‘August Might Have Been The Weakest Month Yet’
Some housing bubble news from Wall Street and Washington. “The Pending Home Sales Index,( see note 1 below) based on contracts signed in August, rose 4.3 percent from July, but is 14.1 percent lower than August 2005.”
“David Lereah, NAR’s chief economist, said, ”The Pending Home Sales Index shows home sales should be fairly stable over the next two months, although a minor decline is possible,’ he said. ‘We should be able to draw down the inventory supply early next year to the point where home prices will rise.’”
From Paul Muolo. “Well, it’s out; the long-awaited final regulatory guidance on those wild and crazy mortgages that former Federal Reserve chairman Alan Greenspan likes to call ‘exotic.’ Of particular interest to payment-option ARM servicers is a mandate that the monthly mortgage statement sent to Joe and Mary Sixpack contain an ‘explanation’ that if they choose the minimum payment, which they do 80% of the time, it would increase their loan balance.”
“One veteran investment banker told us that he believes the guidelines will force some regulated depositories out of the market, allowing private-equity firms to step in and buy all of the dozens of nontraditional lenders that are on the auction block.”
From Newsweek. “NEWSWEEK’s Daniel McGinn asked Century 21 CEO Tom Kunz how he’s leading his company as the housing market turns. ‘Is it hard for agents to tell would-be sellers their homes are worth less than they think?’”
“A: ‘The real price of your home is what somebody is willing to pay for it—that’s the bottom line. A lot of times people look at this and say, ‘I’m losing all this money,’ but until you sell the property you haven’t lost anything, even though they saw that paper equity sitting out there. The reality is you have to deal with what you bought it for and what you’re going to sell it for at the time you want to sell it—you can’t look at what [you] may have missed out on.’”
From Barrons. “Unlike in past housing cycles, when they borrowed heavily from banks, home builders today also use options and off-balance-sheet joint ventures to buy land. ‘The home builders are going to abandon a significant amount of their options and attempt to dissolve the joint ventures that no longer meet their return requirements,’ Ivy Zelman, an analyst at Credit Suisse, predicts.”
“For some companies, the problems of Technical Olympic USA may be a sober warning. Last week the U.S. unit of the Greek construction company announced that, because of softness in the Florida real-estate market, the revised sales and delivery projections of one of its residential joint ventures won’t be adequate to support the JV’s capital structure. The company is requesting waivers from its lenders regarding potential defaults, among other things.”
“The company’s senior and junior debt fell to levels implying its equity in the JV and loans and advances to the JV, which total $141 million, could be wiped out. ‘This won’t be the only company that will affected,’ says housing analyst Alex Barron. ‘All the other home builders will have writedowns of joint ventures, option deposits and land on their balance sheets.’”
“If home builders walk away from land options, the impact is likely to be widespread. The land owner presumably would shop the property anew, and at a reduced price, particularly if it has associated debt. Jeff Barcy, CEO a San Francisco-based land banker with access to $4 billion of equity capital, cites a deal in which a publicly traded home builder recently walked away from an option to buy land in Florida for $60 million. The parcel recently was resold for $32 million.”
“The Florida deal ‘definitely put pressure on the broader market, and affects all the deals’ in that market, Barcy says. ‘Everything is connected in a local market. We’re seeing more weakness across the U.S. on a daily basis.’”
From Bloomberg. “The U.S. economy has slowed more dramatically than most economists expected just a few weeks ago. Forecasters at Goldman Sachs Group and AllianceBernstein Holding have cut their growth estimates for the just-ended third quarter. Auto-production cuts and slumping home sales are likely to overwhelm any boost the economy gets from lower gasoline prices, they say.”
“‘We’re decelerating fairly significantly,’ says Peter Hooper, a former Federal Reserve official who’s now chief economist at Deutsche Bank Securities.”
“Growth is getting closer to what Macroeconomic Advisers President Chris Varvares describes as the ’stall speed.’ Housing market conditions ‘have continued to weaken,” Stuart Miller, CEO of Miami-based Lennar Corp., the third biggest U.S. homebuilder by market value, told analysts. ‘August might have been the weakest month yet.’”
“‘The one-two punch of a slowing housing market and the large announced auto-production cuts by GM, Ford and Chrysler is really going to slow the economy,’ says Mark Vitner, a senior economist at Wachovia Corp in Charlotte, North Carolina. ‘It’s going to be a bit of a rough landing.’”
For those hanging their hat on the boomers:
‘ With Baby Boomers about to retire, and 40 percent of today’s 65-year-olds expected to live to at least 90, analysts have been speculating that many retirees will receive the shock of a lifetime when they run low on money and struggle late in retirement. A recent report on elderly debt indicates that already is happening.’
‘The average inflation-adjusted debt levels among elderly Americans have risen 77 percent since 1992, according to a study by the Employee Benefits Research Institute. The majority is mortgage debt. And in the hands of affluent seniors, it apparently doesn’t pose a threat. But the oldest Americans, those who can least afford debt, increasingly are holding debt at dangerous levels. ‘It looks like they are doing it because they are running out of money,’ said researcher Craig Copeland.’
‘ In the old days, before people started looking at home equity as a piggy bank, Americans tried to get rid of debt before retiring. They realized that without a regular paycheck arriving during retirement, it is difficult to handle the rising costs of everything from medical care to utilities, plus pay off debt.’
‘Bob Mecca, a Mt. Prospect financial planner, said he is counseling a client who is well off in his working years but spent too much for a retirement home 10 years ago and went into retirement with deficient savings. Now in his 70s and in poor health, he realizes he is running out of money and wants to find a job. ‘But it’s not going to be easy,’ Mecca said.’
Ba-Ba-But, but….
I thought all the boomers were rich and were coming to Florida with sacks full of money they made during the Dot-Com craze to buy LUXURY condos……….and keep housing prices rising into the indefinite future.
And…their parents. Don’t forget about their parents. They have even MORE $$ $$ money and will be dying and leaving it to the Boomer kids to buy even more luxurious palatial estates here in Florida where EVERYONE wants to live.
I don’t even bother shopping because I did not buy when I had my chance, and now I am priced out forever.
Yeah, me too (priced out forever)..
Good thing I can rent a 800K home for 2,200/mo down here in S. FL, or else I would really be in trouble.
I wonder what is going to happen when all those with homes die or move away? We are all priced out forever, so there will be no more home buyers… Hmm…
I guess they will just sit empty, or we will all rent them at 1/10th the carrying cost.
Boy, priced out forever, what a terrible place to be.
Is anyone else as SICK of that RE crap as I am? Pricing out everyone who does not already own a home is IMPOSSIBLE. Of course it can never happen; that would mean the pool of homeowners is static..
What absoulte RE drivel. If you don’t understand economics, you have NO business helping someone spend 10 dollars, let alone 100’s of thousands.
Priced out forever implies prices always go up and therefore, will always be buyers.
How can you be priced out and still have buyers?
They don’t call it an oxymoron for nothin!
Ben,
I’ve long argued this very point. I worked at _____Bank in Portland, OR and was one of three securities licensed reps that managed over 18,000 client accounts. Most of our clients were in their 50’s or 60’s. When the parents died they were very literally threatening us w/legal action if we didn’t CTC (cut the check) the same day the old man died! I am not kidding. These boomers were so frantically trying to get at their parent’s wealth it was actually funny! As an inv. bank obviously we made attempts to get them to keep the assets w/us (especially w/the stock market at terrible lows). Well good luck with that! These boomers wanted the money YESTERDAY! Even if it was a good quality company that was down w/the rest of the market, they didn’t care. They couldn’t. So many of these boomers leveraged themselves into their parents wealth and evidently their parents lived longer than they’d imagined. As I’ve long suspected much of this “greatest wealth transference in history” was bunk.
Agreed. I’ve seen it too.
It absolutly sickens me to see relatives fighting over money! Especially small sums.
Yes it’s desperation from being overleveraged (borrowed to the hilt)!
“Bob Mecca, a Mt. Prospect financial planner, said he is counseling a client who is well off in his working years but spent too much for a retirement home 10 years ago and went into retirement with deficient savings. Now in his 70s and in poor health, he realizes he is running out of money and wants to find a job. ‘But it’s not going to be easy,’ Mecca said.’”
Wait a minute. If the gentleman bought too much house, why doesn’t he sell the too-much house and rent something instead? Or consider a mobile home, like a lot of other old people do? A family friend, in a bad financial bind at retirement due to poor health, bought a modest double-wide and a dirt-cheap lot in Kentucky and lived out his days quite happily. It can be done — just leave the ego and wishful thinking behind.
Susanne thinks his retirement home might be a little too special for the market. He might have eccentrically planned, built or otherwise remodelled the house to fit his own fantasies of a “dream house”. This creates a challenge for ordinary agents to recover his deeply trapped equity while the housing balloon rests on the clouds before the next lift off. Home buyers want listings to be special to them — not the owner.
Suzanne,
Good research! I think you may be on to something. A house I’ve been watching has been for sale for well over a year. They messed around with tiny price reductions - 10k here, 20k there, on a $900k house. Now they’ve finally “whacked” 100k off the price. One more hurdle remains, the house is just kind of weird - the (retired) owners designed it themselves.
S - In your last 3 postings you have referred to yourself as Suzzane, Suzanne, and now Susanne. This is a profound puzzlement - I am desperately trying to ascertain the meaning of this.
We are legion
LOL! Very clever.
Paul — I think because it’s a guy. The screen name was from the commercial we all ricicule.
Agree about the clever comeback.
“About 29 percent of people over 75 were carrying debt in 2001, but by the end of 2004 it was up to 40.3 percent.”
I imagine a large portion of that demographic lives on interest income from savings. And 2001 - 2004 is when interest rates were at such artificially low levels. Another thing to thank AG for…
Utter,
Absolutely! I remember going into work everyday and pulling the latest municipal bond offerings off the fax machine and the yields were just awful. Many with an effective yield UNDER 2%! How you gonna live off a 2% return? Then in turn many of these folks were forced to grossly overweight in MBS! Great! Solves two problems at once right? Cheap money for boomers that are almost solely reliant on home price appreciation and a 6% return for their folks. It all works until it doesn’t.
Is anybody really that stupid to have debt and savings at the same time? It always costs more to borrow money than you will get lending it to a bank (that’s how they make money).
Wait - you don’t have to answer that
Maricopa County Arizona (metro Phoenix) Notice of Trustee’s Sales:
Jan 05 1297
Feb 05 940
Mar 05 1040
Apr 05 766
May 05 759
Jun 05 767
Jul 05 748
Aug 05 795
Sep 05 669
Oct 05 728
Nov 05 704
Dec 05 749
Jan 06 726
Feb 06 687
Mar 06 790
Apr 06 638
May 06 764
Jun 06 797
Jul 06 851
Aug 06 1019
Sep 06 1114
Toll Bros crane attacks!
Looks like they’re rushing to get this condo building built…
For some reason the link didn’t post. Hope it works now.
“‘The home builders are going to abandon a significant amount of their options and attempt to dissolve the joint ventures that no longer meet their return requirements,’ Ivy Zelman, an analyst at Credit Suisse, predicts.”
That sounds like a bad development for homebuilders’ financial positions. Good thing homebuilder share prices always go up…
“The U.S. economy has slowed more dramatically than most economists expected just a few weeks ago.”
… and good thing the broad stock market indexes always go up as well.
Or did I speak too soon?
http://www.marketwatch.com/tools/marketsummary/default.asp
Will a slow down to 1.5% in the third quarter be a kick in the teeth or a soft landing confirmation for Wall St.?
Hey GS did’nt that Barron’s article ‘Housing’s hidden headache’ clear up the mystery of HB shares permanet plateau?
Sort of. I am not clear on how long HBs can postpone bad news that comes from off-balance-sheet. (Enron did not succeed in postponing theirs forever…)
Some off-balance sheet financing is special and not illegal. If home buyers can be trusted to state their income and liabilities accurately, we can trust the homebuilders to be honest about off-balance sheet liabilities as well. Besides, future property appreciation will smooth over any typos during this touch-n-go soft landing.
Suzanne, can you research
and explain how these off balance sheet ventures work or point me in the right direction?
i’m not Suzanne or a realtor for that matter, but an off balance sheet venture can generally be summed as a promise of some sort but not a purchase. They can be as simple as a lease (all of us renters wouldn’t include anything beyond the current month’s payment in our future liabilities on the balance sheet) or as complex as a cat risk sidecar (subsidiary to offload some portion of an insurance company’s risk) or a LYON (subsidiary set up to convert debt into preferred stock). Typically they are disclosed with some level of detail in the financial footnotes, but not deemed to be consolidated as a part of the company. This can be used for good, if the actual assets and liabilities aren’t something the business is exposed to (you and I aren’t on the hook for the change in value of the house we lease) or for bad when a business structures a transaction to essentially keep debt off the balance sheet (a guarantee of a non-consolidated subsidiary can create a substantial liability). In general, partial investments, leases, guarantees, and pensions are the areas that create most off balance sheet arrangements. Because of our rules based accounting (Europe uses principles based accounting) there is a rule on what should be brought on the balance sheet and there are industries set up to, for example, create leases that reach right up to what the rule is, but will not appear on the balance sheet.
The big changes occur when something that wasn’t previously consolidated becomes consolidated (so generally the liabilities are included on a balance sheet boosting the leverage and decreasing the corporate credit rating).
Long story short, they are like derivatives which can be used to either increase or decrease risk. If a home builder used land options to limit their potential losses and preserve buildable land until the downturn, and/or joint ventures to actually share the risk and rewards of ownership of the land, they will minimize the impacts of a downturn (relative to purchasing land outright). However, there is potential to take on exposure to considerably more land price change, which is what causes business collapse. As an example, a small builder that normally buys 100 acres a year and builds 1000 homes could use options and joint ventures to something like 10% of the value of those 100 acres, or they could take on the risk of something like 1000 acres (which would easily cause the company to fail in a land downturn). It’s all in the size of what they were doing, and that’s considerably harder information to come across.
nice post bluto
Thanks bluto.
- “David Lereah, NAR’s chief economist, said,
- ’The Pending Home Sales Index shows home sales should be fairly stable over the next two months,
- although a minor decline is possible,’ he said.
- early next year to the point where home prices will rise.’”
Well, I am going to enjoy this blog until ‘Early Next Year’.
According to Dave, this blog will no longer be needed at that time.
lIErah is covered till 12/07 with that prediction
Don’t you just love how ONE MONTH of a reverse suddenly means everything is OK?
One month is all it takes for buyers sitting on the fence to realize how special these homes are. A once in a lifetime opportunity to jump up a rung on the property ladder. They had to act now or they’d be priced out and miss that special home. If you don’t believe me, Joe. Give me your wife’s phone number, I’ll convince her.
I say, look here, Suzanne/Susanne, et. al.
You might be legion, but in history, a legion was only 3000 men.
St. Joseph is outmanning you by thousands right now, and he’s not looking too happy to have been conscripted by your ilk.
Most of the housewives I know are running the other way right know. They’ve caught on. The fence has ceased to be their primary place of repose. And when the housewives know, watch out.
OT, but a legion was 5000 men typically although the number could vary due to inclusion of auxilliary soldiers or slightly larger/smaller cohorts.
“Don’t you just love how ONE MONTH of a reverse suddenly means everything is OK?”
This is a slight reverse only of pending sales numbers. Where I am (SF Bay Area), pending sales signs this year have a way of going up…then disappearing…with the house still on the market. And even the pending sales are down sharply y-o-y…
I wouldn’t even call it a reverse. If August normally has higher numbers than July, it was just a ho-hum same-old same-old. But cancellation rates are far higher than in previous years and those are ignored in this number. Smoke ‘n mirrors, the band playing on the Titanic.
Early next hosing season will be very important. I expect it will only get worse.
I can’t understand how no one ever simply asks the DL, bullsh!itter extraordinaire, exactly how it is he comes to these implausible conclusions. Nowhere in the recent history of the RE market has a sharp downturn suddenly reversed itself. If he says prices will drop 40% in the next 4 mos, then he may be right that the market may somehow find buyers, but even that outcome is unlikely. I would ask him how he feels the market would respond to 15% of all homes going REO in a compressed period.
What a complete douchebag.
“… home builders today also use options and off-balance-sheet joint ventures to buy land.”
Enron had all kinds of joint ventures too. Here, let’s explain this. The HB wants to build and approaches old Farmer Brown. “Hey old Farmer Brown. How’d youlike to make ten million dollars? No, no, you don’t hafta kill anybody, it’s legal. Mostly legal. Here’s what we do. your place is worth $8 million but we are gonna buy it from you for $20 million but only call it $16 million. More on that later. With all that we’ll spend a few million for the “grease” to get the zoning and politician “cooperation.” Then we’ll buy out your “senior” share and build our houses. You need to be senior because if we own half we need to do the accounting on our books. This way you get a couple extra million and we get an asset on our books t a high value but little actual expenditure.” Mostly legal.
Robert,
It sounds like you are describing yet another variation on a theme known as “appraisal fraud.”
No. WHOLESALE appraisal fraud. Gosh GS get with the program. Regular plain old vanilla appraisal fraud don’t cover dis. We are talkin’ tax fraud as the new value doesn’t show on thee tax roles. The supposed sale price includes other expenses. Too much to list.
what amazes me.
even after barrons published this the builder stocks are not slammed. no they are one of the strongest groups today.
ubelievable
when the damage is done all will be surprised and downgrade the stock
or maybe
even better upgrade the stocks because the uncertainty about the amount of the write down is now behind them…….
“…it’s legal. Mostly legal.”
LOL. Nice story-telling style.
As soon as I saw the words ““David Lereah, NAR’s chief economist, said,…” I immediately scrolled past the balance of that paragraph.
Doesn’t Lereah still have to sell those condos he has in Florida ?
I can’t believe he is still sticking with that upbeat prediction for 2007. What does he think is going to reduce all this inventory that quickly ? I don’t get it .
Someone please tell me why the markets at 1:30pm dropped like a stone (about 60 pts dow, ~20 pts NASDAQ and then went level?).
Neil
Don’t you know about the two o’clock stock market faerie?
Nobody knows!
NEW YORK (MarketWatch) — The Dow Jones Industrial Average turned lower Monday, and the Nasdaq Composite Index accelerated its pullback, with market participants saying there was no fundamental news behind the move. “Oil is still as low as it was. There is really no fundamental reason for the reversal,” said Art Hogan, chief market strategist at Jefferies & Co. Over at Cowen & Co, Trading Analyst Michael Malone said “a lot of people were asking why the market turned,” but there were no good reasons to explain the move.
Thanks. For I certainly couldn’t come up with a reason. I see at just before 3pm market time the NASDAQ has stayed down while the DOW recovered to even for the day.
For a few minutes I thought October 2nd would become “black Monday.” Let’s see how the last hour goes.
Nel
I was watching the tape when the Dow did the 60 pt free fall in less than two minutes thought the same thing.
Nah — since Oct 19, 1987, the market has been rigged up to never again have a huge selloff.
I agree, it is impossible to ever have another stock market crash. The fix is in.
Its the first day of Cheshvan so probably the PPT was snoozing.
Unless of course they want it to go down.
Yea no fundamental news that wanted to be relaesed to the public that is.
Well in my opinion there has been no ‘fundamental’ reason for it to be going UP at all!! Fundamentals point DOWN!!!
Because everyone who wanted to buy already did.
I might also add that I think the question should be what in the world has been holding it up lately, not why did it go down.
Short squeezes in most majors - 2nd tier stocks did not rally and new highs to new lows was not good. Now the question will be redemption from Hedge funds - since most funds would not allow cashing in until the end of the quarter.
“…the question will be redemption from Hedge funds - since most funds would not allow cashing in until the end of the quarter.”
That adds a pretty interesting twist. Presumably we’re talking about setting the crock pot to 12/31? I don’t know enough about this stuff to take more than a stab in the dark, but doesn’t this lend itself to wild and crazy things happening to hedges between now and then?
Absolutely correct! And historically this is one of the great days to sell.
Then why isn’t everyone buying today and selling tomorrow?
‘The home builders are going to abandon a significant amount of their options and attempt to dissolve the joint ventures that no longer meet their return requirements,’
There was an article a few weeks ago in the Frederick (Maryland) newspaper bemoaning this very thing. There were woeful tales for farmers who wanted to cash out but could not do so because as the land market sinks out from beneath their feet, the evil developers who bought the options on their land were not coming through to purchase it! But the farmer can’t sell now to someone else because the developer holds an option on the property! Oh, the evil developers!
Well, DUH! That’s what an option *is*! The potential buyer gives the potential seller money in return for a (legally binding) promise to hold the land for a set number of years while the buyer decides. The seller can keep the money if no sale happens.
Well, amidst the tales of woe, the article seems to have missed out on one thing: The property owners probably got paid handsomely for those options! Where’s the cash, guys? Spent already? OK, I’m normally sympathetic with farmers versus developers, but this is annoying, and the half-baked coverage by that newspaper definitely gave the wrong impression.
Those property owners could have sold earlier, albeit as agricultural land since in Maryland it takes a developer’s army of lawyers to get a subdivision approved, but they wanted to hold out for a jackpot payout from whichever developer held up the highest price option and potential sale price. You play the game, you take your chances.
The last people I am gonna feel sorry for, are those who own vast expanses of land. Cry me a river. Most of these people paid next to nothing for the land, or inherited it. I was looking at a few 5 acre parcels in Western Washington owned by a gentlemen in his 80’s. It had been passed down for generations. The family owns thousands of acres and whenever they get an iching for a little bit of cash, they just sell off a few five acre parcels for a quick few hundred grand, or more. They really started jacking the prices as developers and builders went insane. The guy told me his family paid less than $50 per acre. I want to say it was something absurd like less than $10 per acre but I cannot be certain. Also, the CCR’s were pretty ridiculous. You can own these animals, not these, mandatory completion times on construction, cannot live on site while you build, blah, blah, blah. Essentially, give me a ridiculous amount of money for my land, and then I will tell you what you can do with it.
It’s pretty rare that option premiums (except those with very, very long terms) go for much more than 10% of the underlying asset price, and when one side of the table knows who prof. Black and Scholes are while the other doesn’t it’s pretty likely that the volatility in those options was likely to be, a bit lower than “market”.
True, I’d expect a single-digit percent in many cases, or at least that’s the numbers I’d seen some years ago. That’s still a heap of money if you own 100 acres of farmland in a place that’s located commuting distance from DC. Why not sell it off earlier instead of optioning it out? I dunno. Maybe the potential option purchase price was higher than current market value at the time.
And it’s a gamble - a gamble which, as a property owner, you accept with eyes wide open. Or at least you better have your eyes open and realize an option can go either way! (As for the builder, he’s gambling, too, since he can lose his option money for something it turns out he’s not going to buy.)
The trick of writing options (as I’ve found so far) is to always plan that your option will either expire (with the asset declining in value) or you will be exercised, so long as when you were writing them you were comfortable with those senarios you will do nicely. At what time you write an option you cease to be a market participant and become an insurance man (insuring the value of the asset), it’s a subtle but rather transformative shift.
I’d guess you are correct, and I’m surprised that anyone would be willing to take a few percent of the land value for an asset with a notorious history of very fat tailed returns (of course if 90+% of the value was appreciation it’s probably a little easier to take).
While it’s the whole premium it’s a whole lot easier to lose $30,000 an acre on a premim than $200,000 on a 40% decline in price.
‘We should be able to draw down the inventory supply early next year to the point where home prices will rise.’”
Who is this “we” you are talking about david?
Yeah, no doubt. I thought the same thing, rarely do “experts” make slipups in grammer like this. The PPT getting ready to purchase and hold? Or rent?
OT, but the Washington Post’s live housing chat is happening now (2-3pm est).
Here is the link:
http://www.washingtonpost.com/wp-dyn/content/discussion/2006/09/25/DI2006092500684.html
and here is an example question…
Haymarket, Va.: We contracted to build new construction but our current home has not sold after multiple price reductions. In the event we default and don’t settle on the new construction, the builder will not only keep our deposit, but sue us for the difference between our sales price and the discounted sales price they end up selling it for to someone else. Have you heard of anyone successfully beating this in court? They have offered us creative, but extremely expensive financing to settle now but we still risk our house not selling and going bankrupt anyway. Any advice would be appreciated. By the way, our local market seems to be soo much worse than what is being reported. Our home value has decreased by almost $100,000 in the past year.
Maryann Haggerty: I know there are some lawyers experimenting with similar cases. I haven’t heard that they’ve established new case law or anything, tho. And sorry, I can’t recommend anyone.
I’d say they have a decent chance of beating the builder if they do sue, which is a big if. Personally, I’d take that chance.
Think of it this way…Who is in the jury box? 12 homebuilders or 12 homeowners? Also, you can’t get blood out of a turnip. The buyers have way more leverage than they realize.
I dont think I follow you. What contract law argument(s) would you hang you hat on in regards voiding the contract.
I don’t think the usual would apply here: duress, unconscionable contract, predatory lending, bait and switch, mirepresentation, fraud.
On top of that, as someone alluded to below, the couple would have to pony up a retainer of at least $20,000 before any good R.E. attorney would probably take the case.
Finally, I think if somehow a jury did rule in their favor, there would be an automatic appeal because this owuld set new contract law precedent and ll of the builder and real estate professional groups would be closely watching.
A couple of upper middle class buyers getting off the hook for a contract - I doubt it.
Since it it still hasn’t sold, it has decreased more than that…
Here in So Cal we have a lawyer who appears on ‘Late Night’ tv - all of the luzzers watch him and contemplate a lawsuit against anyone! He could win that suit!
His name is ‘Larry H. Parker’…and he will FIGHT FOR YOU! and if you don’t win he won’t charge you a dime!
And if you show up in his office with a contract you signed saying you are going to buy that house, but now you won’t buy it… then he won’t charge you a dime because he won’t take your case!
Here is another example from that Washington Post chat - I’m seeing this in my area (Washington state).
Washington, D.C.: How’s “landlording for dummies” as a chat topic? Many I know are becoming landlords unwillingly, myself included.
Maryann Haggerty: That’s an idea. Maybe I’ll see if I can find a guest to help out on that sometime soon!
that isn’t enough information to give any advice
what does “contracted to build new construction” mean?
if it means the builder was being paid to build your home, the price is irrelevant - you owe him his profit less his ability to mitigate
if it means you were to buy a home he’s building for you, you owe him the difference between what you were to pay and what he can sell it for, less your deposit
if you can find any prior breaches by the builder, you can sue for breach and elect to rescind the deal - that is typically what people try to do in deals gone bad
I expect a ton of this work for my firm in the coming years - we have been trying to enforce contracts against landowners who have tried to get out of them and resell them, now we are electing damage remedies as the price goes down
this advice is worth what you paid for it, btw
The average inflation-adjusted debt levels among elderly Americans have risen 77 percent since 1992…
——————————————————————————-
WOW, to me this one sentence points to a bleak near term future for our economy and for those people who traditionally wouldn’t have had to worry about high debt levels.
Yeah, so much for the rich, retiring baby boomer to save housing and the economy. Sounds like a set up for another jump in housing inventory getting ready to happen since alot of senior baby boomers could lose their house to pay for their debt.
My wife knew a guy who had to go back to work as a security guard in his 70s. He wasn’t a real happy person.
“My wife knew a guy who had to go back to work as a security guard in his 70s. He wasn’t a real happy person.”
Unhappy; fading eyesight; packin’ heat. Not the best combination.
Seen as lot of those out there even before the Housing Bust. Not a good thing
Said it before and saying it again. Retirement is an option of the past unless you work for the government. And don’t think that cuts to military and government employees pensions are out of the picture. They are being discussed right now for readjustment.
Noone is safe in the coming climate. Ask the retired auto workers. When it hits the fan everything is on the table for refiguring.
Totally agree!! Time is short and preperation is long. Don’t wait.
My father is in his eighties and still works fulltime and then some. My mother did retire from teaching, and, quite frankly, I think that she made a huge mistake. She was a good teacher, and there’s nothing for her in retirement that has been anywhere near as rewarding.
I’m beginning to understand the Lereah Lexicon…
“dead” could be equal to “fairly stable”
“The Pending Home Sales Index,( see note 1 below) based on contracts signed in August, rose 4.3 percent from July, but is 14.1 percent lower than August 2005.”
Is the month to month comparison another case of apples to oranges comparison i.e. revised July to preliminary August figures or is it a “good” comparison.
Wow! The barron’s article really cleared up a lot for me.
So, these Joint Venture land options have been inflating percieved book value for some of the HBs. When the land option value goes down or cancelled so does book value and consequently share price. What’s more, when one land deal goes bad it ripples throughout the markets adding downward pressure to other builders perecieved book value and share price.
With demand for homes slowing, builders are forced to walk away or renegotiate land options; it seems share prices may drop abruptly after each write-down is announced.
Furthermore, in a worse case scenario some of these HBs share prices will be squeezed by both hidden unmeasurable off book write-downs and publicly known slowing sales demand.
I thought all that “off the book” stuff went out of fashion with the implosion of Enron and the destruction of Arthur Andersen.
How do you know the builders will not be able to indefinitely postpone the writedowns (sort of like FNM’s indefinite postponement of financial reporting)?
Perhaps they could but I am presuming they can’t based on TOA’s experience, another publicly traded company.
The *land market dependent* capital structure of these firms is what the article exposes, land value = balance sheet assets = book value. Its eerily similar to what the Japanese banks did when they based their assets on prevailing stock prices. In other words, with land options and JVs we and even the builders don’t know what is their real book value. Book value is to be determined based on prevailing market conditions for land.
What’s more, the article adds, “Joint ventures….have allowed home builders to buy land, and even other builders, while keeping both the land and leverage off their balance sheets.”
This whole thing stinks is what the article is saying. If land prices continue to increase, everyone is happy; on the other hand, if land prices suddenly decrease, some of these stock will take a pounding.
“How do you know the builders will not be able to indefinitely postpone the writedowns (sort of like FNM’s indefinite postponement of financial reporting)?”
They all have to have annual financial statements/audits. No firm out there wants to be the next Arthur Andersen, so they’ll have to disclose this stuff, IMO.
“So, these Joint Venture land options have been inflating percieved book value for some of the HBs.”
Bingo!
According to Barrons.com, “Every real-estate cycle is different, and it’s too soon to tell whether this one will end with a whimper or a bang — one that rivals, and maybe exceeds, the Nasdaq’s collapse in 2000. Land options and off-balance-sheet joint ventures are designed to mitigate corporate risk in the event of calamity. If market conditions worsen, however, they might provoke it.”
I’m leaning toward worsening market conditions. We’ll just have to wait and see how this turns out.
today’s santa rosa paper has half a dozen approved subdivisions listed for sale,some with approved plans,which is something not seen for years,and the prices are a lot lower than they would have been two months ago.also shows the first “FREE” 50″ plasma tv offer for sebastopol 4bd/2.5 ba on 2 acres,priced $266k under recent appraisal! at $899k,westgate realty and the phone #.wow,are we running low on chinese billionaires or something?
more market weakness from the NYTimes long island section yesterday - http://tinyurl.com/qq6un
In the Region | Long Island
What, This Mansion Seller Worry?
some choice quotes:
“FRED HAKIMIAN, a compact gray-haired man with an easy smile and a firm handshake, seems remarkably calm for someone who has, as yet, no buyers for the two nearly completed $5 million homes he is building on a 56-acre former polo practice field in Old Brookville. He is even planning 14 more houses for the subdivision, called Estates at Evergreen.
One of the homes now going up is an 8,600-square-foot brick colonial on a 3.5-acre lot, to be priced at $4.95 million. The other, just as big but on a three-acre lot, is a cedar shingle colonial with Southampton-style sloping roof peaks and a columned balcony outside the master bedroom; the asking price is about $5.3 million.
At a time when even new homes on Long Island are lingering on the market and when the median price of homes sold in Nassau County had an annual decrease in August for the first time in years, according to the Multiple Listing Service of Long Island, Mr. Hakimian said he is unconcerned.
“For these people,” he said of potential buyers, “the price is not important. It’s more important the workmanship, the materials we use, landscaping. I’m sure we can get 15 or 16 customers for this price.”
He also said he was holding off on starting some of the remaining units in case buyers wanted him to add customized options, like a home theater, a wine cellar or a tennis court…
…”Mr. Hakimian, for his part, sees the open space from the polo fields as a selling point for his community. “In five or six years,” he said, “it will be hard to get land like this.”
That may be so, but some brokers in the area are still skeptical that Mr. Hakimian’s sizable project can sell in today’s buyer-friendly market.
“I think it’s insane,” said Terry Sciubba, owner of Sherlock Homes Realty in Sea Cliff, farther north on Long Island Sound. “In this market?”
“For these people,” he said of potential buyers, “the price is not important. It’s more important the workmanship, the materials we use, landscaping…”
I agree to a certain extent with what he is saying as quality does speak volumes, but price is ALWAYS a consideration. In this market, I think I would feel more comfortable selling one of these homes, which target very wealthy individuals who remain largely unaffected by the economy, than say peddling a $750k-$1 mil Mcmansion sporting cheap materials and shoddy workmanship to an unknown demographic.
so there are homes being built today that aren’t just crap?…I’d hope so, with the $3 million price tag, but I’ve just heard so much here about how anything built after, say, 2000 is to be avoided.
“…but I’ve just heard so much here about how anything built after, say, 2000 is to be avoided.”
I think most of that is in reference to “tract” homes by major developers. There still are a lot of small custom, and even spec, homebuilders in most major metros and a lot of smaller ones who build great stuff. The problem is that the land pricing, recent materials and labor costs (which now are dropping) and exorbitant profit margins have made their products bad deals relative to future prices.
The idea that people buying $5m houses are unaffected by the economy is incorrect. Yes, they make a lot of money, but don’t assume they’re paying cash. Some of these people are move-up buyers who in some cases are borrowing millions to buy - sounds insane, but they believe that prices only go up, so they borrow all they can. Exotic loans aren’t just for poor folks.
I did say “largely” unaffected, not completely. And while I agree with you that some may actually have a mortgage, I believe, for the most part, people shopping for $5 mil homes can afford to pay cash. If not, they have no business in that home period. Property taxes alone are gonna run $3k per month or more. These homes are for the super wealthy period. Move up buyers don’t climb the property ladder into $5 mil homes.
“I believe, for the most part, people shopping for $5 mil homes can afford to pay cash. If not, they have no business in that home period. Property taxes alone are gonna run $3k per month or more. These homes are for the super wealthy period. Move up buyers don’t climb the property ladder into $5 mil homes.”
Ah, if life were so simple and rational. But this stuff is actually small potatoes in the bigger picture of life. People blow it all on an ill-conceived adulterous affair or a couple nights gambling. Athletes and actors toss it all away because they want to get high, and it’s not uncommon for truck drivers and soldiers to sacrifice their lives in order to catch a nap while on the job.
I think it’s pretty common and almost mundane for “low-dollar” millionaires to try to leverage an expensive house as a way to, say, get into the eight-figure league, no different than people 10 X poorer, or even 10 X richer than them for that matter. People don’t take life seriously - they just want to have a go! They aren’t going to be told what they can and can’t afford or how much leverage they can take on.
“It’s all right ma, it’s life and life only.”
Not that such a sample size is worth anything, but I know well two multi-millionaires. The first is one of my best friends. He is worth about $100M, all earned the hard way — his only mortgage was his first one, on a tiny place long ago. The other is worth a lot, but I don’t know how much, again earned the hard way. Neither would consider borrowing a nickel to buy their multi-million dollar homes.
- He also said he was holding off on starting some of the remaining units in case buyers wanted him to add customized options, like a home theater, a wine cellar or a tennis court…
…Mr. Hakimian, what great vision you have! ‘Just in case’ the ‘buyers’ want SOMETHING SPECIAL…..you are going to hold off building those other lots!
He also said he was holding off on starting some of the remaining units in case buyers wanted him to add customized options, like a home theater, a wine cellar or a tennis court…
Holding off, “just in case”? The guy already knows the jig is up and right now is in some sort of hold and pray pattern.
From the Newsweek interview with Century 21 CEO Tom Kunz:
NW: How did you prepare for the slowdown?
TK: First, let me say we still have a fairly strong market. JOBS, income and interest rates are in great shape.
NW: In 2000, America had 766,000 Realtors. Today there are 1.3 million. As sales fall, does Century 21 have too many agents?
TK: I don’t know.
Okidoke!
Translation:
“I don’t know”=”We have far too many agents and about half are going to get laid off. However, if I say that, they would sell fewer homes and that effects my bonus. So keep quie as what we’re doing is motivating the realtors via desperation to stay on the job until we can wiggle out of office leases. At that point we’ll close the surplus offices and have some massive layoffs. Please be quite about the bubble as I need that bonus to keep my head above water on my five flips.”
Neil
Agents will never get laid off. It costs C-21 nothing to hold those licenses.
Agents are not employees, they are contractors. They receive no salary or benefits. Most (if not all) are required to pay their own licensing, dues, and renewal fees.
The more agents a company has, the better chance of a sale. The fact that the number of agents has doubled is irrelevant to them. Since they still get a cut of every transaction, dillution of commission dollars to agents isn’t a problem.
jb
You’re right, although there are some companies that have a different model, where they pay their agents a salary plus a small commission on a sale. I always thought that was the better model - it tended to psychologically “soothe” the seller, knowing the agent was a salaried worker, not totally a commission whore. But the whole commissioned agent thing will morph…ala travel agents of yesteryear.
Several local offices in my town just laid off some real-whores. Some national franchises and some local chop shops. I agree with some of your points - I was curious why they would part “friends” with these independent contractors who pay them rent, fund their advertisement pool and pay for the overhead (central secretary, copiers, etc..)? Especially given the fact that 90% of all the new commerical space in our town has been devoted to the REIC the overhead has grown substantially the last few years.
True. The reduction-by-half will be totally voluntary. I’ll bet there will be very noticeable departure numbers whenever the annual dues are due.
What help does the company then give to an agent? Wouldn’t it be better for the agent to work alone and keep the whole comission?
Wait a second… agencies must rent floor space for desks, provide support staff, etc. It isn’t quite free to have an agent on the books. Now, I have no idea who pays for MLS access, etc., but those items are not free…
So I think there is motivation to kick underperforming agents out the door.
Neil
Here in Tucson, the paper has an article on this very topic:
http://www.azstarnet.com/business/149037.php
I have a friend who is a broker here in central Florida. They are now advertising for new agents. No one is getting canned for underperforming, to my knowledge. If there are no buyers, it’s liek no wind for a sailboat. But whereas many years ago the brokers paid a lot of the licensing and miscellaneous expenses (like business cards & magnets) of agents, they no longer do. As I hear it, that winnows out the poor performers in a hurry. Also, in most of these places, the selling agent has to split their half of the commission 50-50 with the broker, so they are left with 25% of the commission before self-employed social security tax and all the other costs of being self-employed.
More on the new lending guidelines:
http://www.mortgagenewsdaily.com/1022006_Exotic_Mortgage.asp
“Not everybody was applauding the new federal guidance. Regina M. Lowrie, Chairman of the Mortgage Bankers Association (MBA) immediately issued a press release saying that while MBA believes that the regulators’ efforts were well intentioned, MBA has strong concerns about their practical effects.
Ms. Lowrie stated,”Innovative, nontraditional mortgage products have allowed more people than ever to explore the possibility of homeownership, contributing to the nearly 70 percent rate of homeownership. The guidelines propose a one-size-fits-all underwriting standard that will unnecessarily choke industry innovation and diminish consumer choice.”
I think someone is missing the point here.
Ms. Lowrie stated, ”Innovative, nontraditional mortgage products have allowed more dirt poor, financially illiterate people than ever to explore their own grim possibility of home foreclosure [...] The guidelines propose a one-size-fits-all underwriting standard that will unnecessarily choke industry profit-gouging and diminish consumer recklessness.”
———————————-
As for one-size-fits-all: “Can you pay? No? No mortgage for you!” sounds like a good one-size-fits-all policy in retrospect.
LOL, thank you, I needed it.
lol!
The “morgage nazi”?
No morgage for you!!
Los Angeles housing market reaches the tipping point.
“We started looking for our first home in August. * All the houses in the areas we like (Santa Monica and Brentwood) are in the $800 to $1,100 per square foot price for a range of quality from total garbage/tear down to very refined.
“Yesterday we visited a home that was remodeled recently, was in an amazing location, and that was in *perfect* shape for $742 a square foot. This was 30%+ less than a similar house we had seen right up the block and that was *not* as nice. So, two very similar homes in the same location and one was priced at $1,100 a square foot and one was priced at ~$740 a square foot.”
Are these waterfront?
Nope. Waterfront would be much higher.
Check out 90402 on Zillow.
Oh come ON!!!
1000/sq ft, no waterfront? That’s just totally insane. What the hell are these people thinking? You could buy a condo in NYC for that much money; actually, a pretty nice condo in a decent neighborhood even.
Where in the heck are they finding people that stupid? You could build a home out of granite with 10 carat diamond nails for 1000/sq ft.
Is anyone really that stupid?
I am noticing significant price discrepancies in a lot of west coast markets. Right now is a horrible time to be purchasing a home, or selling one for that matter. I have noticed a very small dropoff in inventory in Northern NV as I think some dreamers have taken their homes off the market. Or perhaps some listings expired at the end of September.
Right now is a horrible time to be purchasing a home, or selling one for that matter
Hello? That’s just the converse of Lereah’s “It’s a good time to buy, and it’s a good time to sell too”.
“David Lereah, NAR’s chief economist, said, ‘’The Pending Home Sales Index shows home sales should be fairly stable over the next two months, although a minor decline is possible,’ he said. ‘We should be able to draw down the inventory supply early next year to the point where home prices will rise.’”
“Home prices will rise.” Didn’t he just recently acknowledge that prices will be flat through 2007? This guy is a serious pathological prognosticator. Obviously, his credibility is already shot. Wouldn’t he learn just to stick with one somewhat overly optimistic prediction and then just keep quiet. Add this to the list whoever is keeping track of the Liareah of the Mouth syndrome.
At the end of the day, there are really only two kinds of economist: Those that admit that it is impossible to accurately predict future economic conditions, and those who do not admit it. Guess which kind DL is?
So that’s where weather forecasters go when they retire.