‘No Evidence Near-Term Conditions Will Improve’: CEO
Some housing reports from Wall Street. ” The nation’s largest home builder, Ft. Worth, Tex.-based D.R. Horton said fourth-quarter net sales orders for new homes dropped 25% from a year earlier on sluggish demand for housing. ‘The current selling conditions in the home-building industry continue to be challenging, with higher-than-normal cancellation rates and increased use of sales incentives in many of our markets,’ said Chairman Donald Horton.”
“Its cancellation rate for the latest quarter rose to 40%, up from 29% the prior year. ‘As fundamentals continue to deteriorate and buyer sentiment sours further, we think Horton and other builders will continue to have a primary focus on working through inventory by reducing prices and increasing incentives,’ wrote Banc of America Securities analyst Daniel Oppenheim.”
“Also Tuesday, KB Home said quarterly orders fell 43% from a year earlier.”
“In the filing, KB Home reported new home orders slid 43 percent to 5,989 in the quarter, weighed by a 53 percent drop in U.S. orders.”
“The company’s housing backlog slid 14 percent to 23,878 units at the quarter’s end, while the value of the backlog fell 8 percent to about $6.53 billion as home prices fell across the country.”
“KB Home said it plans to file the delayed 10-Q on or before Dec. 24, in order to avert defaulting on its debt. The company said the delayed filing could trigger a default on some of its debt and impair its ability to borrow against its credit facility, but was in talks with its lenders to get extensions.”
“William Lyon Homes announced today new home orders for the three months ended September 30, 2006 were 501, a decrease of 40% as compared to 834 for the three months ended September 30, 2005. New home orders for the nine months ended September 30, 2006 were 1,698, a decrease of 41% as compared to 2,861 for the nine months ended September 30, 2005.”
“The Company’s cancellation rate for the nine months ended September 30, 2006 was 33%, compared to 13% for the nine months ended September 30, 2005.”
“The Company’s backlog of homes sold but not closed was 1,040 at September 30, 2006, a decrease of 55% as compared to 2,299 at September 30, 2005. William Lyon Homes is primarily engaged in the design, construction and sale of single family detached and attached homes in California, Arizona and Nevada.”
“M/I Homes, Inc. announces homes delivered for the 2006 third quarter decreased 11% to 927 from 2005’s 1,047. Robert H. Schottenstein, CEO, commented, ‘Market conditions continue to be challenging in most of our markets and are reflected in our unit results. The macro-economic factors giving rise to these conditions are well documented and, at this point, there appears to be no evidence that conditions will improve in the near-term.’”
“Mr. Schottenstein, continued, ‘With respect to the quarter, our new contracts were negatively impacted by increased cancellation rates, the impact of inventory oversupply in most of our markets and weak demand.’”
“The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and West Palm Beach, Florida; Charlotte and Raleigh, North Carolina; Delaware; and the Virginia and Maryland suburbs of Washington, D.C.”
From Paul Muolo at National Mortage News. “For years, Friedman Billings Ramsey was the ‘holy roller’ of mortgage REITs, preaching the benefits of using the structure when taking residential lending firms public. And for years, some firms bought the speech, went public, and paid out a lion share of their earnings in the form of dividends.”
“Then a ‘correction’ swept the subprime sector in mid-2005, a correction that is still occurring. But what about FBR itself? Last week the investment banking firm shut down he division that gathered residential product for securitization into ABS. But guess what? FBR, a spokeswoman confirmed, also shut down its mortgage trading desk. She said the company, however, has not closed the group that takes mortgage firms public. (There were rumors to that effect.)”
From Fitch Ratings. “Fitch believes the recent rise in U.S. loan repurchase activity serves as a reality check for mortgage originators rather than the beginning or acceleration of a troubling trend according to a new Fitch special report.”
“Although early payment defaults were the root cause of the increased repurchase activity, the Fitch report contends that secondary market behavior was largely responsible for the unexpected repurchase provisions recognized by some mortgage originators.”
“Although the impact of alternative mortgage products and adjustable-rate mortgage resets have yet to be felt, Fitch views the recent repurchase uptick as a rational self-correcting mechanism.”
“‘Mortgage companies are quickly playing catch-up with the changing rules of the game,’ said Vincent Arscott, a director in Fitch’s Financial Institutions group, referring to mortgage originators tightening underwriting guidelines. The report revealed that ‘risk-layered’ products, lower FICO, second lien, stated income loans, were the biggest loan repurchase offenders.”
From Inman News. “Federal regulators recently suggested new guidelines for banks that originate certain types of high-risk mortgages. The banks, predictably, were not enthusiastic about the regulators’ suggestions. But the regulators have it right: It’s high time for banks to limit access to these mortgages and disclose the real risks to borrowers.”
“Interest-only and payment-option loans were supposed to be intended for sophisticated borrowers who could take advantage of the greater flexibility. The fact that so many of these loans were sold to people for whom they weren’t intended begs an obvious yet important question: Why didn’t regulators insist on tougher guidelines a long time ago?”
Meanwhile….JP Morgan upgrades HB’s. I’m no investment guru, but this smack’s of behind closed door market manipulation. What’s in it for JP Morgan to do this? Is someone getting their arses kicked?
I hear you as far as the manipulation goes. Someone earlier today protested the idea of the market manipulation. Let’s kick that around a bit here this morning. I’ve personally lost faith, but perhaps someone can enlighten me.
JPM thinks that inventories have stablized in some markets, order comps get easier going forward and may increase in the third quarter of 2007 so let’s buy the universe now. I am perplexed myself.
Is this conclusion about stabilizing inventories based on official government new home sales statistics — the kind that ignore ignore order cancellation rates that have recently been reported around 50% in some cases?
This is the most important election since 2000. Everything will be done to maintain a semblance of good times for the coming month. If we have a market downdraft before the election (1000 pts) I will eat my own foot on Youtube or whatever the hell that thing is called.
If the Repubs are major losers I will be shorting the markets like mad in January if the levels are maintained. That’s my book as funnymentals don’t mean crap these days. Remember, economics used to be called political economy.
This guy supports your viewpoint
http://financialsense.com/fsu/editorials/nystrom/2006/1002.html
Thanks for the link! It’s nice to know that I’m not the only one suggesting these ideas albeit proving the veracity of such statements is a quite difficult considering that I’m so far on the outside that I don’t even know where the inside begins!
That link is extremely disturbing but thank you for more evidence to add to the pile of proof.
This should disturb anyone.
“The index of leading economic indicators has declined for seven straight months.”
How many straight declines normally signal “RECESSION DEAD AHEAD”?
Very disturbing, and it basically proves the instability of this thing we call money. When any big swinging wall street dick can change the rules at the drop of a hat and the value of what is used as a medium of exchange, of what is really nothing more than a concept of confidence, then there is no trust or confidence in the money and it becomes worthless. You can’t eat it, it won’t fill your tank, it can’t even tell a good joke. Money is also only as valuable as the goods and services it can procure. I don’t know if anyone has noticed lately, but so many of the goods and services for sale are getting crappier and crappier and even harmful: I just threw out a head of lettuce last night because it was from Salinas. I’m not taking any chances. Pharmaceuticals often cause more health problems than they cure. Chinese made goods? Don’t even get me started. Housing? Yech. Nails to Nowhere. Electrified walls. My confidence in so many of the products and services available today is shaken. No pride, no trust, no soul. That’s when money becomes worthless. And as long as we agree to the “rules” set by Wall Street, that’s how it goes.
“This guy supports your viewpoint”
http://financialsense.com/fsu/editorials/nystrom/2006/1002.html
*****************************************************************
I especially liked this:
“The Dow didn’t quite make it to a new closing high this week, and in my opinion, it is a miracle that the market didn’t completely collapse after today’s inflation report. The report of the highest level of inflation in 11 years should have been the straw that broke the camel’s back. The camel’s load already seems to be getting pretty heavy to me: The yield curve has remained inverted for months; we had the first negative reading in the Philly Fed index in three years; national housing sales have plunged and prices are showing their first declines since 1993. The index of leading economic indicators has declined for seven straight months. Online advertising revenue is down; newspaper advertising revenue is down; the help wanted index is down. Across the board the economic news is terrible - everything is pointing to a recession.
“Everything, that is, except for the stock market. It makes me consider that the only things standing between this market and a crash are the November elections. Under normal circumstances, today’s inflation report - the highest inflation reading in 11 years - would have absolutely creamed the market. This market is priced to perfection, and believes that the Fed is done raising interest rates, that inflation is under control. Under other circumstances, today’s news would have been a splash of ice cold water on the buoyant market. But the Dow took it all in stride, just as it has taken all of the bad news of the past few weeks in stride, levitating like the undead near its all time high. There is, to put it mildly, something fishy about this market. Its levitating act has the feel of something unnatural. This being the case, it is impossible not to ask: How hard could it be to manipulate the Dow - just 30 stocks - for a few weeks until the election? Especially considering that your Secretary of the Treasury is the ex-Chairman of Goldman Sachs?”
Dawnal, that’s one of the best things I’ve ever read and it just really says it all for me. I think that’s the point I was trying to make, is that when people wake up and realize how much the system is gamed, they just won’t go to the casino anymore, if they can’t trust it that there is some sort of system in place, some sort of rules that apply to all. That is when money becomes worthless. It has low worth when the goods and services it represents are substandard. It has no worth when there is no confidence, you might as well use it for toilet paper. Traditonal economic rules don’t seem to apply. That’s not a free market. I know some people are very happy about how much they’ve saved and how wisely they’ve invested. But, what is really to prevent all that money from disappearing into thin air? That’s what happened during the Depression. Think it can’t happen again? Well, wait and see.
“Youtube”
Googtube?
gootube
Youtugle
Yoogle?
I would anticipate health sciences and providers to deteriorate if dems lose. Price controls on HMO’s is a given considering costs to end users is up over 45% in 5 years. On the other hand, the markets rallied after election year 1996 and tanked in 1994 and 2002 if I remember correctly.
correction: I would anticipate health sciences and providers to deteriorate if dems WIN.
No price controls needed… just the FREEDOM to buy from Canada, and the OBLIGATION for Medicare to negotiate drug prices, which the dear GOP has made illegal, at YOUR expense.
certainly there’ll be another approach at a health plan overhaul, but it will be long and painful in the process and little of note is likely to be passed into law for 18 mos or so.
“just the FREEDOM to buy from Canada, and the OBLIGATION for Medicare to negotiate drug prices, which the dear GOP has made illegal, at YOUR expense.”
According to MSM, as of Monday or Tuesday it is now legal to purchase up to a 3 month supply of perscription drugs from Canada without worry of it being confiscated at the border. I realized this was of no help to my family since we don’t have ongoing perscription needs. When we get a perscription, it is usually something which requires us to fill it immediately which still ties us to the Eckerds pricing down the street. Perhaps I’ll drive to Target (10 miles away) when they expand their Florida program.
but we’ll have FREEer healcare and a 71$ an hour min wage
why worry
One can only hope.
“The most important election since 2000″, eh???? That’s what they said in 2002 and in 2004. Every fricking election is the “most important since XXXX”. Wake up. The reason both parties say this every single election is to get their base all riled up. It’s become a joke to me now, except that it isn’t a joke. Every election cycle I wait for the inevitable “most important election” statement.
You’re probably not here to read this but I shall reply anyway. I really am with you in terms of the “joke” aspect of the elections but it is undeniable that the 2000 joke election was the most important election since the Reagan landslide IMHO. Just because you think of something as a “joke” or a harmless excersice to appease the masses, doesn’t mean that the results can’t hurt you. Yes I do believe that “democracy” is joke in terms of our huge national elections process but it can be a killing joke. In this regard I think that this particular election may be the biggest killing joke since 2000. That’s all and take care.
There is a buyer and seller of every share of HB stocks. Someone obviously thinks these are good buys at these prices. If JPM wants to upgrade the shares, that is their decision. Who knows if there is manipulation. If so, is there anything you can do about it?
Do you know JP Morgan Chase originated $5.5T worth of derivates last year. The cartel needs to keep the party rolling. Wait till Dec (after elections) to make any sense of anything.
http://www.financialsense.com/fsu/editorials/kirby/2006/0913.html
Here’s the link for that
I agree. Let them upgrade HB stocks to an estimated $1000/share by January 2007. It’s up to investors to believe them or not. Will you buy a stock just because JP Morgan updates the stock?
If I was short I might buy the stock just because someone ELSE might buy just because JP Morgan upgrades the stock.
Market is not rational. Far from it!
If I were a gambler or a noise trader, I would watch the big guy’s ratings like a hawk, and follow the lemming herd as they raced to the cliff, and try to leave the herd before it reached the edge.
“Someone obviously thinks these are good buys at these prices.”
Not a foregone conclusion at all. It could be that “someone” spends other people’s money to fund the leverage which makes these prices stay good.
I have been observing the bubble for a while and I don’t know much about the stock market. But it seems to be though that there’s something called a “dead cat bounce” or a “sucker’s rally” where they are all going to slap each other on the back and proclaim the bottom has been hit and “it’s all uphill from here”.
it may be their intent to create the sucker’s rally or maybe they will create it as a result of their sheer optimism / will but for those of us still trying to dump property (my parent’s house - long story) this might be a good time.
what do you think?
Mina
JPM is the 5th largest owner of Toll Brothers. Maybe that has something to do with it?
No conflict of interest in JPM’s analysis, I guess…
My parents are friends with a man who once worked for Toll Brothers. To put it mildly, friend was not impressed with Toll’s home construction quality. In fact, he created his own Toll slogan, which my mother is fond of repeating:
Guaranteed for Five Years. Then They Fall Apart.
I was thinking about that. Imagine the quality of the last houses they build when everybody is disillusioned and know the company is toast and their jobs evaporating.
Don’t listen to the big brokerages house bullsh@t. All they care about is themselves.Abby joseph cohen is a crook.
AND A FAT UGLY ONE AT THAT!
posted “AND A FAT UGLY ONE AT THAT!’
She could knock a buzzard off a gut bucket. She has made a career of flapping her fat lips, regardless of the facts. Her and Joey Buttabagofdonuts were regulars during the dot com wipe-out…. all way the too and thru the end. Pure BS!
I want the name of the market analysis who put out this peice of crap. JP Morgan should be held accountable if they can’t back up their conclusions with facts. Otherwise, they are turning into another “tip sheet” where their insiders buy the stock, they project a buy, drive the stock up, then sell out.
Free market economy, my as_!!!
upgrades are issued so they can get private bank clients etc out of shty positions
There is also the need to create demand when none should exist based on fundamentals. If you can convince Joe and Jane SoccerGrandParents to go long on stock because it always goes up, and your derivatives trading department makes money when the market bobs up and down, then analyst upgrades are a sure bet.
Wow, the banking regulators finally figured out that it isn’t wise to give loans to people who can’t afford them. I’m glad our tax money is going to such great use.
What was their first clue?
“I’m glad our tax money is going to such great use”
wait till the bailouts
Hey, Brownie, you are doing a heck of a job!
Bet its Brownie cousin working a banking regulator
“Why didn’t regulators insist on tougher guidelines a long time ago?”
How about it’s what kept the U.S. out of the toilet after the stock market collapse? It was no risk to banks as they didn’t keep the loans on their books. And their earnings went through the roof. Everyone won, except for the millions of FB’s who are now starting to face the music.
I was wondering myself what the catalyst was for tougher guidelines NOW vs. any other time in the past several years.
But it looks like the rate at which lenders are having to buy back their toxic loans is accelerating pretty quickly since ‘05.
I’m guessing nothing could tighten standards better and quicker than that.
I dunno, man. Looks like the current round of asset deflation may be over. Surely, you will see prices drop for a while, but things will move sideways or even up for a while, I think.
Look at the global liquidity. All this money has to go somewhere, and there are very few investible assets remaining. With falling long term rates, and short term rates to start falling pretty soon, the ARM resets and foreclosures we were waiting to see escalate, may turn out to be a pipe dream. Its not in the interest of the Fed to allow the system to crash, not in the interest of the banks to foreclose on bad loans, if there is ample liquidity to keep pushing out the inevitable. Also, the creditors have any huge incentive to take a big beating on the portfolios.
Looking forward, I think that the FBs will get another lease of life. Surely, they are the suckers, since they are mortgaging their future to the banks, but I think that the current liquidity driven asset cycle has not yet run its course. In fact, this looks more like 1996 than 2000.
If someone’s income is $2000/month and their mortgage payment has risen to $2200 and they are underwater (can’t refinance), what will stop the foreclosure? A lot of people are in this situation, which means a lot of foreclosures, many of which we are already seeing.
What if the administration grew fearful that it might lose its majority in Congress in November? What could it do to save itself? Could it print more money and use it to buy stocks so that the market looked buoyant? Could it use newly printed money to manipulate the gold market? The bond market? The currency markets? Could it hire a high level investment banker from a top firm to orchestrate this effort? One that could ask for support from top firms like JPM and others to write positive stock recommendations to get the public to buy stock? Just asking…..
This assumption says that we can keep playing this “debt game” indefinitely. This has to end at some point. How far it can be pushed from here, I don’t know. But the Fed’s used up the housing card, they’ll have to create a bubble somewhere else.
Look at the global liquidity. All this money has to go somewhere, and there are very few investible assets remaining.
That money is not ending up in the pockets of Joe Soccer Mom anytime soon. He is the one going into foreclosure or doing a short sale.
I agree. We’re in danger of losing the middle class, the backbone of the American way.
The process of losing the middle class here in America has already started. In a global market place, you still need a middle class, but they don’t necessarily have to live in America, they could live in China or India, for example, and the global economy will keep on ticking just fine.
Why do you even need a middle-class? I believe the affluence of a large middle class was a historical aberration based on the results of WWII (US as only industrial nation).
I think the cost of education and influx of cheap goods/labor (same thing) are going to create the have/have-nots in the next generation. The housing bubble (and final separation of fools from their money) is also one of the last nails in the coffin. We are rapidly polarizing, and the shrill politics (on both sides) is just more evidence of this.
The fighting over a shrinking pie just gets more bitter.
The middle class was a great thing (it certainly did wonders for political stability), but I agree it was far more an anomaly based due to two centuries of under population of the colonies and enhanced by the destruction of global capital in WWII.
“Why do you even need a middle-class?”
Why do you need the poor? Why do you need the affluent? Why do we need median price?
No offense but that is the silliest rhetoric I’ve heard here.
Tulips said “In a global marketplace, you still need a middle class.” I asked why.
It wasn’t rhetoric, I was just asking an honest economic question.
Sorry ’bout that. Yet I see where this part of the conversation is going if Bluto’s post is any indication. Yours too for that matter. Setting up an debate suggesting “the middle class is nothing more than an aberration” truly makes one question the validity of the question and the credibility of he who asked it.
Believe me, I am part of that middle-class and I have kids who I would also like to be part of that middle-class.
I will refrain from further commentary in the interest of maintaining pertinence.
Why do you need a middle class? Because you’re not rich enough to keep the people with nothing left to lose from coming over your back fence and killing you. How’s that for starters?
Why do you need a middle class? Because you’re not rich enough to keep the people with nothing left to lose from coming over your back fence and killing you. How’s that for starters?
I would go one step further. A middle class provides the engine for economic growth. It is the middle class that moves medical, engineering, and other fields forward.
Also without a middle class, where is your motivation for education? Look around, the US and Europe’s position in the global economy requires a more educated population.
Without a middle class, very quickly 80% of the upper class drops to a middle class lifestyle with the knowlege they’re “better” than the rest. But the amount you spend on security (to be effective these must be paid a middle class wage), and the trapings of aristocracy gets to be pretty heavy…
Let’s not forget than an military from a middle class country tends to be far more effective than one from a two class society The British navy’s effectiveness in the 18th century is a classic example of this.
Neil
Outstanding post, Neil. Given the state of our military, I guess we can assume we’ve already lost the middle class in the US.
Well, since we’re several threads down I’ll reply now.
In context my question made sense given Tulip’s statement that a middle class would exist somewhere. I wasn’t sure about that.
I can rephrase my question far more accurately as: “Why do you even need a middle-class [in your model of a global market]?” or even better I could have simply said: “I’m not sure the existence of a large and affluent middle class anywhere is entirely inevitable?”.
There. I apologize for the confusion.
Please note, this is different from “Is a middle class necessary?” which is different from “Is a middle class desirable?” and far different still from “the middle class is nothing more than an aberration”. None of those are what I said. I believe a middle class is defintely desirable, probably inevitable, and no longer an aberration in the modern world. A large and affluent middle class is certainly desirable, but may not be inevitable and as I said I do believe it’s existence is an aberration… a lucky aberration that I certainly fear for.
I find it interesting that my question, which was purely economic in nature and grounded in seeking discussion generated such an immediate and heated political response. This is the lens though which the world is seen nowadays. My take is still:
The fighting over a shrinking pie just gets more bitter.
Middleclass is non-existent if they were to pay today what they owe tomorrow. Most are just one paycheck away from a collapse. Of course we wouldn’t have this problem if they all didn’t have a red, white and blue credit card with no limit jambed up their ass.
Historically, innovation and progress have always come from a mobile middle class. Without it, society stagnates and decays. This inevitably results in revolution or becoming conquered by some other society. Sure, you could argue that no one “needs” it. But probably, we are all better off if it continues to exist, even the very rich.
Why point to this or that asset bubble to explain the crushing of the middle class? Why look any further than the 35-55% overall tax burden that they’ve had to pick up over the last few decades. Come November, we’ll throw yet another few pounds on their backs.
My father keeps saying that the plan is to get rid of the middle class. He has been saying that for the past thity years. Lately I have been thinking he might be right.
Oddly enough your dad says 30years. That is roughly the length of time the govt. has been shifting the tax burden off the wealthy onto the average wage earners and/or borrowing, which those costs fall into the laps of average wage earners too.
Now here’s a good place for a “Mission Accomplished” banner.
So are you all going to let them get away with it? Because yes, that IS their plan.
A society without a middle class: overpaid athletes, rap stars and a remaining destitute population.
“Look at the global liquidity. All this money has to go somewhere, and there are very few investible assets remaining. ”
All that liquidity pumped in after the tech crash did not push the Nasdaq back up…
There may well be another bubble in something else (we do seem to be on a roll after all), but I don’t expect RE to re-inflate.
AVERAGE ASKING PRICE OF A 3BDRM 2200SF @ $897k in San Diego?
AV. FAMILY INCOME @ $60k…
WTF?
DOES NOT COMPUTE!!!!
Keep in mind that during an asset deflation, some money doesn’t go anywhere it just vaporizes. If a $500K house goes down in value to $400K the extra $100K didn’t go anywhere. It just vanished.
“Fitch believes the recent rise in U.S. loan repurchase activity serves as a reality check for mortgage originators rather than the beginning or acceleration of a troubling trend according to a new Fitch special report.”
Did Fitch quietly hire Jack Grubman to ‘analyze’ the MBS market?
here is their new rating model on the mbs market
http://immobilienblasen.blogspot.com/2006/10/new-fitch-us-rmbs-criteria-default.html
I guess with regard to homebuilders, mortgage brokers, etc. the question is will Darwin be happy or Nietzhe?
In other words, will the sleazy and stupid operators be forced out, making the survivors more profitable in a reformed market (and long term stock buys, if the better companies can be identified)? Or will the “meek inherit the dirt,” as quick buck artists leave with their winnings, leaving a stagnant and diminished market that is unprofitable for years to come?
How about a nice blending of the two with the better companies simply surviving while the lucky quick buck artists got out early with the cash, and the late ones just disappear.
They aren’t making any more dirt. The meek will be rich!!
It may not be as bad for the home builder and housing market, as I would like to believe.
I persuded last year a couple (both software engineers) from buying in Southern california. And could not persuae my cousin from Buying in Foster City, Bay Area.. )
Anyway this weekend I called up the first couple, and asked are they not happy that they saved by not buying last year.
The wife said, yes, and shocked me by saying they saved 50K by going into escrow now! Her words, price has already comedown by 50k and they are not thinking short term, they plan to move out of CAL in 3 years.
It appears at every dip, there will be people like them to give a helping hand.
They bought a condo in Irvine for 619K. Were just plain desperate after looking around for past 2 years.
Allure of the Amrican Dream. (When did amrican dream become so associated about “owning” house with “0 down”? NAR did a great job.)
Why would someone with above average higher IQ and doing work that demands logical thinking ; do that?
I’m in PA. A lot of unknown reasons why seemingly “normal” or “smart” people do horrible things or stupid things. I’m not trying to equate tragedy with a real estate purchase, but so much of the human mind function has not been thoroughly researched.
The “breaking point” or tipping point, when for no justifiable reason, individual behavior turns, is mysterious. This is different than the turning of bulls or groupthink. It’s like an leftover animal instinct, and maybe there was some human survival advantage from such a quick behavior change.
I like that analysis and agree with your view that individuals will sometimes/often act based on a reversion to animal instinct (atavism: the reappearance in an individual of characteristics of some remote ancestor that have been absent in intervening generations). Fear of losing the cave to another group of club luggers is a strong motivation.
Yeah, but that cave didn’t cost $619,000
Thinking another way, the cave could have been worth $619k!
They either had a cave or slept under the the gathered tree branches and risk being eaten alive.
( I mean they could not rent a Cave I guess!)
Here ; before buying the couple have been renting a 2 BR apt for $1650-$1700.
This is just going to take a long time. Welcome to the first of many dead-cat bounces.
I am going to grab some more puts just before the elections. I believe we will rally until then… not a political comment, just how I see the market. I believe January will not be a pretty month for these stocks.
I talked a colleague at work into waiting to buy a home in LA last summer (at the very tip top peak with bidding wars and zero contingency offers being the norm). She did, and then turned around and bought two preconstruction condos in Vegas. We don’t talk about real estate anymore.
BUY HER SOME ALPO FOR HER BIRTHDAY
posted “BUY HER SOME ALPO FOR HER BIRTHDAY ”
Or a razor, to scrap the GW sticker off her car.
“Why would someone with above average higher IQ and doing work that demands logical thinking ; do that?”
- Book sense does not equal common sense. I know a lot of idiot physicians, for example.
I heard an analyst from RaymondJames on BloomburgRadio discussing housebuilder stocks this morning. I’m paraphrasing of course but here are a few snippets I can remember.
“If building were to stop now, it would take 2 years to clear inventory”
“Expect the housing story to play out over 4 years”
“Speculators were 25% of the market in 2005. That number is an average so figure it is easily double that in phoenix, vegas, florida”
There was alot more that I can’t remember. Nevertheless, he seemed to express contempt and disdain for the house builder rally this morning.
raymond james has done a good job of calling the housing market, maybe cause they are based in florida and can see things for themselves.
As a side note, BloomburgRadio is big in the northeast. ALOT of people listen to it in lieu of all the market cheerleading and lies you’ll hear on CNBC and others.
I think the management of these companies are doing whatever they can to pump up short term earnings, get their bonuses for one more year, etc. I have seen this attitude in some recent litigations - home builders settling for less just to get the money on the books this year.
You’ve got Jim Cramer pimping the crap out of these stocks. I’m sure Wall St doesn’t want to lose I-banking business, either. So it will play along.
Some of these companies will probably do well. They’ll have enough cash to survive and pick off the failed ones at a huge discount. I wouldn’t want to roll the dice that I could tell which is which. Only management knows that - and that may not even be the case.
Cocaine larry kudlow is so full of this great economy it is sickening.He must get big bonuses for all his cheerleeding nonsense.
“Cocaine” Larry? I wasn’t aware of that one. If his TV show is any indication of his drug of choice, I’d have to say it hallucinogens.
posted ““Cocaine” Larry? I wasn’t aware of that one.”
He was also a liquior hound like GW. I heard they would split a quart of Jack Daniels and bark at the moon.
- ‘I think the management of these companies are doing whatever they can to pump up short term earnings’
It is well documented that the Builder CEO’s cashed there stocks out during the peak in 2005…..hmmm
i actually had someoone sneer at me yesterday for being a renter,and tell me the value of their home had never gone down! i suggested they zillow their home,since it has lost 10% in the last year,and oddly enough we were suddenly disconnected.
Wow, that’s harsh! I’ve had a bit of sneer treatment, and that was before the bubble really looked like it was bursting. I don’t even want to go anywhere near those folks now; if they were snappy then, they’re probably dangerous now. As from your acquaintance, put a note in your file to call and inform them of their new Zillow value a year from now. :-O
No sneers toward renters here in West Central Florida, at least, not from Floridians. Just looks of silent envy, even a hearty “Good for you, wish I’d done the same” on occasion.
What’s Behind the Home Bubble
By Howard Simons
RealMoney.com Contributor
10/10/2006 10:00 AM EDT
URL: http://www.thestreet.com/p/rmoney/economy/10312978.html
Some of us would be no good as politicians. Make a promise, keep a promise, and what do you have except someone, somewhere mad at you. But here’s a promise kept, one made during a recent exchange in Columnist Conversation, to examine the link between monetary policy, the housing market and the U.S. current-account deficit.
First, let’s remind ourselves of the numerous changes in the mortgage market made in the past quarter-century. It used to be that prospective homebuyers faced one hurdle: whether their credit qualified for a 30-year fixed-rate loan. Mortgage lending was like running a 31-flavors ice cream store with only vanilla for sale. The Federal Reserve could choke off credit to the housing market by raising short-term rates over the interest rate ceilings savings & loans were permitted to pay under Regulation Q.
Once these ceilings were eliminated and the mortgage derivative market developed, the Federal Reserve was powerless to choke off the flow of credit to housing. We have had two mild recessions since Regulation Q was eliminated beginning in 1981, one associated with the Persian Gulf War and one associated with the bursting of the stock market bubble in 2000.
A thousand flowers bloomed in the mortgage market. Borrowers could pick from adjustable-rate mortgages, option mortgages, balloons, 15-year mortgages and everything in between. As short-term rates more often than not are lower than long-term rates, borrowers gravitated toward the short end of the yield curve and gambled that the curve would remain positively sloped and at low rates whenever the time to reset their payments arrived.
One effect of all this was a much tighter linkage between mortgage payments and short-term interest rates. If we take the ratio of total mortgage payments, principal plus interest, to all nonmortgage personal expenditures and map it against both the three-month and the 10-year Treasury rates lagged three months, we see an immediate response to higher T-bill rates from the start of the Federal Reserve’s rate-hike campaign in 2004, marked on the chart with a vertical line.
Interest Rates And U.S. Mortgage Payments
Click here for larger image.
Sources: Bloomberg, Howard Simons
Interestingly enough, the mortgage refinancing wave of 2002-03 did very little to reduce the ratio of mortgage to nonmortgage expenses. Contrast this to the 1992-93 experience, wherein a decline in both long- and short-term rates led to a substantial change in personal-spending patterns.
That previous decline in housing expenses does not receive the credit it deserves in setting the stage for the subsequent boom in the late 1990s.
There Are Creditors, Too
For every dollar borrowed, a dollar is lent; many conservative savers felt punished by the decline in short-term interest rates in the 2001-04 period. How have personal interest income received and interest expenditures exclusive of mortgage payments been affected by changes in interest rates lagged three months?
The data indicate only a modest response in the ratio of interest income to noninterest income as short-term rates have risen. The dominant feature of the chart is a nearly continuous decline in this ratio since September 1989.
Interest Rates And U.S. Personal Interest Income
Click here for larger image.
Sources: Bloomberg, Howard Simons
Is there a parallel observation for the ratio of interest expenses to noninterest expenses? No. This particular ratio climbed almost immediately once short-term rates, once again lagged three months, began their ascent in 2004. We can conclude from these twin observations that American consumers can be characterized as floating-rate debtors virtually unresponsive to interest rate changes in their savings habits.
Interest Rates And U.S. Nonmortgage Interest Expenses
Click here for larger image.
Sources: Bloomberg, Howard Simons
Casting the Net Upon the Waters
If we net personal interest income and expenditures and add total mortgage payments thereto, we obtain a net interest rate expense (less cumulative mortgage principal repaid) whose rate of change parallels the current account expressed as a percentage of GDP.
Net Interest Income, Plus Mortgage Payments
and the Current Account
Click here for larger image.
Sources: Bloomberg, Howard Simons
This is not a case of spurious correlation. One of the consequences of the massive U.S. capital surplus is nearly 50% of interest rate payments on Treasury securities and approximately 19% of the interest rate payments on corporate bonds flow outside of the U.S. to foreign creditors.
Higher short-term interest rates would decrease the American capital surplus and, by definition, increase the current-account deficit. Lower short-term rates would have the opposite effect.
Enter The Federal Reserve
Now let’s return to the original point of discussion, whether the Federal Reserve can in some way be “blamed” — a value-laden word if ever there was one — for the housing bubble and its aftermath. The long social experiment in generation-low interest rates between 2001 and 2004 had the effect of increasing housing prices — houses are bondlike capital assets — and increasing the total amount of mortgage debt outstanding, while reducing the net interest-rate income received by creditors.
These lower rates had their desired effect — stimulating consumption. As we can see in the course of the current account, much of that consumption was of imports. It is quite fair to summarize this as saying American consumer demand was satisfied by Chinese and other exporters’ supply.
The dollars exported in payment for these goods are a claim on American assets and must be recycled into dollar holdings by someone. As capital is fungible, the ballooning American capital surplus included foreign purchases of mortgage securities, either directly or indirectly. In a post-Regulation Q world filled with mortgage derivatives, the marginal financer of U.S. housing, therefore, is the foreign investor.
If higher short-term interest rates clamp mortgagors’ wallets and lead to a decreased capital surplus and an increased current-account deficit, foreign investors will have fewer dollars to invest in American mortgages and other financial assets. Housing will be shut down in this process, just like it was pre-1981 when the Federal Reserve could disintermediate savings & loans from mortgage lending.
If the fears of weak housing hurting the consumer prove true — a big “if” — the reduced capital surplus will exacerbate any ensuing recession, both in the U.S. and abroad.
““KB Home said it plans to file the delayed 10-Q on or before Dec. 24, in order to avert defaulting on its debt. The company said the delayed filing could trigger a default on some of its debt and impair its ability to borrow against its credit facility, but was in talks with its lenders to get extensions.”
I read an article recently about hedgies acquiring bonds of companies which are in default or expected to be in default of their bond covenants due to not filing their 10Qs (option restatements or other issues). The hedgies pick up the discounted bonds, present them for redemption and pocket the difference between par value and the purchase price. If the company refuses redemption the hedgies are taking the matter to court and in the majority of cases are winning. If you are an insider on this type of game you could make a killing with very little risk.
Anybody know if the GSEs have this exposure or risk? What about the HBs?
“The hedgies pick up the discounted bonds, present them for redemption and pocket the difference…”
#######################################################
that works fine until the HB is unable to redeem…
Come on. JP Morgan Chase is one of the largest mortgage companies in the US. They have a huge portfolio of home equity and mortgage loans. Given the preceding sentence, if you were an analyst covering the homebuilders, what would you say and do? Do you really believe the analyst is objective?
Well, I just doubled my jan 2007 25 puts for TOL.
I’m putting the money where my mouth is and feel some of the risk…on the back of my throat :^[
Let’s hope my timing is right
It’s all your fault BEN (Gehäuseluftblase Meister) housing-bubble per google translator.
Okay. I’m with you. Doing the same thing. I’m going to wait for the sucker’s rally heat up a little more. Eighty Cents on the 25 PUTS isn’t bad. Heck, I even heard Cramer the other day say to not touch it until it gets to 25, I think he pressed the button and the voice said Don’t BuyDon’t BuyDon’t Buy If you’re in the money, at 25 you’ll make 5 times your money (minus premium). Plus, winter is on our side.
The good news is that like the houses the homebuilders build and sell, homebuilder stock prices always go up, at least in the long run…
(The bad news is that in the long run, we are all dead.)
I understand why William Lyon Home Builders has a huge cancellation rate. This builder is nothing but a greedy bunch of crooks like all the other home builders. I went to go look a new condos and SFH homes being built in Irvine, CA. The 1-bedroon 1-bath unit in the Portola Springs community area of Irvine, CA runs for a cool 440k. It is a lower unit and you have someone above you. Square footage is lousy at 700sq ft or so. BUT THE FEES are where it is crazy. $350 bucks for mello roos….Another 1.04 in property taxes…another $120 bucks for Portola Springs community fees…and another $80 bucks for William Lyon community fees…You are looking at an easy $1000 bucks just on BS fees and property taxes. That is not including the mortgage. The second you walk in the salesperson hands you a list of mortgage options that only lists 5/1 ARMS as choices because that is the only way to afford living in this gargage of a home. California real estate is not budgeting in terms of price, we will need a recession with major job losses to have any type of real correction in RE. Prices coming down 10k is nothing when houses have a median of 622k in the OC.
Are people actually buying these piles of dung?
Doesn’t look like it up here in Sacramento. Not only is there excess inventory of new homes available, but it seems like 1 out of every 3 new homes built in the last four years is on the market.
For example, last weekend we noticed a relatively nice looking mini-McMansion driving to another open house (4/2, 1300sqft on a 6000sqft lot in 95832). When I got home, I did a little bit of research online. That home was built in 2005, sold for $416K in Oct 2005, was foreclosed on in August for ~$350K and the price was just lowered by the bank to $309K (its been on the market for about 50 days, most of which at $319K). That’s probably representative of the worst-case scenario, but I expect its a pattern that will repeat itself over and over again over the next 18-24 months (at least). I think before its all said and done, prices for that type of home will be down to $250K.
“it seems like 1 out of every 3 new homes built in the last four years is on the market.”
A bit of hyperbole. Probably more like 1 out of every 8 or something (although I’m willing to bet that a good number of people would like to sell but are hoping the market will look better in the spring).
Yes they are a bunch of crooks but they do build a decent home. They are a little higher in quality than some. I was happy with the home they built for me.
38 SENATORS VOTED YESTERDAY AGAINST MAKING ENGLISH THE OFFICIAL LANGUAGE OF
AMERICA.
What do you think???
REMEMBER THESE NAMES, WHEN YOU VOTE NEXT MONTH!
HERE IS THE LIST OF THOSE WHO VOTED AGAINST THE BILL:
Akaka (D-HI)
Bayh (D-IN)
Biden (D-DE)
Bingaman (D-NM)
Boxer (D-CA)
Cantwell (D-WA)
Clinton (D-NY)
Dayton (D-MN)
Dodd (D-CT)
Domenici (-NM)
Durbin (D-IL)
Feingold (D -WI)
Feinstein (D-CA)
Harkin (D-IA)
Inouye (D-HI)
Jeffords (I-VT)
Kennedy (D-MA)
Kerry (D-MA)
Kohl (D-WI)
Lautenberg (D-NJ)
Leahy (D-VT)
Levin (D-MI)
Lieberman (D-CT)
Menendez (D-NJ)
Mikulski (D-MD)
Murray (D-WA)
Obama (D-IL)
Reed (D-RI)
Reid (D-NV)
Salazar (D-CO)
Sarbanes (D-MD)
Schumer (D-NY)
Stabenow (D-MI)
Wyden (D-OR)
Sheesh. Are we reduced to this? Political vote dredging on the blog?
Moreover, this smells to me like a wedge issue. Something marginally relevant and emotional that folks (from this list, the nervous Repubs, I suspect) like to motivate the masses when they can think of nothing else substantive to support their candidacy. I would prefer to vote on broader voting record than this issue. When was the last time you heard of gay marriage?
As pathetic as balloons on an open house sign….
WEDGE ISSUE ALERT/TROLL ALERT
Please take your political right wing pandering to another blog.
kthanxbye
Good for them!
I think it’s great.
While I do think that English should be the official language of the world (just to make things simpler), what in the world does this have to do with the housing bubble?
What the hell is “America” and how does the USA have the right to tell it what the official language can be?
I would hope that the native born citizens of the USA would start learning to read, write and speak English at a 19th century level prior to getting up in arms about some symbolic and meaningless vote.
Sobay, we don’t have enough grads with foreign language experience to staff either industry or government for world trade and negotiation. Learning a second language might do you good and declaring english the ‘official’ language won’t ‘force’ any immigrants to learn English any faster.
We haven’t gone a bit off topic here, have we?
Between this and the boomer/genX age wars, this blog may have jumped the shark.
Thanks JP,
http://en.wikipedia.org/wiki/Jumping_the_shark
That image always cracks me up. You made my afternoon.
I predict this blog still has some life to it…
Lot of similarities in the vituperation of the open borders crowd and the genXers, I’ve noticed.
Sweeping generalizations of people’s behavior based on the year of their birth ranks right up there with Chinese astrology. (I’m a Rabbit; maybe I was supposed to write an entry like this.)
LOL, jp.
¡Cambiemos al español en la Housing Bubble Blog! Todo mejor en español.
Esto es un tema estúpido. No pertenece aquí.
No, no, hai sbagliato…tutto e meglio in italiano!
(vuol dire, con un’italiana!)
Ma, senza scherzo, e necessario che la lingua Inglese sia determinata la lingua ufficiale dell’USA
Eg helt ad pjodstungan Bandarikjanna a ad vera islensku, vegna frumlega uppgotvana peirra Leifs Ericssonar.
What — you don’t think Icelandic would be a good national language for the U.S.?
Totally OT, but did anyone hear the North Korean quotes on KPBS at noon. I’ll vote for making North Korean English the official language of the world. Anybody that doesn’t agree is an “ugly-looking” and “dirty and silly guy” engaging in “extra-large crimes of human rights abuses.”
Beautiful!!!
Back on topic, there does seem to be a major shift going on. Even in the Bay Area where the frenzy fails to cool, homes are not getting what they were, badly priced homes are just sitting on the market, and landing places for equity locusts have all gone falling knives on us. This seems to support the assertion that in the near term conditions will not improve.
There was an interesting bounce in the SUV market where oil price corrections taking out some speculative fervor reignited big vehicle sales. For something like that to happen with real estate loan standards would have to stay stupid and interest rates go back down and FannieMae–speaking of which, doesn’t the old girl evoke one of those before and after pics of what a few years of meth can do?
Here is an e-mail I got from an AE. Notice now the new sales pitch will be qualify for Option Arm’s below the fully indexed rate. I hope the new non-traditional mortgage guidelines encompass the entire mortgage industry, not just the banks. I can’t believe bondholders really want this crap, regardless of potential income. What good is return if your collateral is less than the loan amount?
Option Arms
FIFA (Full Income Full Assets) to 100% with No MI
Primary Residence & Second Homes Allowed!!!
Purchase & Rate and Term to $500,000!!!
Requires 700 mid score!!!
Qualify at far lower Rates than Fully Indexed Option Arms
Additional Features
· Can use Appraised Value after 90 days!!!
· Title can close in LLC
· Loans to $8 million
· SIFA (Stated/Full Assets) to 90% LTV
· Up to 20 properties O.K.
· 1,2,3 year prepays available
· Business Funds can be used for reserves
· Non-traditional credit allowed
· Trailing Co-borrower wages allowed
WHEN I WAKE UP IN THE MORNING I START THINKING ABOUT CLOSING YOUR LOANS. I WORK DILIGENTLY ALL DAY TO PROVIDE A LEVEL OF SERVICE SECOND TO NONE. WHEN I SLEEP AT NIGHT I DREAM ABOUT CLOSING YOUR LOANS. I CAN’T GET YOUR LOANS OFF MY MIND!!! I’M HERE, AND I’M WAITING!!!
Really, WHO ARE THESE INVESTORS????? I just can’t think of an entity that would be willing to risk all their collateral like this. 100% loans with no MI? In a declining market?
Funding for up to 20 properties with stated income??
There is no doubt, in my mind, what fueled this bubble. When will it end?
Thanks for your post, BTW!
WHEN I WAKE UP IN THE MORNING I START THINKING ABOUT CLOSING YOUR LOANS. I WORK DILIGENTLY ALL DAY TO PROVIDE A LEVEL OF SERVICE SECOND TO NONE. WHEN I SLEEP AT NIGHT I DREAM ABOUT CLOSING YOUR LOANS. I CAN’T GET YOUR LOANS OFF MY MIND!!! I’M HERE, AND I’M WAITING!!!
I had a stalker that used to write me notes like this
“For years, Friedman Billings Ramsey was the ‘holy roller’ of mortgage REITs, preaching the benefits of using the structure when taking residential lending firms public. And for years, some firms bought the speech, went public, and paid out a lion share of their earnings in the form of dividends.”
“Then a ‘correction’ swept the subprime sector in mid-2005, a correction that is still occurring. But what about FBR itself? Last week the investment banking firm shut down he division that gathered residential product for securitization into ABS. But guess what? FBR, a spokeswoman confirmed, also shut down its mortgage trading desk. She said the company, however, has not closed the group that takes mortgage firms public. (There were rumors to that effect.)”
when you read what the genius chied economist from fbr has said to the outloock just a few weeks ago
• Housing prices will rise in each of the next four quarters, but by progressively slower rates year over year: 7.1% in 2Q 2006; 5.7% in 3Q 2006; 4.4% in 4Q 2006 and 3.5% in 1Q 2007.
they are for sure in deep deep trouble….
rest from the genius
http://immobilienblasen.blogspot.com/2006/07/fundstck-des-tages.html
As the admin of this web site is working, no doubt very soon it will be well-known,
due to its feature contents.