Bits Bucket And Craigslist Finds For September 26, 2006
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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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this is a fantastic piece from builder online that bubble butt (thanks)discovered yesterday.
i have made a summary of the 15 pages.
uncharted territory / builder online region by region
http://immobilienblasen.blogspot.com/2006/09/uncharted-territory-builder-online.html
No, no, no. You see, it was not speculators who drove up these prices, jmf! It was rich foreigners and rich Baby Boomers. David Lereah told me, himself.
Let’s face it if FB’s buy into this market now they must be complete morons. The homes they purchase today will feel like prisons tomorrow. Hey I just bought a three bedroom two bath mortgage and I am going to pay for it for the rest of my life.
Dateline Sacramento California. It is getting uglier and uglier. Desperate times call for desperate measures. I heard yesterday that the homebuilder JTS Communities was filing lawsuits against all the buyers that recently bailed out of their contracts in their subdivisions. Does anyone have a Lexus Nexus search capacity to see if this is true? JTS has cut all their home prices by $150,000 to $200,000 per home, and they are STILL NOT SELLING.
Now, imagine, you went under contract a year ago for $750,000 on a home to be built in Sacramento. When it is time to close the deal, you walk from the $35,000 deposit, thinking you don’t want to lose $250,000 more in market value (plus 5 years of $50,000 a year in negative cash flow). Whew, you got out of that with out too much damage.
SURPRISE: JTS is suing you for specific perfomance. I guess they claim having to resell the house for $500,000 caused them $250,000 in damages and YOU GET TO PAY?
This is a new definition of a F’d Borrower. You get to pay yesterday’s market value, but YOU DO NOT EVEN GET THE HOUSE!! Ouch. If this is true, I think the defendants to these JTS lawsuits would have a few choice words about dealing with this home builder. Lives may be getting very ruined very quickly.
Way back when I was under contract for a ‘new’ house (what, 6 years ago), the contract stated that if I walked before closing, and the builder found a new buyer for at least the amount I was under contract to pay, no foul, I get everything back (except for a small non-refundable deposit).
HOWEVER, if they couldn’t find a buyer and had to lower the price, I would have to make up the difference. Maybe JTS is suing for the difference?
suing for the difference sounds very reasonable to me. In my country this is normal procedure as far as I know; contract is contract. If you want out of it, you have to negotiate and the builder is in a very strong position. I think these buyers need to learn a lesson; if the 750K price was great one year ago, why not now? The answer is probably that the house was to be used for speculation and not for living there.
Yes, these are almost 100% investors.
Yes that is probably the strategy. JTS was one of the few sellers that allowed investors to buy. I know several subdivisions where it seems 90%+ of the buyers are investors. In JTS The Estate at Lincoln Crossing, probably 35% of those sales tanked, so JTS is apparently forcing the bailed buyers pay up, since they can’t sell the houses at any price. One JTS subdivision has been finished for about 6-9 months now and only 15 homes (out of 140) are occupied. It is a blood bath. Only 3 owner occupants, 12 renters and 100 new FB’s! JTS has 50 homes that came back on them. They slashed prices $200,000 and still can’t sell them. No home owner wants to buy in a market where 75% of the units will be rentals. These are big units. They could have six college kids, or large families with lots of children, or even nuclear families with 3 generations under one roof. The whole neighborhood will really deteriorate under that scenario.
wow!
Just a technical note - a seller can’t sue a buyer for specific performance; a seller can only claim monetary damages, they can’t force the buyer to buy the real property. A buyer, on the other hand, can sue for specific performance, thus forcing the seller to sell them the property, even if the seller is unwilling. This all presumes a legal, enforceable contract to sell the property was in effect.
Kathy, thank you for providing the distinction. If the seller is suing the buyer, to prove actual damages, does the seller need to complete a sale of the property to a new third party, so the shortfall is created? That may explain why JTS is forcing a LIQUIDATION SALE now. JTS may not care about the FINAL REDUCTION IN PRICE, because they will go after the PREVIOUS BUYER for the difference. Hmm. If that is true, they are a crafty bunch. It appears they waited until all the GF’s closed escrow were thru the pipeline, THEN THEY LOWERED PRICES BY $200,000. What a zoo this market is becoming. I would not care to get in the middle of JTS and home purchase for all the tea in China. Loose cannons at every port.
LOL. Look at it now
http://www.iamfacingforeclosure.com
gotta love Google… they have all the pages cached
socalmtgguy has some of the cache
http://housingbubblecasualty.com/?p=42
I wonder if he needs a good attorney because someone here sent a letter to the state AG telling him this guy admitted to Mortgage Fraud (by saying that he’d be living in these houses he’s buying to flip.)
..of course we could be the suckers. This whole thing could be a gimmick for his upcoming book on how he lost everything in the housing boom.
Or a platform for his launching a career giving seminars on how to “beat” forclosure.
Now, even if a hoax he still needs a lawyer. Personally, I won’t be satisfied until he’s belle of the ball at the Cell Block C reunion.
He comes across as a sweet, naive boy. But for me, the sorry’s really lack meaning. If he became a millionare, I doubt he’d be giving it to charities.
Let’s let natural selection handle this one. (Which might be closer to Robert’s scenario)
Told you this would happen. Federal offense.
In order to truly be sorry, he needs to ask forgivness (and get it) from the people he harmed.
Those include:
1. The bank and its investors
2. The people in the neighboorhood whose property taxes went up because of phony valuations
3. His wife! (for losing all his money)
It feel good for him to “vent” on the Internet, but it’s not helping any of the thousands of people he, in effect, stole from to fuel his get-rich-quick scheme.
I only hope that this isn’t more of the same hoax, and that CA state builds a new prison just to house mortgage frauders.
I have a good friend at the CA Dept of Realestate in the San Diego office. They investigate all broker applications and complaints. I am checking to see if I can file a complaint against this guy’s broker(s).
“I am checking to see if I can file a complaint against this guy’s broker(s).”
Yes, for filling out the amounts on the “inflated income” loans with a nudge and a wink.
I think TxChick showed the transaction in Tx was definitely done by someone with his name and she was familiar with the counterparty.
I misunderstood…..I thought this happened in San Diego.
He did 6 houses in various places.
…that’s just too funny; poor bastard..
In addition, he is twice as dumb as we thought.
Sorry, but “poor bastard nothing. If his AG’s office follows the paper trail, they could convict this scuzz and his lenders and appraising co-conspirators. You want some fairness in the justice system–start going after these white collar criminals who are eating us alive. His loans has been securitized and offloaded and who is the ultimate bagholder?/Fannie Mae? the taxpayers. Let them all do hard time in a serious jail–and when this punk finishes his stretch, deport him–he’s an immigrant who committed fraud.
Someone made already a better suggestion: offer him a plea bargain with probation for testifying against his mortgage brokers etc. about how far they were involved. Clean up the system.
Crimes committed after becoming a US citizen do not lead to deportation.
Cuba, use gitmo for the collection of federal financial terrorists for crimes against working family’s and the tearing of America’s fabric.
No lawyers, No rights, No Habeas Corpus, No judicial review, No Starbucks latte, they get to just sit there and think about what they once had…without the cigar & scotch.
Forgive if it’s already mentioned. Seth Jayson’s (Motley Fool) piece about this guy.
24 Years Old, $2 Million in the Hole
By Seth Jayson (TMF Bent)
September 25, 2006
http://tinyurl.com/kf3qn
Unfortunately, San Diego County (unlike, say Orange County, FL) doesn’t let you search property records on-line by name
http://www.sdarcc.com/arcc/services/property_records.aspx
…so it wasn’t easy for me to do a quick check to see if this guy is for real.
He’s all too real, unfortunately. I checked Albuquerque and Dallas.
lennar warns again
http://immobilienblasen.blogspot.com/2006/09/lennar-warns-again.html
have tried to post it, but failed 3 times
..shrinking gross margins, EPS, and backlogs; increasing promotions and land write-down cost; that definitely is not good…
you never know these day how the stock reacts
seems like bad news are very good news……..
…no kidding. looks like dow 12K is imminent… i’ve heard doom and gloom predictions of dow 8k, but just don’t see it..
Maybe the stock market is startingt to price in some upcoming hyperinflation.
We talk about fundamentals on this board all the time, and that should apply to stocks as well. Isn’t the S & P trading at 15 times earnings, meanings it’s slightly below average historical levels? If that’s the case, then maybe it does have some upside?
when you buy the spinning with the forward pe´s and not
based on “core earning” than you are right.
but on 12 month current “core” earning from sp it is closer to 19 times earnings.
i bet that next years earnings will be much lower.
that brings the pe to above 20.
We know that all the funny money in the system has inflated house prices. I think it is safe to assume it has also inflated company earnings. Since rates will fall soon, I’m guessing that earnings will continue to rise and the stock market with it.
Good thing that homebuilder stock prices always go up, especially on earnings warnings, which are a good contrarian indicator of higher future profitability.
Pentair lowers outlook due to soft pool equipment market
It expects pool equipment sales for the fourth quarter to come in between $30 million and $60 million below year-ago levels for the fourth quarter. Pentair now sees earnings of 30 to 32 cents a share for the third quarter
The company’s previous outlook for the third quarter was for earnings of 46 to 50 cents a share
For the full year, the company now expects earnings from continuing operations of $1.72 to $1.76 a share. Wall Street’s current consensus estimate is for earnings of $2.08 a share on the year. Pentair also lowered its free cash flow estimate for 2006 to between $170 million and $180 million from a prior view of $200 million
Being on the East Coast, I just read last night’s posting on from the Voice of San Diego on novice landlords. The idea of “own real estate and never have to work again!” is one of the more ridiculous aspects of this boom.
I’m just glad we have a one-family house and not a two-family house, which is more common where we live. Being a landlord is work, and lots of it, if you own enough property to make a living at it. Stocks and bonds don’t have to be maintained, and you don’t have to send a bill to get interest and dividends.
nothing new about that; people have been doing it in the Netherlands for more than 15 years now, except that you don’t need to be a real landlord here because rental income is irrelevant. No work involved at all, the average Dutchman makes about half the median income just by owning a home (or more than one home). Too bad for people who are not homeowners but then, they must be really stupid if they still have not understood the basics of the New Economy.
Lowe’s cuts profit view to lower end of forecast
citing near-term pressures on consumers such as a weaker housing market and high energy costs
Last month, Lowe’s shares fell after the retailer reported second-quarter earnings that missed Wall Street’s outlook. At that time, Lowe’s also cut its full-year profit forecast, citing pressure on consumer spending from higher energy prices and a slowing housing market (2nd. warning since august!)
to be continued……..
from monday
Ethan Allen Puts Revenue Below Estimates
Furniture maker Ethan Allen projected fiscal first-quarter revenue below Wall Street’s targets, citing weakness in consumer confidence.
The company said Monday that it expects revenue of $240 million to $245 million for the September quarter. Analysts polled by Thomson First Call have an average estimate for revenue of $264 million
Pool equipment
Furniture
Home equipment
Estate agents
What’s next?
new all time high on the dow…….
The market is more enthralled by the oil price decline and the prospect for reduced interest rates than concern over the housing bust causing a recession. For now.
Haven’t figured out how to use tinyurl yet, but yesterday’s “Financial Sense Online” article by Rob Kirby ref. Hank Paulson’s Goldman Sachs reconstituting their commodity index weights for unleaded gas, forcing institutional and hedge money to sell 75% of their contracts….. as the author mentioned, just in time for the mid-terms.
…and one more: those low interest rates can pretty much be kissed goodbye if China is serious with its comment about having more than enuf of those Treasuries….
….until November 8th, that is
”
Pool equipment
Furniture
Home equipment
Estate agents
What’s next?
“
Silicone Implants?
definitely a bubble
“What’s next?”
How are those automakers doing?
Maybe someone else pointed to this story yesterday but it deserves a second run….
Sept 25. According to USA Today Online ver., David ‘its a good time to buy’ Lereah does it again.
Lereah is quoted saying, “If…prices…and sales…drop, then we will have… balloons popping rather than air coming out.” He added, “But either way, “it’s a buyers’ market.”
This guy makes my brain hurt!
In other words, if and only if both prices and sales drop then can we declare we were living during a time of highly inflated home prices, a bubble.
What David ‘take the option ARM’ Lereah is really saying is that the only time you and I can conclude we live in an extremely inflated house price market is *after* it deflates. Not during its inflation, nor the end, after it completely deflates; only then can we look back at historical price inflation and deflation and say ahh..there it is…our beloved housing bubble.
Moreover, if house prices do or do not deflate, its okay b/c either way, “its a good time to buy.”
If I saw him on the street, i think I might put him in the hospital.
The thing that makes me so mad. Yes, we all know he is full of sh@@. However, there are people, every day, taking his advice “to the bank” and going out and spending every penny they have to leverage into a house, because its always going to go up.. (insert stupiditiy here).
Anyway, he is leading people to their financial ruin; mostly the people who are not able/willing to do the research to find out for themselves what is really going on (I would argue, mostly low/middle income; and a large majority of minority workers).
He is taking advantage of people who do not know any better; reminds me of a sleezy used car salesman, expect his cars cost 500K.
why is it that when people see a lot of gimcrack housing going up in their neighborhood they feel it means their own house is worth more ? i don’t get it. i’m a renter and if they built a huge apt complex near me i’d think “hoo-boy, the rent here is not going up any time soon !” laws of supply and demand anyone ?
Mr Liereah,
The Flatterer, a deceiver who leads Christian and Hopeful out of their way, when they fail to look at the roadmap given them by the Shepherds of the Delectable Mountains.
In contrast, this DL quote is from the NYT today:
David A. Lereah, chief economist for the Realtors association, said the price drop was a taste of what the market should expect in the coming months. But he predicted that prices would probably improve next year.
“We’re in for a ride right now,” Mr. Lereah said. “This is the first of many price corrections for the remaining months of the year — for at least the next three or four months.”
Look at what was posted on the Drudge Report website today: http://www.ft.com/cms/s/c6ac0e82-4c9b-11db-b03c-0000779e2340.html
“The Federal Reserve has recently justified its pause in interest rate rises by saying that weakness in the housing sector will put the brakes on growth and help slow down inflation. The latest numbers suggest that the central bank may soon start lowering rates.”
“‘’Housing is in trouble, the economy is a lot weaker than people think and the Fed will ease policy much faster than what is currently priced by markets,’’ said Michael Kastner, head of fixed income at SterlingStamos.”
It looks like the housing meltdown is getting more and more mainstream attention as reality sets in.
Jim Juback has a different view on market’s reaction on fed’s intrest. He thinks the marketplayers misunderstand Fed’s statement.
http://articles.moneycentral.msn.com/Commentary/Experts/Jubak/Jim_Jubak.aspx?msn=1
Oops! Must be ….fed’s intrest rate policy…
“‘’Housing is in trouble, the economy is a lot weaker than people think and the Fed will ease policy much faster than what is currently priced by markets,’’ said Michael Kastner, head of fixed income at SterlingStamos.”
BS — the Fed easing is fully priced in and then some to yesterday’s record high on the S&P 500 — unless this time is different, and we have really reached a permanently high plateau.
couple stories from Mass…..
http://www.boston.com/business/globe/articles/2006/09/26/mass_home_prices_fall_61_as_downturn_gathers_speed/
Mass. home prices fall 6.1% as downturn gathers speed
The downturn in the Massachusetts housing market gained momentum in August, with the median price of a single-family home falling 6.1 percent, to $352,000, and the number of sales down 21.6 percent from last year, the Massachusetts Association of Realtors said yesterday.
and
http://www.boston.com/business/globe/articles/2006/09/26/mass_foreclosure_filings_jump_72_in_august/
Mass. foreclosure filings jump 72% in August
Foreclosure filings in Massachusetts rose 72 percent last month as a growing number of homeowners were put in financial distress by the housing market’s sharp downturn. ForeclosuresMass.com, which tracks Land Court foreclosure filings against homeowners by mortgage lenders, said there were 1,812 filings last month against borrowers who were past due, up from 1,055 filings in August 2005. Foreclosures “continue to escalate at levels we haven’t seen since the housing crash of the early 1990s,” said ForeclosureMass.com’s president, Jeremy Shapiro. The August filings bring the total for the year to 11,214, just 279 filings short of the filings made in all of 2005, ForeclosuresMass said.
Hehehe
Informational skit
Seems simple doesn’t it?
The CBS evening news with Katie Couric did a piece yesterday about the drop in home prices.
One of the “experts” they talked to was Robert Toll, of Toll Brothers.
One of the interesting anecdotes was a guy who tried to auction off his house and didn’t get what his “reserve”. Guess what dude, if you didn’t get it yesterday, you’re not going to get it tomorrow.
It was also the dominant headline at New York Times online yesterday afternoon. I haven’t seen the paper version of the paper today, but if there was any doubt left that this news hasn’t gone mainstream that’s erased now.
permanently new plateausoft landinghard landingcrash landing
http://www.moneyweek.com/file/18903/could-the-us-housing-market-crash.html
Great article! I have a friend who’s husband was asking her about what retail stock to buy based on trends the kids were asking for. I think I’ll e-mail this easy-to-read article on to them!
I don’t think this had made it up here yet (sorry if it has).
Home prices fall into a ditch (PB Post):
http://www.palmbeachpost.com/localnews/content/local_news/epaper/2006/09/26/c1a_homesalespb_0926.html
The Palm Beach Post is consistently bearish. It’s funny as hell.
…such taxpayer-financed bailouts cannot save the housing market or the bankrupt financial system. The only solution to the housing crisis is the global solution proposed by LaRouche—the one that makes the speculators and financiers pay for their incompetence, taking away their power to control financial policy. And, nothing can save the hyperinflated equity values of residential real estate.
http://www.larouchepub.com/other/2006/3339bubble_grdzero.html
Excellent link, eastcoaster!
We could only wish for LaRouche’s suggestion (that the institutions & individuals responsible for this mess be the ones to clean it up). I definitely fear the suggestion that the govt will offer to take over the ARMs and convert them to low-interest, long-term, I/O mortgages to save the borrowers and the banks — to the detriment of the prudent and productive class. Nothing encourages speculation like bailing idiots out of their own feces, time and time again. Very sad.
Looking to Lyndon LaRouche for financial or political advice? No thanks.
Decrease is 1st in 11 years; Chicago avoids drop—for now
Mary Umberger
Chicago Tribune, September 25, 2006
http://tinyurl.com/qh3dk
“It’s a transitional market, and the sooner we get out and make [price] adjustments, the better,” said James Merrion, regional director of Re/Max Northern Illinois in Elgin.
“Too many sellers got greedy,” he said. “Prices have to come down.”
Not so, said Tommy Gentile, who has been trying to sell his five-bedroom home in west suburban Montgomery for about six months. He has reduced the price by $20,000, to about $380,000, leaving little wiggle room.
“That price is pretty close to rock-bottom, as far as money we’ve put into it,” he said of the house, bought two years ago. “We have to get our money back because we’ve bought another house, and we’re remodeling that one. We have two mortgages.”
A classic case of entitlement and denial. Sorry Tommy, you can’t always sell your mistakes.
Tommy is about to get a lesson on the fact that only about half of remodeling costs are recovered when selling, and it normally (pre-2000) takes 3 to 5 years of ownership to break-even.
Grundy county is where a lot of the builders are right now. The 15% sales increase is probably from builders that are dumping to finish out projects. The sales incentives that I see out there are decent, but not obscene like the coasts. Chicago is in this flat period right now - not a lot moving and not a lot dropping either.
Wheatie,
Do you live in Grundy County?
“It’s a transitional market…”. Nonsense, it’s simply an inverted year. Market should pick up again just after halloween.
Ebbers gets life
Raines goes free
great to be a protected minority in USA—- AA !
You know, the most amazing thing about all of this is the cavalier attitude most folks now have about money. Large chunks of money, to be exact. They seem to think nothing of a half-million dollars in debt. Ten years ago, a half-million dollars was really something. It could safeguard your retirement or take you anywhere you wanted to be. It took a lifetime to accumulate and was a precious commodity.
Now we have an entire generation or more which will not have positive assets, but will have hundreds of thousands of dollars of debt. They will now spend their lifetimes either paying that off to break even or spend ten years or so rebuilding their credit from a bankruptcy. It used to be difficult to rack up hundreds of thousands of dollars of debt without a gambling problem or a serious drug problem. Now it can occur within the space of a few months because they didn’t understand basic principles of finance.
Is this a tragedy or social darwinism?
great post. i don’t know how these folks who buy the 900k house with the 80k income (in a good year!) sleep at night. i’m all bent out of shape because i have a 15k car loan. an englishman who could’nt find a software engineering job offed his whole family last fall in the next town to us. he could’nt pay the rent or the bill for the expensive cars(two bmw’s) and furniture he had bought. his wife told her parents they were “doing well”.
his wife told her parents they were “doing well”.
An absolute necessity borne of social pressures since in many areas not keeping up with the material wealth=social leprosy!
I’ll be so glad when the tide goes out and the naked swimmers are exposed to all. Maybe % equity in one’s home can be a new measure of success!
For years, Money Magazine and other financial publications, as well as brochures from my various companies’ 401k literature have been squawking about the low savings rates of the boomers. Now they say the average 45 to 54 year old has less than $50,000 in savings. It’s a disgrace. Many of those people chose to have more children than they could afford and / or have more house than they could afford. Add to that the fact that traditional middle class households in the 1950s and even 1960s were headed by only one breadwinner, but starting in the 1970s at some point it required two breadwinners. Our society is in one big denial. 65% of Americans probably say they are in great physical shape when they really are obese. What’s going on in our society? Bunch of dreamers!
The phenomenon you are describing was considered in an article I read a long while back. I thought I saved it, but can’t find it now. Nevertheless, I have retained the basic principle: it’s called “lack of calibration.”
Today’s youth, and indeed, most of the society, have no meaningful calibration of their actual skills and abilities against other people. Gym classes are cutting out real competition, and awards are given for just participating in games and contests, not for working hard to win. When combined with the “You can do anything you want to, Johnny” mythology perpetuated by advertisers and schools, Johnny grows up thinking he’s a superstar. When reality kicks him in the @ss, he has no idea what happened or why. The tricky part is this: because he doesn’t understand why he failed, and still believes he’s a superstar, he will keep repeating the same mistake over and over again until it sinks in that he is completely unable to accomplish the task. At that point, he is likely to choose another wholly unsuitable or unachievable task, and to fail in that as well.
You can see these principles at work everywhere nowadays. When a former head of the Arabian Horse Association thinks he can run the Federal Emergency Management Agency, and everyone else shrugs and lets him, you gotta wonder. When everyone on the block is touting their real estate investments, but nobody has, or can, cash in, ditto.
The best part is this: because we are so specialized, we all rely on other people to perform their tasks properly so we have continued health and success in our personal undertakings. Incompetence, cluelessness, and “lack of calibration” really, really undercuts the process, and ultimately damage our societal well-being. People like myself who theorize a major breakdown in the offing wonder about what effect the sudden unmasking of this lack of calibration, the utterly fantastic and unrealistic expectations of so many people all at once, will have.
Another damaging component of the “feel good” society:
Contrarians are the enemy. People with the “no problem” mask are rewarded and those that raise the red flag are demonized….even called unstable or unpatriotic. It causes others to take note and not get involved. Complacency spreads. I see it in our local schools, our town government, our state government, etc.
NY has the worst tax burden in the nation but when I complained in a store one day, another customer not involved in the conversation jumped in and felt the need to tell me I could move back to where I’d come from if I didn’t like it. How does one feel the need to protect an outrageous tax burden?
As Dr. Phil says, We can’t fix what we don’t first acknowledge!” I guess that makes us doomed.
CarrieAnn, this indifference you are describing - unwillingness to get involved - has been happening far too long to be corrected. On the macro scale, I agree we are doomed. This is why we have to (unfortunately - maybe fortunately) take direct action and do what’s best for ourselves while trying to be as ethical as possible toward fellow man without being sacrificial animals. One refreshing outlook is to consider yourself a resident of Earth, rather than an American (or Canadian, or whatever). You can make your fortunes elsewhere and it does not necessarily mean you physically leave your country. You can move some of your wealth overseas. I have done it only in the form of investing in international stock funds. I know of no other country that can defend my property more than the United States. Ask yourself this question: Would you trust Brazilian police or the Brazilian military to defend your wealth? Or Nigerian? Or Cayman Island? Or Irish? America has big firepower. I used to work in the federal government and I know for a fact there are extreme fiscal conservatives and patriots employed by the U.S. government. We have people on the side of the U.S. Constitution in federal employment, and readers don’t have to believe it, but it’s true.
The effect will be that the majority of people will fall for the Great Lie.
To Kia: Interesting reading. I agree. The educational establishment cares too much about self esteem of children instead of teaching the children how to read, write, and do arithmetic. Today’s schools are like the special olympics: Everyone “wins.”
Bill, I have said this for years that I feel sorry for our young people and how there income is pecked at with a lot of little things in the 60s and even 70s even if you wanted to buy, they were not there.
dishwasher
Central air
microwave
2 land lines
1 or more cell phones
cable bill
DVD player
computer and net bill.
bling for the car. [no one drives a beater, kids don't know how to fix anything]
CDs at $10 pop.
Not even 10 years ago. 5 years ago when I bought my home, a bunch of our friends were also house shopping, and for most of them the thought of taking on 500K in mortgage debt was frightening. Now those same people talk about buying $1.8 million homes, which would mean they’d owe at least $1 million after selling their current homes. People have completely lost perspective over the last few years, even those who seemed reasonable five years ago.
Cargo cultists…if they act like they have lots of money, they’ll be rich!
For now, anyway.
Here’s the L.A. Times take on yesterday’s housing news:
http://tinyurl.com/zymfn
Data on Homes Cause Jitters
“Things are clearly turning down pretty hard” for residential real estate, said Jan Hatzius, an economist at investment firm Goldman, Sachs & Co. in New York. “You’re going to have some payback from this” in the economy overall, he said.
Just how much payback is in store — and how consumer spending may be affected by the downturn — is a matter of growing debate among economists.
Many analysts believe that the economy is strong enough to avoid falling into recession even if housing continues to weaken. “You have to be careful not to exaggerate how much [housing] dampens the economy given that everything else other than the auto sector is doing well,” Federal Reserve Bank of Dallas President Richard Fisher said after a speech Monday.
But the real estate boom of the last decade has been unprecedented in size and scope, which raises the risk that the downside also could exceed forecasters’ best guesses, said Eric Belsky, executive director of Harvard University’s Joint Center for Housing Studies.
They go on to talk about the industries that will be obviously affected by this — everything real estate related — but don’t mention furniture companies. Or home improvement stores. Or swimming pool companies, for that matter.
Is it just me, or is Harvard trying to distance itself from some of its earlier bullish predictions?
You mean, after the bubblehead bloggers “outed” them as being mainly backed by the housing industry?
What a great moment…
Let’s hope so. The guy makes an interesting observation in that article that’s probably true…that “After any boom, there’s a tendency to predict a more gradual unwinding than actually occurs.”
I’m not sure about soup lines, but I’ve a feeling we haven’t seen a recession like the one that’s on it’s way in quite some time…
People have a “cavalier attitude” about how much money a half million dollars is because nobody puts anything down to buy a house anymore (unless they are moving up and have equity from their old house) Go back to 20% down to buy a house then “most folks” will get how much money a half mil really is.
They’re just numbers on paper. I am reminded of this trap as I formerly handled large amounts of other people’s money, and had to remind myself regularly that it was money, not just numbers on paper. Try stacking $50,000 in $20 bills on a table and then stack the same amount in $100 bills, not as impressive but you get the idea. They’re just numbers on paper. What’s another 100K? For this reason, I pay most transactions in cash, and rarely use a debit card or check, and never use the credit card unless it’s required.
STAGFLATION theory: AS the housing market goes into meltdown and interest rate payments on all those adjustable-rate home loans increase sharply as the initial period of lower rates ends, you can be sure that pressure on wages - certainly in the short-term - will go up,
A crash in the housing market will force people to agitate for higher wages. . Consumers have grown used to easy money. They don’t have to confront their boss or have uncomfortable conversations about wage rises - why bother, when you can just borrow all the extra disposable income you need against your house?
If there’s one thing that is utterly predictable about human nature, it’s that most of us will be at least tempted to continually select the path of least resistance when deciding on a course of action. And when faced with the choice between justifying a pay hike to a sceptical boss, or phoning a nice friendly salesperson for a refie loan, it’s no surprise that lots of people would rather reach for the phone.
But when the nice friendly salesperson suddenly stops offering you money - and in fact, starts to want it back - then there’s no one else to turn to except the grumpy boss. And there’s nothing like the fear of being unable to meet the monthly mortgage payments to sharpen up an employee’s negotiating skills.
I guess it will work the other way round - if this huge source of income from the last years dry up, people might be happy to keep their job, even if they don’t get ANY pay raise. When the housing market goes into meltdown the jobs market will be in bad shape as well. And fear is even stronger than greed.
Course, many employees may walk into the bosses office armed with newspaper clippings re: said company’s record breaking profits, and cash.
But wages never go down, it’s like real estate…before 08/25
08/2006
David,
Beautiful summation by way of looking around the bend and over the hill.
Lennox National, which runs the shrill pitchman ads on radio stations in the Boston area, is now running a new set of ads. The ads last year were “rates have never been lower, refinance, pull some cash out… it’s the biggest no brainer in the history of earth”. Presumably this was an ARM they were pitching. The new ad, which I heard yesterday, is “now is the time to get out of that ARM. It will bury you. Refi into a fixed rate mortgage now while rates are still low.” Those were the words: “it will bury you”. I’m sure this probably scares some FB’s.
Here is another good read:
Title: “Home prices: 1st drop in 11 years”
Link: http://money.cnn.com/2006/09/25/news/economy/homesales2/index.htm?cnn=yes
Lereah says “we expect price adjustments for several months”…
Be nice if the reporter had asked him why prices will pick up next
year when in the last downturn it took, what 4 years?
Lereah says “we expect price adjustments for several months”…
Be nice if the reporter had asked him why prices will pick up next
year when in the last downturn it took, what, 4 years?
I have a joke for you guys and gals:
Real estate developer walks into a bank and tells the teller he has on half a million dollars to deposit. The teller bats her eyes and says, Why sure Mr. Developer”. He says that since it is such a large sum of money he wants the bank manager to do the transaction.
So she scurries him into the bank managers office who sees him right away.
Banker: $500,000 is a lot of money where did you get it?
Developer: Well, I bet a lot and I win a lot.
Banker: What kinds of bets do you make?
Developer: For instance, I could bet you this $500,000 that your balls are square.
Banker: I think I am just going to have to take that bet. My balls are not square, so you are going to have to pay up.
Developer: Not so fast, this is a lot of money, so I will come back tomorrow with 2 witnesses.
Banker: That seems fair, tomorrow at 8am.
That night the banker checked his balls just to make sure. In the morning the Developer showed up with 2 witnesses; a real estate lawyer and a specuvestor.
Banker: It is time to pay up, cause I checked and my balls are not square.
Developer: Not so fast, I think I need to see them for myself.
At this time the lawyer starts banging his head against the wall.
The banker shows the developer his balls.
Banker: See
Developer: I am afraid I am going to have to feel them to be sure.
At this time the specuvestor starts banging his head against the wall also.
Banker: What is wrong with those two?
Developer: Oh, I bet them a million a piece that I would have the bank managers balls in my hands by the morning
Cute one.
My humor for the day is a new google bomb.
google “miserable failure” and hit the “I feel lucky” tab
I searched in Dogpile and the first entry is “biography of Jimmy Carter.”
LOL. I remember someone doctoring a search a year or two ago, had something to do with the French, I think.
I have read a different version but still funny adapted for the RE bubble.
Probably a lesson in there too.
Darth Vader (Paul Volker) just spoke and basically said the Fed does not have the marbles to raise rates in the face of inflation….That guy almost buried me in 1981-82
after a few more years of Helicopter Ben, people will long for the return of Darth Vader (except for the FB’s maybe …). But it might be too late to bail them out of the hyperinflation by then.
I *love* Volker. He made me *rich* in ‘81,’82 through putting money in high-yielding CD’s! @ 20%! yowsers.
Those were the days. I’d take ‘em back again in a minute.
Lennar announced today that it expects next quarter’s earnings to be down 50-60% from what it was predicting just a month ago. And the stock goes up! Go figure. Even with optimistic assumptions, LEN is now selling at over 8X earnings, very, very high for the down part of an RE cycle.
“Prisoners in Bubbletown, it’s a dirty little boom”
I took a look at one bubble town I’ve been looking at and scratching my head over: Orlando.
2004-2005, housing went up here 20%, compared to the national average of 9.26%
Orlando isn’t listed as one of Money Magazine’s “Best Places to Live”, it’s not even in the running….
But look at some other figures, comparing ORLANDO to Money Magazine’s “Best Places to Live” average:
Median family income (per year) $43,143 / $76,893
Family purchasing power $39,221 / $68,109
State income tax rate
Auto insurance premiums $2,427 / $2,207
Job growth % (2000-2005) 7.40% / 10.97%
Test scores reading (% +/- state average) -18.8% / 13.3%
Test scores math (% +/- state average) -22.2% / 16.9%
Personal crime risk
(100 is nat’l average; lower is better) 536 / 45
Property crime risk
(100 is nat’l average; lower is better) 443 / 74
Personal crime incidents (per 100,000) 1,748 / 228
Property crime incidents (per 100,000) 8,280 / 3,105
Libraries (within 15 miles) 27 / 43
Note that the CRIME in this bubbly area is MANY TIMES the NATIONAL AVERAGE, and the test scores are MANY TIMES LOWER.
How can this metropolitan area sustain price gains many times the national average? It’s not like it’s a great place to live!
“How can this metropolitan area sustain price gains many times the national average? “
I think it must be the math scores (assuming people use some math before buying a home, which is possibly a bit far fetched)
Giant expanding bubble and prisioners? Sounds like the 60’s TV shoe, “The Prisioner”. Be seeing you!
As long as they don’t steal your air conditioner, you can enjoy the weather.
What is up with the homebuilder stocks? They have been surging lately despite nothing but bad news. Toll Brothers is up to almost 30. NVR is up from under 400 to almost 600. This doesn’t make any sense. Is this a dead cat bounce? Short covering?
Look again at Len. According to Yahoo, analysts were expecting earnings of $1.60 next quarter. Instead, they announce $1-1.30, subject still to downward revision. Must be a temporary aberration.
Aberrant behavior is normal now. It will take several bad shocks to drive out the irrationally exuberant money managers and fund managers, then real panic will drive stocks down to more rational levels.
maybe because longterm rates are dropping like a rock? Their homes are getting cheaper every day for the customers (on a monthly basis), and they don’t need any discounting for that.
Getstucco had it covered early this morning. Read Dawnal’s posts on this, too.
Nothing untoward, of course — just predictably consistent illogical movements.
Moreover, analysts’ estimates have gone down by over a third for next year since August, but price of stock has gone way up!
More Manufactured Numbers?
http://www.xanga.com/home.aspx?user=russwinter&nextdate=9%2f26%2f2006+23%3a59%3a59.999
How the Fed Fudged on Housing
By Howard Simons
RealMoney.com Contributor
9/26/2006 10:42 AM EDT
URL: http://www.thestreet.com/p/rmoney/economy/10310675.html
The commandment “first, do no harm” is not part of the Hippocratic Oath for physicians, as commonly believed, but it is good advice nonetheless. Do you want the representative of your local HMO to have a needlepoint up on the wall reading, “Go ahead, what’s the worst that can happen?”
It is good advice for monetary policy, too, and as any honest assessment of the Federal Reserve’s history (see Allan Meltzer’s A History of the Federal Reserve) would have to conclude, it was honored in the breach more often than not during the central bank’s first half-century. I have argued that you could extend Meltzer’s conclusion another 30 years until passage of the Depository Institutions Deregulation and Monetary Control Act of 1980.
This Carter-era measure phased out the interest rate ceilings of Regulation Q and effectively prevented the Federal Reserve from crushing the interest rate-sensitive housing and automobile sectors at a whim. No longer could the Federal Reserve raise rates over the levels banks and savings and loans were allowed to pay and starve lenders of deposits. Along with financial derivatives, which created mortgage-backed and asset-backed securities, the removal of interest rate ceilings allowed credit to flow to borrowers even when the Federal Reserve raised short-term interest rates.
We have had only two recessions since then, one associated with the Persian Gulf War in 1990-91 and one associated with the bursting of the stock market bubble in 2001. It’s amazing what a free economy can do when its government is prevented from declaring war on it.
Different This Time?
That housing is taking it on the chin and elsewhere these days is hardly front-page news. Have housing downturns led economic downturns in the past? Let’s adjust housing starts for population growth — some might argue, with reason, that population growth within prime home-buying age cohorts might be a better measure — and map it against the year-over-year change in real GDP. If housing downturns have led recessions in the past, it is not visible in this chart. If anything, changes in real GDP appear to either lead changes in housing with a small lag or the two measures are coincident.
Click here for larger image.
Source: Bloomberg, U.S. Census Bureau, Howard Simon
But this is not the whole story. At no point in the past was national investment so skewed toward residential fixed investment. Between 1959, the start of the series, and 2000, residential fixed investment averaged 28.1% of total investment. After the Federal Reserve began its grand experiment in lower interest rates in 2001, this measure climbed as high as 38.5% in the third quarter of 2005. This percentage already is in retreat and appears likely to collapse to at least the long-term average, if not lower.
Previous downturns in the share of investment accounted for by housing either led or coincided with downturns in GDP growth in 1965-67, 1972-75, 1979-81 and 1988-90. The obvious question now becomes whether this present decline in residential fixed investment will do the same.
Click here for larger image.
Source: Bloomberg, Howard Simons
Yield Curve and Investment Patterns
Let’s compare how residential and nonresidential fixed investment patterns have changed over the years as a function of the yield curve. Investment as a percentage of GDP is indexed to the first quarter of 1959, and the yield curve is measured by the forward-rate ratio between one and 10 years. This is the rate at which you can lock in borrowing for nine years beginning one year from now divided by the 10-year rate itself. The more this number exceeds 1.00, the steeper the yield curve.
Click here for larger image.
Source: Bloomberg, Howard Simons
The two measures of fixed investment paralleled each other between the early 1980s removal of Regulation Q ceilings and the start of the Federal Reserve’s manic interest rate cuts in 2001. After 2001, residential fixed investment surged while nonresidential fixed investment fell. The Federal Reserve stimulated the American homebuyer and consumer, but as noted in January 2005, much of this demand was satisfied not by American producers but by the Chinese; this accounted for the “missing” nonresidential fixed investment. By way of confirmation, the two investment measures moved in parallel during the previous yield curve steepening cycle in 1990-93 and in the subsequent flattening cycle in 1993-95.
If the U.S. is to avoid a housing-led downturn during the present flattening of the yield curve, it is absolutely critical for nonresidential fixed investment to increase as a percentage of GDP.
The Federal Reserve: It’s Baaack!
We now have to circle the square by returning to the mischief monetary policy can create. Prior to the removal of Regulation Q, three separate flattenings of the yield curve, noted by upward-pointing arrows, led to sharp declines in adjusted housing starts. After 1981, the two huge steepenings of the yield curve led to increases in adjusted housing starts. The present coincidence of a flattening of the yield curve and a collapse in adjusted housing starts, marked with an “X” on the chart, is a first in the post-Regulation Q era.
Click here for larger image.
Source: Bloomberg, Howard Simons
Can we lay the blame on this state of affairs at the Federal Reserve’s doorstep? Yes: By creating the housing bubble with monetary ease, it created the housing downturn.
Can we achieve the growth in nonresidential fixed investment required to offset the downturn in housing? Evidence so far, chiefly strong equity prices, transportation indicators and tight credit spreads, indicate growth is continuing apace. Both markets and economies adapt wonderfully when given the opportunity to do so, and that invariably means an absence of our politicians’ best intentions. The admonition to “first, do no harm” should be posted over every doorway in Washington, D.C.
TX,
But they will think it: “The admonition to “first, do no harm” applies to themselves, then vote 387-1 to approve a salary raise for congress.
Does this presume that most of the unemployed construction workers, RE agents and mortgage staff will be absorbed into some other activity? Maybe we are on the verge of announcing a 50-new-nuclear plants or bust! initiative.
here is one great piece from charles hugh smith on the (manipulated?) oil price. very very good
http://www.oftwominds.com/blog.html
please go the right and then on the right top blog/essay
link works direct!
wort reading!
Can oil prices be manipulated? Anything that is used so widely and in such quantity can only swing wildly in price because a sudden change in supply (didn’t happen), an sudden increase in demand (can’t happen, at that quantity in that time frame), or by manipulation by someone, somewhere, somehow. This time around, my vote is for the latter.
Reminds me of when California electricity prices were going through the roof because of just-discovered massive shortfalls in capacity (as if New York had moved there the month prior). Having been in the business, I recall puzzling that this could not be true, without some sort of manipulation. Turns out it was the fraud of the century, or at least one of ‘em.
from bubbleinfo / jim the realtor
amazing stats!
http://www.bubbleinfo.com/journal/2006/9/25/foreclosure-report.html
“Everyone worth their salt knew that the market was slowing down in 2005, yet nobody made any announcement, warning people about the risks of 100% financing.”
And the funny thing is, the disinformation campaign continues unabated today, with David Lereah leading the charge with his claim that home prices will bottom out next year, contrary to every other housing bust in recorded history, which took a minimum of four years to bottom out.
The Grover Beach condo that was in an unsuccessful round robin auction last spring finally sold on 08/25/2006 for $344,000. The owner had purchased on 02/10/2000 for $152,000. Could have made more if he’d taken the $400K he was offerred last fall instead of trying for $450. He never said how the auction went, but he has been listing at $374K since this time. Was smart to (finally) settle for less.
Whatever happened to that really skinny house with the odd loft and mural on the garage door? Didn’t that go up for auction as well?
Thanks!
Mark Hulbert takes a square look at the correlation between the HPI and the 1-year lag of the S&P 500…
http://tinyurl.com/mm4cj
Sorry — meant HMI…
EAGLE MATERIALS PREVIOUSLY SAW FY07 EPS OF $4.20-$4.70
EAGLE MATERIALS CUTS FY07 EARNS OUTLOOK
EAGLE MATERIALS REAFFIRMS Q2 EPS VIEW OF $1.30-$1.40
EAGLE MATERIALS NOW SEES FY07 EPS OF $3.80-$4.20
and now comes the shocker
EAGLE MATERIALS SHARES DOWN 7% AT $36.50
the stock is really down on a warning. i´ve checked it twice…
How does the PPT decide which stocks to protect?
hi stucco,
maybe they lost control because of all the stocks they have to protect…….
And therein lies the problem with manipulation. It works when only small sectors of the market are faltering, like a finger in the dike. When other sectors begin to fail, the manipulation can’t keep up wiht it.
Ah well, they only need to manipulate for another 5 weeks or so.
At work, I just did a study of housing inventory for the city of Lancaster, CA. As of last week, there are 16,400 approved single-family lots yet to be built on. During peak boom years, the City issues about 3,000 permits for single-family homes. During down years, like 1997, it drops to about 300. In any matter, 16,400 yet-to-be-built lots account for about 10-year inventory. No doubt some builders will walk away.
In speaking to a colleague from Hanford, a city I used to work for, Centex and McMillin have already walked away from several projects, just when their maps have been recorded.
Sorry if this has already been posted…a really good read!
http://www.larouchepub.com/other/2006/3339bubble_grdzero.html
http://www.financialsense.com/fsu/editorials/delta/2006/0926.html
“As of today’s writing, the yield on the 10 year treasury is 4.61%, inverting the yield curve by 64 basis points below the fed funds rate. Is the fed correct in keeping rates at 5.25% in their attempt to slow down economic growth (which has nothing to do with inflation)? Or is the bond and commodity markets correct in pricing in a recession?
The chances of a serious economic slowdown are high because of the cooling in the housing market, which is being exacerbated by a tighter monetary policy from world central bankers. This dual headwind will most likely blow the consumer off his usual spendthrift course and bring GDP growth well below trend if not into a recession come the first half of 2007. Viewing the housing market from different metrics of monthly inventory supply, income-to-price ratios, lending standards, inflation and population growth, the only conclusion to reach is that it will take years for this market to recover and finish adjusting.
In addition to the above, one of the main reasons why I believe it will take years to work off the excess housing inventory is the denial of the bubble by home construction companies. The annual rate of population growth has been running around 1% since the mid 1960’s up to the present. From 1965-1985 the average increase in U.S. population was 2.2mm people. Even using today’s U.S. population of approximately 300mm, the number of new individuals who need to purchase a home is about 3million per annum. The average number of people per household is 2.6. Therefore, additional dwellings need to increase by about 1.15 million units to maintain equilibrium. According to the commerce department, in the month of August, the annual increase in new home construction was running at 1.66 million units for 2006. That is a decrease of 19.8% below August of last year when the rate was 2.075 million units. What this tells us is the rate of new home construction is still outstripping the intrinsic need to house the increased population. Forget about absorbing already superfluous inventory, homebuilders are still putting up units for flippers and “investors.””
-
I can’t keep up anymore. Information overload. This RE correction is like a snowball getting bigger and bigger and rolling down the hill faster and faster every day.
I know what you mean. I used to be able to read all the comments, but I don’t have time to read it all anymore.
Bad news for housing is proving to be good news for stocks. Not only has the S&P 500 reached a permanently high plateau, but it is on the brink of hitting all-time highs, just like in 1929. See if you grasp the deep economic insights in this CNN/Money piece, which explains how the stock market bust that morphed into a housing market bubble is turning into a housing bust which is proving to be a boon for the stock market.
http://money.cnn.com/2006/09/26/markets/housing_stocks/index.htm?cnn=yes
GS,
From your linked article:
“With investors at that time nervous about stocks, many found a new home for their investment dollars in real estate, helped by the low mortgage rates and the relative safety of the housing prices. That in turn helped feed the strong boom in home prices and sales levels since then.”
————————
What I find absolutely hillarious is the “money” that found its way into the RE market did NOT come from the buyers, but from the deep pockets of central banks, FNM, FRE, hedge funds, bond funds, mutual funds, etc. If buyers were the ones who actually had the money, there wouldn’t be a credit/housing bubble. Why do these RE or stock shills keep repeating such stupid drivel?
OTOH, yes…the money which created this credit bubble could most definitely find its way back into the stock market. Is that what we’re seeing? I think we ought to have a thread about this bailout. I’m becoming more and more convinced that WE are on the wrong end of this deal.
Sorry for not being clear. The bailout I’m referring to is the FRE/FNM/RTC bailout mentioned above. I’ve also been reading about how they are *expanding* their reach. Will do more research, as I think this will have some serious consequences (aka: Japan). Can we please wring this crap out of the economy already, so we can go about actual production, R&D and innovative advances in medicine, energy, transportation, etc.?
I agree with your fears that this is going the wrong way. What I’m seeing in my country is definitely more of the same stupid policies that propped up the stock and housing bubbles in the last 15 years. More subsidies for homeowners, more free housing put options, lower rates, more leverage. No worries sheeple, the ECB will bail out all the FB’s, so please leverage to the max, keep the credit economy (including the housing and stock market) booming and let those stupid savers pay the bills. Politics will reward everybody who plays by their rules. Don’t worry about stagnant wages because nobody needs wages in the new economy.
Actual production is totally gone here, the only ‘innovation’ is in management (how do I increase my top level salary and stock options as quickly as possible) and the financial kind of ‘innovation’ as cherished on Wall Street. The EU just approved to new nearly-broke member states, so there is a new playing field available for creating surging home prices; Dutch RE agents are already actively promoting their customers to buy up the countryside there. This will prolong the EU housing bubble another 1-2 years.
When do we get a new law that states that all savers are economic terrorists? Can’t be too far away now …
“Is that what we’re seeing?”
Maybe, but the image of a large herd of shrewd real estate investors currently transferring their outsized home equity gains on ten investment properties back into the stock market to make themselves even more unimaginably wealthy sounds questionable to me. This was the image the CNN/Money piece seemed to be aiming for.
not only that, it’s the Goldilocks scenario like never before:
- Dutch AEX stock index hits highest level in more than 5 years (up +121% in 3.5 years).
- Dutch consumer confidence and personal spending is soaring
- Dutch business confidence at its highest level in many years
- Dutch home prices at an all-time high
- Dutch renters are more optimistic than ever about affordibility of a new home and their chances of owning a home in the future (well, that might be correct but for the wrong reasons …)
- debt levels and refinancing still surging
- deliquences on personal debt and mortgage debt soaring as well.
something just does not feel right …
I sniff some election time fever in the air
nhz,
Good morning!
I agree. Something does not feel right. Personally, I’ve been concerned about hyperinflation (even if it’s mild). IMHO, there’s something very disconcerting about the world’s financial markets right now. I’m almost tempted to dive in, for fear of what will happen to savers/non-debtors. It’s just not working the way it should.
Hope your day is a good one!
good morning too
I guess this conundrum may continue until the November elections.
You guys are definitely feeling the Zeitgeist along with the writers at The Economist and the WSJ. Everyone is puzzled by the eerie calm before the storm at the early stages of the US housing bubble implosion which is already underway.
I’d be hard pressed to say this one is even worth $50k, forget $415k
http://losangeles.craigslist.org/sgv/rfs/213087127.html