The Housing Bubble

what a surprise…..

WCI expected to be significantly below its prior guidance of approximately $0.52, although the Company still expects to report positive net income.

Greater than expected Traditional Homebuilding and Tower Homebuilding defaults will also negatively affect the company’s earnings for the third quarter. Approximately 80 traditional homes valued around $48.0 million had been scheduled for delivery during the quarter but failed to close

addition, in light of increased tower defaults primarily related to a single tower located in Northwest Florida, the Company has increased its tower default reserve to anticipate that the actual year-to-date default rate of approximately 4% will continue through completion and delivery of existing towers

Additionally, the Company expects that combined tower and traditional new orders for the third quarter are expected to fall approximately 80% below the total reported in the third quarter of 2005

The decline in the value and number of traditional home new orders of approximately 60% to 65% reflects additional deterioration in sales levels during the historically slower summer sales season, as compared to the 40.5% to 43.5% year-over-year new order shortfall experienced in the second quarter

summary of all the things happened since the last call form august (anouncing, buybacks, upgrades etc)

this is how wall street works…….

http://immobilienblasen.blogspot.com/2006/10/what-surprise-wci-warns-again.html

ithis are the last data before the guidelines will take an effect. maybe there was zum rush befor…..

The Market Composite Index, a measure of mortgage loan application volume, was 633.9, an increase of 11.9 percent on a seasonally adjusted basis from 566.5 one week earlier. On an unadjusted basis, the Index increased 11.5 percent compared with the previous week and was down 10.9 percent compared with the same week one year earlier.

Refinance applications continue to increase as mortgage rates have declined to their lowest levels since the beginning of the year,” said Mike Fratantoni, MBA’s senior director, single family research and economics.The seasonally-adjusted Refinance Index increased by 17.5 percent to 1970.8 from 1677.5 the previous week and the Purchase Index increased by 7.6 percent to 404.6 from 375.9 one week earlier.

charts, details as always from
http://calculatedrisk.blogspot.com/2006/10/mba-mortgage-applications-rise.html

Housing chill strikes home / ripple effect

http://immobilienblasen.blogspot.com/2006/10/housing-chill-strikes-home-ripple.html

It seems like the MSM were MIA during homebuilder CEO stock sales.
http://tinyurl.com/mztkm

Does anyone have access to referenced report by Moody’s? A good read for bubble watchers.
http://tinyurl.com/nq9wl

jmf, do you have to always have to crapflood this thread first thing in the morning? We all know you’re trying to drive traffic to your blog, but please — can you at least consolidate all of your links and quotes into a single post? And also, nearly all of the stories you link/quote were posted the previous day.

Home inventory (including SFH’s and condos) can be tracked on “housingtracker.net. Since we are now in October, we can get an approximation of the inventory change in September in 52 major housing markets. During September, inventory increased in 42 markets and declined in 10. The simple average accross all markets was a 2.6% increase (not weighted for size of market). The extremes were Tampa with a 22.7% monthly increase (seems to have all come last week, so may be a reporting error or correction) and Reno with a 2.5% decline. The declines were mostly in some midwest and California markets. September is, I think, not a traditional time to put homes on the market and these increases are not nearly as high as ones during summer. However, the inventory is still clearly increasing in most markets. Fairly big increases in FL, Boston, Washington DC, Washington State, Oregon and Salt Lake City.

Anecdotal evidence from Northern Virginia.

I live near Fairfax City in Fairfax County Virginia. Fairfax country is one of the wealthiest counties in the US.

In the last 3 months a Dodge, Mercury, and Ford dealership have closed. The Mercury was replaced by a Toyota but the rest are still empty. On this same stretch of road (4 miles) two restaurant have closed. One is a chain restaurant, Lone Star, and the other was family owned one that had been there for years.

Housing prices seem to have dropped slightly with the largest cuts in the outer suburbs and the 800k price range dropping the most. Yet that does not seem to be an indicator of what is selling. I live in a townhouse development and there is no real reason I can see why some sell at close to 05 prices while others sit, as it is not price. In another development I am watching their seems to be sales but it is if no one is checking the comps as there is a 75k spread almost on the same units.

Some of the people I have talked to have sold in two weeks at their price. Another thought he could sell and bought a house. Even after cutting the price 90k it sits as he makes double payments.

There is a lot of condos coming on the market or planned in this area plus several large planned mixed use communities. Two bedroom condos seem to match the same price as three bedroom townhouses which is not a good thing. One tower seems to have stopped at the 4th floor and seems to be stalled. The others have not broken ground with the exception of Fairfax City.

What I am hearing is how over extended people are. Usually it is the higher income professionals who are really having problems. When I say problems it is different then most. When a working class person says they are broke it means they have no money. When an upper class person tells you that it means they are having short term cash flow problems but have not touched their real assets. HELOCS are beginning to kill these people. The lifestyle is not sustainable with out an influx of equity for them

All of the bubblehead projections seem to be based on a strong economy. We now see Walmart lowering projections from 1.8% growth SSS to 1.3%. Companies layinf off at increasing rates. And WCI having an 80% reduction in net sales.

What impact do you think a slowing economy will have on an already oversupplied housing market?

thanks, maven –
the aol article about the moody’s report was a very good read, especially the indications that “some markets may not bottom until 2009.” the one glaring piece of idiocy was the assertion that the cooling market is ‘the direct result of the fed’s raise in interest rates’. we on ben’s blog know better.

in the article’s accompanying blog, i found the following entry quite telling:

“I am a seasoned REALTOR,ASSOCIATE BROKER in New York City.
Buyers have had enough!
They are not willing to OVERPAY anymore!!!
Ive had a few buyers walk away from an accepted offer,because they are convinced prices are coming down 5 to 6%,I have another client who has seen over 22 homes and was just about to buy when they decided to wait till 2007 waiting for prices to drop.
Think about this even if you find a qualified buyer with a 20% down payment the mortgage payment is still to much for them to handle,they would need 55 to 60% of their income to make the mortgage payment,.
BUYERS ARE MAD AS HELL AND THEY ARE NOT GOING TO TAKE IT ANYMORE!
What good is having a product that no one can afford to buy.it was just a matter of time,there is a saying when something reaches their peak there is only one way to go and that is DOWN!”

a genuine “network” (the movie) moment.

I tried to convince the youngens who read this site http://www.gothamist.com/archives/2006/10/03/census_confirms.php#comments that this was a bubble that would burst. I provided a link to the 1980s New York bubble compilation.

A couple got it, most didn’t. But they do indicate that those who are buying are getting money from Mom and Dad. Great, if the bubble doesn’t burst we’re going to have a city full of trust fund babies and no one else!

the aol article on the moody report (repeated):

http://tinyurl.com/nq9wl

Prognosticators

This post is for Northern Virginians who read last weekend’s Washington Post article by the esteemed John McClain, titled “Make Way for Moderation.” His title is the senior fellow and deputy director at (our favorite) the Center for Regional Analysis at George Mason University. His new prediction? “At some point — say, next spring, when demand usually rises — prices will go up again, and in the future will likely return to the long-term average increase of 7 percent per year.”

http://tinyurl.com/z6taw for the Post article.

How good a prognosticator is he? Here are John McClain’s predictions from this January - 10 months ago all of us could see the writing on the wall and rising inventories, and he could not.

http://www.cra-gmu.org/06%20conference/Housing.pdf starting on page 28.

-2006 prices will increase 6-12%

(so far they’ve gone down 3.6% in Northern VA and we’re not done with the year)

- Sales volume will drop back to 98-100,000 transactions (2003-2004 levels).

(so far we’re at 25,000 in Greater Northern Virginia

- Days on market rising to 45-55 average

(Fairfax County is about 80)

- Areas of region with more affordable housing will continue to have 15-20% [price] increases in 2006 - like Prince Georges, Prince William, and Spotsylvania

(NOT!) Not only are we in the negative in Prince William, the foreclosures there are picking up. (And in Loudoun, and in Fairfax).

- Condos will have less price appreciation

(how about more price *de* preciation?)

His whole bent is jobs, jobs, jobs, and everyone wants to live here because of jobs. He leaves out any analysis of affordability, speculative activity, toxic loans, and oversupply from builders.

http://www.cnn.com/2006/US/10/03/Dobbs.Oct4/index.html

Dobbs: Are you a casualty of the class war?

NEW YORK (CNN) — The Dow Jones Industrial Average has hit an all-time high and Wall Street firms are posting some of their best earnings ever. For the first time in our nation’s history, the Forbes list of the 400 wealthiest Americans includes only billionaires. In fact, having only a billion dollars means you’re not on the list. As a group, the Forbes 400 has a collective net worth of $1.25 trillion.

So the rich are doing well. But how about the middle class?

More Americans than ever are living in poverty, living without health care, paying more for housing and for the costs of our public education. And real wages are falling.

Real median earnings of full-time working males fell nearly 2 percent last year, according to the Census Bureau, while the real wages of working women fell by 1.3 percent. Despite that, real median household income did manage to rise slightly last year, though that small gain was the first increase in household income since 1999.

So what has been keeping our middle class afloat in the face of rapidly rising costs? American families have been living on, as well as in, their homes. More than one-third of homeowners are spending more than 30 percent of their income on the cost of housing, a level that pushes the edge of affordability. Nationwide median home values from 2000-2005 jumped 32 percent, and homeowners have been pulling equity out of their houses in order to keep up with escalating tuition bills, health care costs and energy costs.

But not everyone is so lucky. The number of Americans without health coverage rose by 1.3 million last year, up to 46.6 million, according to the Census Bureau. What’s worse, more than one in 10 American children are now uninsured. Fewer employers than ever are providing health care to their employees and those who are still lucky enough to receive employer-provided coverage are paying a much larger share: The Kaiser family foundation says the cost of family health insurance, in fact, is up 87 percent since 2000.

The same holds true at the pharmacy. Prices for the most popular brand-name prescription drugs this year rose substantially higher than the annual inflation rate, as has been the case every year this decade. The AARP concluded prices for the top 193 drugs climbed 6.3 percent over the last 12 months ending in June 2006, while inflation went up 3.8 percent. Generic drugs, however, rose 0.4 percent over that period of time.

The costs of higher education are also hurting middle-class families like never before. In this increasingly credentialed society, the total cost of tuition, fees, room and board at four-year public colleges and universities has ballooned 44 percent over the past four years. And the proportion of family income it takes to pay for college is growing for families everywhere. The biggest jump, according to the National Center for Higher Education, is in Ohio, where college costs now take 42 percent of the average family budget, up from 28 percent in the early 1990s.

Our dependency on foreign oil is also hamstringing working men and women. Gasoline prices are back on the decline (for now), but many Americans this summer were shelling out double what they used to pay to drive their cars. And gas prices now, while lower than at their peak in August, are still about 60 percent higher than in January 2001.

Perhaps one of our nation’s leading business magazines would like to create something called a Forbes or Fortune 250 Million list, which would reveal the dire financial pressures that our public policies have produced for working men and women and their families. It’s time for all of us to focus on that deep chasm we have allowed to open between the wealthiest Americans and the middle class and those who aspire to it.

Otherwise, there will be 250 million casualties in what has become nothing less than class warfare.

the same went on with a lot of programms for “affordable housing”
the story is very long but very telling on ethics

black box deals / more “enronstyle”

The 1999 variable-rate bonds, which initially sold at an annual interest rate of 3.3 percent, were supposed to make more computers available to kids. The Illinois Finance Authority, which is based in the state capital of Springfield, paid $1.4 million in fees to the underwriter, Kansas City, Missouri-based investment bank George K. Baum & Co., and an additional $1.8 million to advisers and promoters.

The schools got almost nothing. Of the $150 million from bond proceeds, a total of $833,000, or less than 1 percent, was used for technology. The Illinois authority ended the program in 2002 and bought back the bonds to avoid having the IRS declare them as taxable.

http://immobilienblasen.blogspot.com/2006/10/black-box-deals-more-enronstyle.html

I think that Casey finally wizened up and took iamfacingforeclosure.com offline.

I don’t see it today.

I was planning on reading some of it today too

U.K. house prices up 1.0% in September

U.K. house prices rose 1.0% in September from August, according to the monthly survey by Halifax bank. The annual rate of house price inflation was 8.0%, its lowest rate since April. Halifax said there are signs that housing activity has reached a plateau and added that annual house price inflation is expected to moderate over the remainder of the year as higher mortgage rates and utility bills put pressure on householders’ finances.

Halifax said there are signs that housing activity has reached a plateau…. i could sweare i´ve heard this before….

You’d think WCI’s warning would lead to a general decline in homebuilders, but nope.

Bullies Revive, Brazil Americans swoon:

http://www.xanga.com/home.aspx?user=russwinter&nextdate=10%2f4%2f2006+23%3a59%3a59.999

If 30 percent of all jobs created since 2001 came as a result of a housing industry that now looks set to collapse, and two thirds of the U.S. economy is dependant on consumer spending—which is largely dependant on rising house prices, which are decelerating—perhaps you can see why the Trumpet has been warning readers to prepare to reduce their standard of living. If housing goes down, the rest of the economy could quickly follow.

http://www.thetrumpet.com/index.php?page=article&id=2587

11% drop in selling price already and this is just the begginning.

“Fewer Carson City homes sold in August than a year ago, according to a database for Realtor sales. The data also shows houses are spending more time on the market and costing 11 percent less than a year ago.

The median cost of a single-family home in August was $309,000, compared to $348,500 the previous year. Real estate agents call this a buyer’s market.”

“It’s a good time to buy,” said Doug Eisner. “I don’t think it’s ever a bad time to buy.”

http://www.nevadaappeal.com/article/20061003/NEWS/110030074

U.S. SEPT. ISM SERVICES BELOW CONSENSUS 56.2%
U.S. SEPT. ISM SERVICES 52.9% VS 57.0% IN AUG.
U.S. SEPT. ISM SERVICES PRICES 56.7% VS 72.4% IN AUG.
U.S SEPT. ISM SERVICES NEW ORDERS 57.2% VS 52.1% IN AUG.

plus
U.S. AUG. FACTORY ORDERS EX-TRANSPORTATION DOWN 0.7%

BAILOUT?? Here it is:
“Meanwhile, several banking sources have reported that Treasury Secretary Henry Paulsen, the former head of Goldman Sachs, may be cooking up a scheme to try to save the banks and their financial books. According to these sources, Treasury, along with the Fed, is trying to come up with a Federally funded mechanism that would take the explosive short-term and ARM debt off the books of lenders, and reissue it at longer-term debt…”

from here, sorry if repost:
http://www.financialexpress-bd.com/index3.asp?cnd=10/4/2006&section_id=11&newsid=39760&spcl=yes

Mina

There has been a lot of concern over the growing use of “exotic” mortgages lately, but I wonder if these mortgages are really so terrible. What other alternative are people with average incomes going to use for purchasing a home? Home prices are SO high in the US that it is nigh impossible for the majority of buyers to afford them if they don’t resort to some form of exotic mortgage. Are we just supposed to tell people not to buy homes? Further, these new mortgage instruments really aren’t so bad so long as there is constant appreciation. Even if there is one flat year, that wouldn’t be so bad for an exotic mortgage holder.

As long as they can get 5% to7% average appreciation over 3 or 4 years they can sell out and easily cover what they owe before a reset breaks them. And judging by real-estate prices in the last 10 years, a 5% average appreciation is not unreasonable to assume.

If we stop making these exotic loans available, maybe we will just wind up leaving most Americans permanently frozen out of the real-estate market.

hasn’t it occurred to you that the reason for the obscene home prices is the machinations of the userers who are offering these exotic mortages ? as for the possibility that home appreciation will somehow letpeople grow their way out of debt, how will that happen when the RE market reverts to the mean-which it always does.

What are you guys looking for to see some evidence of real credit tightening? Those new guidelines don’t amount to squat (according to NHZ) When do you expect to see it?

Well, here’s one for everybody that says whitebread houses in South Jersey and middle American are safe from a price collapse. Typical run up I’ve seen even with my little Cape Cod, $100k bid up to $200k in 5 years = Bubble.

http://www.courierpostonline.com/apps/pbcs.dll/article?AID=/20061001/NEWS01/610010329/1006

I apologize if this was posted yesterday -
RE: The New York Times and Chicago Tribune article
Burden of Rising Housing Costs is a Burden for the Dollar
…Thankfully the drop in oil prices has made things a lot easier for the average consumer and could keep them spending for a bit longer, but if the housing market continues to worsen, the only solution may be for the Federal Reserve to step in and lower interest rates. By doing so, they would reduce the rates at which these adjustable rate mortgages are reset to, which would help to reduce some of the housing market costs. The Fed is not quite ready to take that step at the moment because the extent of the downturn in the housing market is still relatively shallow they are still waiting on evidence of a significant impact on consumer spending. Next week, we are expecting the September retail sales report. For those hoping for a rate cut, a weak number may be the first indication of that possibility.
http://tinyurl.com/efgpp

Rate Cut Negative for the Dollar

Interest rate cuts are good for the consumer because it reduces mortgage rates and credit card payments but at the same time, it can be very negative for the US dollar. For those watching the currency markets, trading has been extraordinarily quiet. Everyone is sitting on the sidelines waiting to jump into the next big trade. The Federal Reserve has kept interest rates on hold since August and recent economic data has warranted no further changes to interest rates for the time being. However, if consumers can no longer carry the burden of the rising housing costs, then the Federal Reserve may need to cut interest rates. One reduction is usually followed by more and in a world where money shifts from country to country in seek of high and growing yield, a rate cut by the Federal Reserve could lead to a mass exodus out of US dollars. This could come to the benefit of currencies such as the Euro, British pound and Japanese Yen. Realistically though, we do not expect the Federal Reserve to sweep in and save day until next year.

Front page of today’s Bakersfield Californian:

The housing slump - Prices may decline in the US but not here. The story says, HOWEVER, they write the YOY median is DOWN 2.5%?!?!?!?

Forbes has an online article titled “What will your house be worth in 2016″:

http://money.aol.com/forbes/realestate/2016

For LA, a 23% increase in 10 years…not great, but at least the dip is very shallow, look at the graph:

http://tinyurl.com/ozwmf

Looks like we need not worry, we’ve hit a permanently high plateau in Los Angeles, eh?

And places like Seattle? Well, we all know that “real estate only goes up”, and “everyone wants to live there”:

http://tinyurl.com/rwped

And San Diego? Narry a dip:

http://tinyurl.com/lzpgv

Well, we can all stop worrying, and get back to spending. Where’s my credit card…

has onybody seens gm

tanking 1,5$ in a minute with huge volume

Home builders’ CEOs make timely stock sales

http://www.usatoday.com/money/economy/housing/2006-10-04-builder-sell-usat_x.htm?csp=26

as far as the controversy berween txchik57 and jmf is concerned I enjoy all of their posts !

BERNANKE: HOUSING MARKET SUPPORTED BY GOOD FUNDAMENTALS
BERNANKE:’SUBSTANTIAL CORRECTION’ UNDERWAY IN HOUSING SECTOR
BERNANKE: HOME BUILD DROP TO CUT H2 GDP BY 1 PERCENTAGE PT

this was the man that couldn´t see any bubble less than 12 month ago…..

Here’s one take on how to sell a house, fast, in today’s market:

http://www.angryfrozenhead.com/articles/October2006/sellfast.html

Just returned from a short trip, so the following may have been posted already today. In the Orlando Sentinel Business section, the bolg asks if there is a housing bubble. They’ve been duking it out and Ben’s blog was a reference for opinionated but clueless, of which there seemed to be plenty.

Some good big-picture stuff here:

AMERICA… PLEASE KEEP SPENDING
by Joe Average
(aka William R. Swagell)
October 4, 2006
http://www.financialsense.com/fsu/editorials/2006/1004.html

OT, but hopefully Bits Bucket-OK — this quoting Google founder(s) in a MyWay article today:

“Writing in the Sun tabloid, the Google boss said the online world has empowered ordinary people with the ability to challenge governments, the media and business.

“It has broken down the barriers that exist between people and information, effectively democratizing access to human knowledge,” Schmidt wrote.

“This has made us much more powerful as individuals.”

On the one hand, this is wonderful — one of the greatest achievements in my lifetime. On the other, think about government, Leviathin — it is about the collection of power. Power likes shadow, not sunlight (not wishing to be too hammy with the phrasing). Washington power will despise the uncontrolled ability of the plebes not only to question their actions, but to be able to do so in such a totally public way. So, change is coming. But it will be for your security.