegal immigration.
http://www.reformparty.org/platform.htm
“If the Repubs don’t get serious about immigration and the border, I’m looking more towards the Reform Party. They seem the only party serious about protecting our borders and stopping illegal immigration.”
What about the Libertarian Party? In the old days, before welfare, a standard plank of the LP was open immigration. But libertarians are no fools and understand that as long as medical care and welfare are available to anyone without cost, we have to control our borders closely. Pat Buchanan and Ron Paul have written on this.
The L party still supports open borders, which makes it a LUDICROUS party. I am not familiar with the Reformed Party, unless this is the thing started by Ross Perot. I’ll check it out.
According to Buchanan, illegal immigrants murder 13 US citizens every day, and kill another 9 in automobile accidents. These are averages. Does anybody know if these figures are correct? Illegal immigrants are the major work force behind all the crappy condos and houses built during the bubble, and still going up here in hideous Tampa, and the horror stories about shoddy construction keep mounting. I think the builders should be imprisoned for selling inferior, dangerous, goods, and for employing illegals, but it isn’t happening yet. I did hear from a home repair guy that his business tanked because of unskilled illegal immigrants, who are being hired in place of skilled workers, but our politicians won’t even address the issue, much less correct it.
Here in Tampa, our local Democratic congressman Jim Davis supports open borders (thus improving his chances of winning the “Hispanic” vote). This guy is now running for governor. His office apparently censors all communications, so he hasn’t received any of the letters or faxes sent by thousands of anti-illegal immigration constituents. I ran into him at a store, and he had no idea of what I was talking about. He’s a friend of my family’s, so I believe him when he claims ignorance. The fact that he doesn’t know what his own employees are doing tells me that he is unworthy of becoming governor. The fact that his employees are dishonest, manipulative fanatics tells me even more.
On Thursday, September 21, 2006, the U.S. House of Representatives passed three more pieces of legislation aimed at increasing border security and cracking down on illegal immigration. Each bill was based on similar language found in H.R. 4437, an enforcement-only measure, passed by the House in December of 2005. House GOP Leadership hopes the passage of these bills will be evidence that Congress is serious about securing the border and enforcing laws
H.R. 6094, the Community Protection Act of 2006, passed the House by a vote of 328-95. This legislation will give the Department of Homeland Security (DHS) the ability to extend detention beyond the current six month maximum for criminal aliens who otherwise are unable to be deported. This in turn would end the practice of allowing violent criminal aliens back on to the streets simply because they cannot be returned to their countries of origin. The bill will also mandate the detention and deportation of alien gang members and also make them ineligible to receive asylum or temporary protected status
The second immigration-related bill to pass the House yesterday was H.R. 6095, the Immigration Law Enforcement Act of 2006. This legislation passed by a vote of 277-140. H.R. 6095 reaffirms the inherent authority of state and local law enforcement to voluntarily investigate, identify, apprehend, arrest, detain and transfer to federal custody illegal aliens
The last immigration-related measure passed the House unanimously. H.R. 4830, the Border Tunnel Prevention Act, criminalizes the construction and financing of border tunnels
Other action on the Hill this week is the consideration of the Secure Fence Act of 2006 (H.R. 6061) by the U.S. Senate. The House passed the legislation last week. The Senate plans to vote on the Secure Fence Act on Tuesday, September 26, 2006
At Least the House is moving in the right direction!
a great post from calculated risk on the impact of the mew on gdp
GDP Growth: With and Without Mortgage Extraction
http://calculatedrisk.blogspot.com/2006/09/gdp-growth-with-and-without-mortgage.html
The anonymous host of Calculated Risk has been doing some great, creative analysis lately. His site has become one of my favorites.
Me too! What great charts.
thanks for passing this along
From the comments section of jmf’s link from calculated risk:
according to the 2005 American Housing Survey
http://www.census.gov/hhes/www/ h…tionaldata.html Table 3-15
owner occupied units with mortgages
EQUITY
100%-80% 15%
60%-80% 18%
40%-60% 23%
20%-40% 24%
10%-20% 9%
0%-10% 6%
none or negative 6%
If each house fell by 20%, then they would be about 21% underwater (21% of owners with mortgages -14% of all owners). If people are more highly leveraged in places that will fall the most (as I would guess) it would be bigger than 21%. Of course this is owner-occupied. How many flippers will be underwater on their failed investments?
mort_fin | 09.23.06 - 1:21 am | #
I’m going to assume this poster was saying 21% of owner occupieds plus who knows how many flippers will be in trouble. I think this is a nice framework for future buyers of Ben’s blog. I think it nicely spotlights the variations in seller desperation. For some, only health crises or job change would create that desperate feeling many buyers are counting on. But for some sellers, this economy slowdown will simply mean staying in the house they are already in instead of upgrading which really would only be a smart move on their part.
Here’s a little data from Orange County, CA (source is So.Cal. MLS).
Currently, 28% of all homes on the market in OC are vacant. Whether the owners are flippers, or simply people who bought a new home before selling the old one, these folks must have that desperate feeling already - even without a 20% drop in “value”.
If you consider that housing churned is somwhere between 8-11% annually.
20% drop, puts 21% into negative equity, which is roughly 2 years of inventory.
He provides some great data and analysis. I think this set of graphs paints a “great” picture.
Housing demand is important to U.S. economic health. When related purchases such as furniture and appliances are included, housing accounted for 23 percent of 2005’s gross domestic product, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Mass
I am pretty sure that this same study also said that there was not/is not a bubble.
if you look at who funds the harvard housing center (reic interests!), you will understand why they have functioned largely as a shill for the realtpeople throughout this bubble.
Yes, they were shills in the recent past, but Nicholas Retsinas, the head of that Harvard organization was inerviewed on CNBC a month ago or so and acknowledged the market had changed and was going down.
There’s only so long these people can publicly deny what is happening.
Retsinas went down around the same time Lereah did.
Outside of a few F’d homeowners and, shady realtors and brokers, and clueless folks still out there “looking for a house”, there are very few RE Bulls left.
The “people at the top” have to admit something’s wrong or they look like absolute idiots now, what with all the bad “new/existing home sales reports, builder confidence surveys, etc.
So Retsinas has now joined the bears.
Home Sellers See Flat Summer from the Pensacola NewJournal:
“Muller said one reason for home prices remaining high, despite it being a buyers’ market, is “individual homeowners will do whatever they can to not sell below what they think the house is worth.”
That means many will either rent the home, or continue living in it until the market gives them the price they want.
“I think, certainly, if you’re a buyer that’s not a good thing,” Muller said. “Prices are very grudgingly coming down, and from a market standpoint that’s a good sign that prices are not dropping precipitously.”
http://tinyurl.com/z7aqq
Pensacola, Florida has 12 months inventory at the end of August! (yeah, yeah–I know inventory is around 24 months or greater down on the southeast coast don’t gloat!)
http://tinyurl.com/gfe37
Popper - Do you know anything about St. Augustine? I’m interested in getting the low down from there, what has happened, where things are, where they may be headed. Any sources out there? Tks.
I dont’ have any info. on the St. Augustine area however one of the Bills that posts seems to be around Palm Beach and there’s Paul in Jax (Jacksonville?). Good luck.
St. Augustine is pretty and unique, but has a bad traffic problem and too many fat, generic American tourists, almost like a little Charleston. But, hey, that’s commerce. Most of the older housing stock downtown and on the immediate north and west sides has been scooped up - a lot of it has been “dolled up” and is back on the market at bubble prices. A lot of these houses are old and undoubtedly have mold, termite and other infestation problems - they are great as project houses but just not worth paying more than $125-150/sq ft for and so are (IMO) at least 50% overpriced.
There is a ton of new construction all over - north in Vilano, west toward World Golf Village and south toward Crescent Beach. I have a friend in NC who bought a small house in St. Aug. Bch. a few years ago about four blocks off the beach and was bellyaching about having had to pay $150K when he could have paid under $100K in 2001. That house probably peaked at $350K this summer, rents for about $1200.
St. Johns and Flagler Counties (between Jax and Daytona) are probably the biggest laggers on the Atlantic coast of Florida - a lot is going on and a lot has come on the market recently, but prices are just starting to top out and roll over. This was the lowest price area of Atlantic Florida until 2000 but that is not the case anymore - prices are now similar to the Amelia Island/Fernandina Beach or the Melbourne Beach area. Also, Jax is commutable from St. Augustine, which is another support.
There’s an area of St. Augustine (Anastasia) near the lighthouse that has a lot of new tract housing and I see a lot of stuff for sale there. Typical asking price for newer non-beach house on 1/6-1/4 acre lot would be $450-500K for 2000 sq. ft. - i.e., not cheap.
I ran into a lawyer who lives in the nice, expensive part of Vilano Beach (north going up A1A toward Jax) a couple weeks ago and asked him how the housing market was there, and he paused a minute and said something like, “It’s slowing down, it’s a buyer’s market.” (Don’t you just love that?)
So bottom line - nice area, but has been a hot area recently, and you would be buying into an area that has seen a very great percentage price increase and is not yet in distress. Much more distress currently in S. Fla., where the market is way overbuilt and the only people who want to live there anymore are ex-pat South Americans.
Chavez, more saber-rattling, please!
Hey thanks, Paul. I’ll check back in on this in another two years…
Almost all of us are quite certain to see house prices falling hard.
We can joke about it here on this blog and I think that’s part of it’s succes. But how are you behaving towards your friends(homeowners), family, partner(who maybe wants to buy), collegues…?
To me it seems like a very sensitive subject.
A couple of collegues “get” it,
at least one is convinced that her town and her house are “immune”..such a special place…
another thinks his house isn’t worth half of what of similar homes in his town have sold for in the last year or so, I think he is the only home owner in the country that feels that way…
another thinks his house is a piggy bank…
another thinks a neg. cash flow condo..is the way to wealth and riches..
a buddy has reconciled himself to a 20% decline and is ok with it, because he has about 50% equity and is in the house for a long time..
another buddy keeps upgrading his house, throwing good money after bad…
“another buddy keeps upgrading his house, throwing good money after bad…”
So he is downgrading!
I don’t bring up real estate any more (except for those that already have accepted that I’m a bubblista). If it comes up in conversation, I listen to what other people are saying, and just smile and nod my head and say “yea, ummm hmmm, ummm hmmm”.
If they REALLY push, or voice some bubble leanings, I MAY put forth that I think prices may go down “a bit”.
Luckily sentiment here seems to have changed from “prices always go up” to “looks like were in a rough spot right now”, so it makes things a little easier.
“…I just smile and nod my head and say “yea, ummm hmmm, ummm hmmm”.
You should be chewing gum and blowing bubbles instead! But
don’t make them explode into your face. It makes you look like an idiot and it would blow away your arguments.
Personally, I think the principle of good sportsmanship should govern. No one wants their nose rubbed in their error. No successful people I’ve known and admired were verbal braggarts about their success. One family member ws, during the dot-com boom, but I kept my yap shut and sure enough they lost it all.
It’s difficult not to gloat, particularly if we have a rather ordinary net worth and are making out very well by following the collective advice in Ben’s blog. But it sure isn’t worth losing friendships over, nor being a boor to strangers who didn’t solicit your views.
I was initially very excited to (delicately) share the information I found on this blog. Not to put down but to help keep people informed as they moved forward.
Due to most people’s reaction to that info, my sharing has been refined to…..
Not so much.
I’ve been telling anyone who would listen that prices are going down all year. It’s a good way to guage public awareness of the situation. In the past few months there’ve been an astonishing # of people who agree with the notion- it’s really picked up since last Fall. Most last fall thought I was a nutcase.
If they seemed receptive , I would explain the loan situation. That is the one piece of info that seems to turn non-believers into believers.
Friends who are homeowners and counting on the “RE always goes up” thing were freaked when I first started talking about it. But they’re good friends and I want to keep them as good friends so I felt we needed to have those conversations frrom time to time because, frankly, I am all about the housing crash right now. So it would be wierd to “not mention it” just because we’re on different sides of the fence.
Over the year, my homeowner friends have gradually gotten used to the idea that their homes are not the “future financial security” they once believed- which I think is a very healthy thing!- and have started cheering on the housing bust along with me.
It’s like they finally get it that this has been a very unhealthy thing for society.
I’ve only run into one person who seemed genuinely upset by the notion of a crash and was very insistent that homes will only go up. A young dad with 2 small children, just bought the house last year and is renovating. The idea made him anxious so I, rather kindly, said “Well nobody knows what the future’s going to bring, maybe I’m wrong, who knows.”
Frankly though, I think it’s not a great thing to avoid reality if one can help it. So I spread the news, gently.
I try to get a sense of where the person is with regards to bearish or bullish or clueless. For those who are bulliish, I say little. I have learned that those folks have buoght into the beliefs hook line and sinker and the chance of a civilized dialog wit them is almost nil. If the person is bearish then I will happily talk about what my position is and listen to their insights. The clueless and expecially the clkueless who are even considering buying are a special case. I muster by best facts and make an honest effort to convince them not to buy right now. For the clueless who are starting to feal the pain for whatever reasons, I refrain from any “I told you so” position and instead try to understand what their situation is. If I hear something I have an opinion on, I share it.
Well, the Plunge Protection Team had quite a week. Lots of negative news about the housing industry. But everyday, the stocks were manipulated upward. Day after day. One wonders how many shares of the HBs the PPT owns by now. Must be huge.
talk about the PPT..how about the rescue of Amaranth?
now “they” are saying that because this didn’t imact the markets like LTM, that it’s proof of how resilent the market is…
what “they” are missing is that several big players bailed them out.
Pen — how was Amaranth rescued? I didn’t read about that — assumed the losers lost and that was it.
SAN FRANCISCO (Dow Jones) — Amaranth Advisors LLC told investors on Wednesday that it has sold its entire energy trading portfolio as the giant hedge fund firm tries to survive.
“We have concluded a negotiated transaction which transfers the entirety of our energy portfolio to a third party,” Amaranth Founder Nicholas Maounis said in a letter to investors which was obtained by MarketWatch. “Additional information will follow shortly.”
Amaranth didn’t say who bought the portfolio, but CNBC reported that Citadel Investment Group, a big, Chicago-based hedge fund business run by Ken Griffin, and J.P. Morgan Chase (JPM) purchased the trades.
http://tinyurl.com/klvey
Anyone have info on JPMorgan Chase? They just bought out my mortgage holder too. (which had bought out someone else less than a year earlier).
The investors’ money wasn’t rescued, but Amaranth was.
“The investors’ money wasn’t rescued, but Amaranth was.”
OK - that makes sense.
Seems to me like money is flowing out of real estate into stocks again. Where else are you going to put it?
What money?
There’s a boatload of money out there. I just sold a rental house. I have $80k I need to do something with. Besides treasuries, what else do you do with it?
crash1,
I believe you are the exception, and there will always be exceptional people in disasters such as this, and will prosper. Most people don’t have the dime to pay for the advice to tell them they’ve been had.
PPT has to rely on other people’s money (nobody in their right mind except maybe a few Motley Fools would buy building stocks right now). So whose money is it? Or do they just print all they need?
GS, I posted on the weekend posts my hypothesis to your question “Who buys the homebuilders’ stocks when all indicators point down?” and I apologize for reposting here.
The hypothesis I am proposing - not provable fact, yet - but certainly worth considering:
1) I as a fund manager believe the market is 50% over valued and that I would like to be short everything.
2) I have been wrong in the past by being to early.
3) I must protect my asset base in case I am wrong at this time.
4) If I short or sell my long stocks that have held up the most since Mays collapse, especially those stocks with suspect earnings. How can I hedge?
5) If I buy stocks that have been hit with future earnings loss built in (home builders stocks), what Happens?
6) If the stock market tanks, then I make 50% on my shorts and lose 20 % on my long homebuilders stocks.
7) If the market rises (aka Soft Landing, Goldilocks economy) then the homebuilders stocks should go up twice as fast as the ones I am short.
IMHO this is what is happening, a very nice spread, I have not tried to work out the volatilities or the ratios or even the suspect stocks that would be shorted (or sold long to reduce exposure). But I guarantee somebody has.
Interesting thought, Hoz. What I have trouble with is how could a hedgefund manager consistently hit all the HBs at exactly the same time and push them hard upward. Wouldn’t a hedgie want to buy more surrepticiously? Why blast the stocks rather than gradually build a position?
And I doubt that a rising market would cause the HBs to rise significantly. The prospects for the HBs is too dismal. They should fall even in a rising market assuming the PPT goes away.
Dawnal –
We are thinking along the same lines. There are lots of fund managers out there, and if they did not collude, then you would not expect to see the remarkable level of minute-to-minute correlation across all the homebuilders (and you may as well include the DJIA, NASDAQ, and S&P 500 indexes in the extremely-correlated set of US stock market assets). There is too much high-frequency correlation to be explained by the independent actions of many individual market participants.
Hi Dawnal, The short open interest in the HB’s is so large that a squeeze could occur. Most managers will buy blocks of stock regardless of what the stock is doing, the managers goal is to not influence the price of the stock. For example somebody from this Blog buys 200 “put” contracts covering 20,000 shares of stock. The Market Maker/trader sells the “Puts” to the customer, the Market Maker then to hedge his position may offer a block of 10,000 shares for sale. A fund will snap that block up w/o affecting price. This happens every day.
The managers do not wish to hit all on the same day, they hit when there is adaquate volume offered. Volume is the key to any Hedge Fund, ETF or individual trader.
And the reason that I would expect the HB’s to do better than the market on the upside is that - The HB’s are not going down - when stocks do not go down. I would rather be long.
As I have very little interest - read none -in the HB’s stock, I have not worked on the HB relationships. I have seen the graph that compares the housing stock to
S & P500 w/ a 1 yr time lag, but I have not looked for any chart on what the housing stocks do in a crash - probably have to go back to ‘80 - 83. Just not my interest in the market.
Hoz –
I have not checked the charts, either, but much anecdotal evidence has been thrown out here (not to mention in the pages of the WSJ) to suggest that many builders went BK last time. I know this time is different, and all, but let me remind you that Enron was buying back their stock and playing pump-and-dump right through the crash and collapse of the company. That is the scenario I expect for many of the big builders, but I have to admit that I believe in the mean reversion concept, not to mention resonance with history.
Hoz…
You said…”And the reason that I would expect the HB’s to do better than the market on the upside is that - The HB’s are not going down - when stocks do not go down. I would rather be long.”
I would maintain that the reason the HB’s are not going down is that the PPT supports them day in and day out.
IMHO, the prospects for the HB’s is dismal. I fully expect several to go bankrupt before the end of 2007. Just look at the soaring inventory numbers. Basic economics point to a substantial fall in prices in order to clear the market. Look at the foreclosure trends. More inventory is coming into the market with distress prices. Look at the retreat of the speculators. They represent a double whammy. Not only are they withdrawing from buying homes, they are selling homes in large numbers.
It is hard for me to see any reason to buy the HB’s.
I would assume that the homebuilder’s directors are buying up their personal holdings of the stock using the company’s capital or using corporate debt. The companies are eating themselves from the inside out to save the porfolios of TPTB who will let the company explode Enron-style, and walk away with a slap on the wrist and millions in an offshore bank — and then the cycle begins again.
Nothing like burning the chair you are sitting on to warm the house up…
Link to flipping statistics broken down by major metropolitan area.
http://www.homesmartreports.com/docs/hsrnews/flippingactivity92106.htm
Interesting and fun list to peruse. The one that grabbed me immediately was Cleveland, TN — part of Chattanooga, I think. Why would flipping be a biggie there? I see that Boston really took it in the shorts — no surprise.
probably lots of homes to fix up in the rest belt. why is housing just a “glamor” states thing? interest rates are(were) low all over.
My sister lives in Cleveland. It is just north of Chattanooga, at one time very separate from Chattanooga but much less so now. Lots of retirees move to the area because of costs.
However, housing there is getting expensive with new stuff going on the market. Homes where my sister lives are maybe $300k and many even higher - a HUGE price there. Some of the best are really, really nice (almost mansions).
Eastern Tenn around and close to the Smokies has become a very popular vacation/retiree spot in the past few years. It has always been known for that and not surprising more people are now moving to that area.
I don’t have any idea where those numbers came from but I can assure you that there was more than 4% flipping activity in the washington DC area. Is this only looking at sale prices, because flippers often put some money into repairs etc. Does this facor in transaction costs? Does this take into account new homes and homes that are flipped prior to even being built? Does this include foreclosures?
I think this data must be missing too much information to be meaningful. I’d be interested to see the methodology behind the numbers though.
San Diego % flipping = 4%, St. Louis % flipping = 4.2%??? I’m not too convinced.
Personally, I’m pretty happy with this set of info as Bellingham, WA is in the top 30 cities (out of 147) for flipper losses. I’ll take that number with glee, especially since the losses were only calculated through Q2 ‘06 and it’s been nothing but downhill from there.
The percentages of flipping activity do seem low though. Obviously, they are not counting the “homeowners” who only bought cuz RE was going up and thought they too would get out eventually with a big profit.
Nor are they counting the flippers who claimed the property as their residence. etc.
These #’s will go higher in the future.
Great find Jannifl!!
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Well, I a few days ago I emailed the article (link below) on Barbara Corcoran’s “Housing Super Bowl Flip Flop” to both Jim Rogers and Ben Stein and asked them to bring it up with Babs this week. Rogers (a friggin Billionaire!) or maybe it was one of his staff actually emailed me back and said “Thanks!” - so we’ll see if they bring it up this week - (Cavuto on Business - Saturday at 10:30am EST on Fox News Channel).
http://tinyurl.com/njv86
No Babs this week!
To anyone with California renter’s law knowledge:
The house we’ve rented to position ourselves for this bust has entered the Notice of Default stage of foreclosure. How best do we proceed? Once the bank takes ownership I assume will we receive notice to vacate. I feel as though I should continue to pay rent as long as I occupy the home, but my deposit may be gone. Should I give 30 days notice and use my deposit for the last month’s rent?
The situation amounts to an inconvenience, but nothing more. I am interested in the best course of action. Thanks to any who may offer guidance.
This is the problem with renting in a downward market, and having kids in school adds to the difficulties. However, it is still better to move under these market conditions as eventually you will get more house for the same rent payment — still much better than going upside down. Keep your powder dry!
Why do you think you will lose your deposit, assuming you haven’t damaged the place? If it were me, I would write to whomever gets the rent check and note that you plan to subtract the deposit from the last rent payment you make. Include proof that you paid the deposit. The worst that can happen is they contest that and even then you might not be stuck.
My deposit was equal to one month’s rent and we are on a month-to-month basis right now. The owners are obviously too strapped to return the deposit I must assume.
I’m sure it varies by state but in VA as long as you pay your rent to the owner of record(and don’t violate the lease in some way) they cannot kick you out until your lease expires. There is a lot of rentor info on the web so I’d google your specific laws and see if your state or locality has a renters handbook online.
http://www.hud.gov/local/ca/renting/tenantrights.cfm
I am in much the same position. The place I’m living in is going to auction on 10/8. Lady is way underwater, and can’t keep up. Zillow says its worth 500k+ but that is BS. It is a 2 on 1, 2×1 in front and 1×1 in back. Rents are 1100 & 800 respectively. All of her “improvements” were made by a pot-smoking boyfriend, and need to be ripped out and redone. I kinda doubt she’ll be able to sell, ’cause they expect to get about $425K, but there are much nicer properties for that price that would bring in greater rents.
Starting bid 295k, sale subject to lender approval.
Nobody should ask you to move until a buyer decides they have different plans for the place. If the bank takes it, they’ll want a renter so they can show that it does rent to potential investors, not to mention defraying holding costs, as well as a built-in “caretaker.”
Escrow should deal competently with your deposit as well as prorated rent, so you shouldn’t have too much to worry about. That having been said, if there is a problem, you’ll win the lawsuit, then have to get in line behind all of her other creditors.
I an considering writing my rent check late, and making it out to the escrow company, rather than risk shenanigans from the owner. Besides, she has made my life so miserable, I might like watching her squirm a bit…
Doug Noland is losing his grip:
“And, yes, Income Inflation is supporting inflated home prices that sustain the Mortgage Finance Bubble - that maintain over-consumption - that assures endless massive Current Account Deficits - that guarantees massive foreign buying of U.S. securities while writing yet another chapter in History’s Greatest Bond Market Bubble.”
http://www.safehaven.com/article-5945.htm
For months and months, he’s been decrying the ever-expanding credit bubble, but I think he’s now clutching at some straws.
He’s gone one step too far in his analysis. HELOCs and home equity seconds have all but dried up. There is no more support for the debt that has been incurred. It is time to pay the proverbial piper…
gone down yes, but not totally gone. this thing still have legs.
Yep, still got some legs, but this horse has gone from a gallop to a slow trot, and that’s all that really needed to happen to stick a pin this bubble.
It will take some more time, but I can’t believe that any other result can follow: All markets, and especially the U.S. consumer, will eventually be more risk-adverse than risk-tolerant.
Geez, think of all the baby boomers looking at their balance sheet and wondering “How the hell can I retire?” And to make matters even worse, we read more and more about how Social Security and Medicare might not last-ditch fix on which we were counting. If the boomer nation actually starts to save, instead of spending more than we earn, there are quite a few bubble out there in danger of collapse.
I’m a boomer, and if I was the average boomer with only 50K saved, I’d be sweating bullets.
I’ve seen information that many companies are having trouble hiring without substantial increases in salary levels. I think what he’s saying is that the credit expansion could continue with further imbalances and more probability of boom and bust within various financial sectors. Maybe we haven’t reached “peak debt” quite yet. Keep in mind that many US companies are awash in cash and using it for stock buybacks, M&A and paying for stock options. You’d think a bit would trickle down to the worker bees at some point, i.e. the income inflation he identifies.
I agree with much of what you say, Fred. And I certainly agree that income inflation is finally at hand. What I absolutely do not believe, however, is that any degree of income inflation in the next several years will be sufficient to support today’s inflated home prices.
Agree. I’d add to your comment the the fact that there is downward pressure on wages for blue collar workers due to global labor arbitrage and 20 million illegal aliens from the third world.
You guys need to think more like criminals.
Sweet jumpin’ Jehovah Witness!
There’s a spray of latte all over my screen, txchick!
I told our nazi HOA enforcer he was a dickhead the other day. Does that count?
Hey Catherine, keep posting info on farms and ranches. Appreciate your insight.
Well, Fred, I’m happy to. It’s harder to follow those higher end rural trophy ranch thingys, cause I’ll find one on one website listed at, say, $2,500,000, then on LoopNet I’ll find the same ranch at $1,750,000. When I contact the broker, it’s $3,500,000. I’m watching one in my area that has been relisted so many times at different price points and acreages, that the cows are dizzy. I guess it’s an “all lines in the water” kinda approach. But I’ll tell you this…there are ALOT of ranches for sale. Mainly Montana and Colorado, but everywhere in the West.
“You guys need to think more like criminals.”
Here’s some criminal behavior:
Condo developer faces suit
http://www.sun-sentinel.com/business/local/sfl-zhousingsuit22sep22,0,3747486.story?coll=sfla-business-headlines
No question there has been square footage inflation. Used to be every room was carefully measured so no wall or stairway areas were counted and of course any unheated or unfinished areas were not counted. Now, I think the standard method is to just run a tape measure around the outside of the house, multiply by the number of floors, and then tack on an extra 10%.
“The increases have caught many homeowners in a “can’t pay, can’t sell, can’t refinance” vise, in which their ARM payments are outpacing their incomes and their homes have not appreciated enough to help cover the cost of a refinanced mortgage or to allow them to sell and walk away. For them, foreclosure looms. ”
http://www.nytimes.com/2006/09/24/realestate/24cov.html
The NYTimes on ARMS…not cheerleading, but still optimistic.. for most ARM borrowers “there is ample fiscal room to switch to a loan with higher interest but lower angst.” Their reporters should read Ben’s blog so they can keep up with the news.
Broke-back yield curve — what could it mean? Did the inverted yield curve in previous cycles take on this odd saddle-shaped appearance, inverted across pretty much the full range of longer maturities, but with a pronounced dip at five years giving way to higher rates at longer duration? My guess: The market is pricing in a rough recession over the short-term followed by inflationary pressures after the usual liquidity pump remedy.
http://www.bloomberg.com/markets/rates/index.html
Does anyone have a link to how the volume of paper outstanding is spread along the yield curve or a table of the weighted average duration outstanding by year? I recall something about the supply of long paper being reduced in volume or as a percentage of total paper outstanding over the last eight years or so.
Maybe there is a supply issue on the long end that has built up over the years. Start with a historically low supply add the macroeconomic conditions to stimulate demand and you get conditions for a self re-enforcing bubble. Chase everyone out of all other asset classes and into the one class that the Gov’t needs–long term low rate US government debt.
I want to thank everybody for the informative comments and for the high level of discussion on this blog which I started visiting a couple of weeks ago. A few years ago, I was driving around the country a lot while also on the lookout for a modest and pleasant dwelling. I could not believe, to cite some examples, the hundreds of square miles of prairie east of the rockies and of cornfields west of chicago which had been plowed over for housing, and all those new towers in Miami and Vegas. A quarter million dollars seemed like a a lot of money not too long ago, but all of a sudden there seemed such a de-sensitizing towards numbers (i.e. prices) - hundreds of homes in “low 700’s” in exburbs where there is no major employer in sight? Where I currently rent, just last summer, some new rowhouses where sold for “starting at 275K”, half a year later the next phase was “mid 300K”, this year, “500K”. As a European, I am kind of flabbergasted what RE people, who seem to have brainwashed the country, call value - how can one determine value with no regard to what one is getting? Construction is mostly shoddy, no regard for energy efficiency, and I don’t believe for one minute that the cost of material is a major factor in the prices. Friends own a condo where major features (heating, windows) have not been updated since the second world war, yet they feel entitled to 170 percent “value” gain over six years. In Europe, construction workers and trades people have benefits and wages which allow them to live in middle class areas. The house I rent is just a few years old, the same model is for sale down the road for 320 times rent (=480K). Winters are cold here, and the front door is only half inch thick, apart from the gaps on the side and bottom; two windows in bedroom cannot be opened (saved a couple of bucks), and the crawl space is covered with a plastic sheet over the dirt - this kind of construction I could do myself easily. Forget about the poured concrete with actual walls for this price. I have deeply felt that there is something wrong with this so-called “market”, and before this current month, I found no information on major news which would have explained where all this money is suddenly coming from (now, of course, there is more reporting, but I still feel the major news act stupid). I have had a number of friends in the last years telling me that I should buy, and I looked at them incredulously because I was between careers - who would lend me money? Since reading this blog, I have understood who would have done so - I am so very glad that I stayed out of the fiction of homeownership. It is curious how people say they “buy” something, or spend “900K” on something, when they really neither “spend” nor “buy”, but just sign a piece of paper. Unfortunately, some of the news about my adopted country are not very reassuring (apart from the political side of things). Towns who push for high priced development of the McMansion-kind because they are greedy for more taxes is very short sighted when they know fully well that the local income level does not support such extravagance. And the property tax increases just infuriate me, with regard to the older folks. I find it not easy, with regard to housing, to have a balance of financial health and decent quality in this country. For now, I will remain aloof, a spectator.
Sagesse, sorry about that crappy house you live in. Move immediately. I’ve never seen an outside door 1/2″ thick. That, along with the gaps probably violates the local code. The windows in the bedroom that don’t open definitely do. The plastic sheet on the crawlspce floor is a vapor barrier. That sounds like maybe one thing thy did right.
Most homes built in this country are energy dogs. We’ll regret that at some point in time as energy costs keep going up and supplies go down. Your observation about towns encouraging stupid building practices is spot on. It’s all about the money. Without a job, you have two options-keep renting, or jump on the O-down, toxic loan wagon. Good luck.
The door frame is more than an inch, but the four panels are less than half an inch thick. The bedroom has three windows, only one opens…it is to me just an example of cutting corners. Am fortunate because I was not sucked in and have the luxury of staying aside and keep my Euros.
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more wisdom from Crammer -
RealMoney Radio Recap
RealMoney Radio Recap: Homebuilder Haven
By TheStreet.com Staff
9/22/2006 3:09 PM EDT
URL: http://www.thestreet.com/funds/realmoneyradiowrap/10310538.html
Small drop in Sydney?
http://www.domain.com.au/Public/Article.aspx?id=1158431757475&index=NationalIndex
Old media: 0, new media: 1
http://walkthrough.nytimes.com/?p=658#comments
rc — actually, i’t old media: 0, new media: 3!
not only now comments allowed, but the nytimes walkthrough blog is closing down, AND ben’s blog is mentioned on the list of blogs at the right of the page!
Found this on Craig’s List. Makes one wonder….if it doesn’t sell at the last chance reduced price, are they going to raise the price? I think not…..
$1695000 LAST CHANCE - PRICED BELOW APPRAISAL - FOUNTAINGROVE LUXURY HOME (santa rosa)
PRICED TO SELL - BELOW APPRAISAL PRICE: LUXURY FOUNTAINGROVE EXECUTIVE HOME
***** LAST WEEK AT REDUCED PRICE *****
Owners are investors who are motivated to sell - won’t be at this price for long. Act now - assumable mortgage option available. Will consider lease.
Magnificent Large Home, over 4600 sq. ft.
Newer Home, Built in 2004
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Last Chance before BK/Foreclosure maybe.
Hello P’Cola Popper:
I am over in Pace pretty much in the line of fire where the Eagle Group out of Atlanta is planning on dropping 10,000 homes on the 2,700 acres they bought this year. As you well know, another massive development is planned for the Cantonment area (4,600 acres), I just don’t see how this market can absorb all these new homes.
From what I read they want to price the houses in the 300k-400k range and there will be three golf cours. I am wondering where in the hell all these people are going to come from. Things may have looked fine when they started their development plans a year of so ago. Now with the tax/insurance crisis we face it is going to be quite interesting to see how their development goes. The are going gangbusters on it right now. The fairways for one of the golf courses has been cleared and the roads have been started. I think they better have some very deep pockets because Pace wasn’t ready for that volume of homes prior to Ivan and it sure isn’t now after Dennis. If you have the time, take a cruise down to Panama City Beach, it will blow your mind, there is going to be a major crash there. From the data I have seen, some of the people who bought in Portifino out on P’cola beach have already had a 30% haircut on their sale.
I’ve been in the re business for 25 years, family has been it since 1959, this market is like no other I have seen. I am enjoying sitting on the sidelines watching this unfold. Fortunately, I have lived rather frugually and work is optional for me so I am getting a real kick out of this bust.
RM
courses, They
Excuse the typos, you get my point I am sure.
RM
Here’s a good read from the Chicago Tribune — “the House of Horrors” — and it’s not even October yet!
http://www.chicagotribune.com/business/investing/personalfinance/chi-0609220217sep22,1,3655041.column?coll=chi-businessyourmoney-hed&ctrack=1&cset=true
Gail MarksJarvis
Use caution when trying to counter housing downturn
Published September 22, 2006
Merrill Lynch economist David Rosenberg calls it “the House of Horrors.”
He’s referring to his fear that a plunging housing market could turn even uglier, taking the breath out of the economy and the stock market.
He was one of the market’s early worriers, proclaiming a housing bubble in 2004. And in a report this week he was wringing his hands about builders, noting that they are so anxious to unload inventory they have been agreeing to buy people’s existing homes.
He was fretting about foreclosures nationwide surging 53 percent year-on-year in August. He was pointing out that while many adjustable-rate mortgages have yet to move upward, already the Homeownership Preservation Foundation is receiving a record number of calls from borrowers seeking help.
Whether the housing downturn will still allow a so-called soft landing for the economy or yank the shopping instinct out of the American consumer remains to be seen.
But while many other analysts aren’t as nervous about the potential “horrors” as Rosenberg, some are nonetheless urging investors to study portfolios and position themselves defensively for slower growth.
Jack Ablin, chief investment officer of Harris Private Bank, for example, noted that housing starts in August fell to their lowest level in three years. He suggested investors consider pharmaceuticals because they tend to be a defensive investment when economic growth eases. People, after all, need medicine whether they are watching their pennies or not.
Already, Ablin notes, pharmaceutical stocks are following a familiar pattern. The sector trends upward when housing starts plummet.
Since mid-July, the Standard & Poor’s Pharmaceutical Index has outpaced the benchmark S&P 500 by over 4.5 percent, he said. Yet he still thinks pharmaceuticals are worth buying.
If you do it, however, be prepared for a bumpy ride.
“Pharmaceuticals are one of the most politically charged areas of the market,” Ablin noted. They tend to underperform a couple of months before elections when candidates extol regulation and price controls. Then, Ablin said, “as the worst fears aren’t realized,” the stocks tend to outperform a couple of months after the election.
For a less bumpy ride, Ablin suggests a broader investment in the giant company stocks that have failed to live up to Wall Street’s grand expectations during the last couple of years. For a basket of them, he suggests iShares Dow Select Dividend exchange-traded fund, which invests in stocks that tend to raise dividends–a cushion if the market turns fierce.
But the ETF isn’t particularly cheap: Morningstar analyst Dan Culloton said it’s about 2 percent undervalued. Deeper values can be found in Vanguard Growth ETF, Vanguard Large Cap ETF, iShares S&P 100 Index and Rydex Russell Top 50 funds. These funds focus on giant U.S. firms and are about 10 percent undervalued, Culloton said, but the stocks within them don’t necessarily pay dividends, so there could be less protection if the market sours.
Merrill Lynch strategists are telling investors to prepare for an economic slowdown by veering away from retail, restaurant, leisure, housing and auto-related stocks, and moving toward those focused on business spending and international sales.
Capital spending among non-financial companies has been growing at a healthy 18 percent annual rate through the end of the second quarter, said Merrill sector strategist Brian Belski. “We believe that this growth will continue, as businesses replace aging capital stock and upgrade technology that may not have been changed since preparation for Y2K,” he noted.
Although less enthusiastic about technology, BCA Research told clients in a report this week not to assume that a slower economy would constrain machinery-makers. BCA analysts expect such companies as Caterpillar and Deere to benefit from lower commodity prices and profit from a secular upturn in worldwide demand for industrial equipment as non-residential construction stays strong.
Often when the housing market weakens, biotechnology stocks are favored, but BCA is warning clients not to be optimistic in this cycle because individual investors are risk averse and could “chronically thwart rally attempts.”
That could also make them cautious about seeking yield through high-yield bonds. Ablin says junk bonds could be “the most dangerous” investment in a slowing economy.