“Media Firestorm Ahead, Damages Could Be Enormous”
Some housing bubble reports from Wall Street and Washington. “M.D.C. Holdings Inc. reported third-quarter net income fell 60% as profit margins narrowed in more competitive markets and home orders plunged 40% from a year earlier. The ‘operating environment in most markets became increasingly competitive in the face of continued expansion of unsold new and existing home inventories,’ said CEO Larry A. Mizel.”
“Margins thinned particularly in California, Nevada and Virginia, M.D.C. said. In the third quarter the company said it booked pre-tax charges of $29.4 million for inventory impairments and project cost write-offs.”
“‘Builder concessions and incentives continue to rise,’ said CEO Mizel. ‘Confronted with expanding inventories and increased uncertainty, many buyers displayed a wait-and-see approach to purchasing a new home.’”
“‘M.D.C. said home orders in the third quarter fell 40% to 2,120 from 3,551 in the year-earlier period. The cancellation rate jumped to 48.5% from 25.7%.”
“‘We expect cancellations to remain high as long as home prices deteriorate,’ wrote Banc of America Securities analyst Daniel Oppenheim. ‘We believe land impairments will likely continue and increase from the $19.9 million charge in [the third quarter] due to the relatively young age and geographic concentration in stretched markets of the company’s lots supply,’ he added.”
“Homebuilder Technical Olympic USA, Inc. reported consolidated net sales orders of 1,470 for the quarter ended September 30, 2006, a 19% decrease from the.. quarter ended September 30, 2005. Joint venture net sales orders for the third quarter of 2006 were 125, an 86% decrease the third quarter of 2005.”
“TOUSA’s consolidated cancellation rate was 33% for the third quarter of 2006 compared to 20% for the third quarter of 2005. TOUSA’s combined cancellation rate for the third quarter of 2006 was 44% compared to 18% for the third quarter of 2005.”
“The Company anticipates a pre-tax charge in the range of $35 million to $48 million for the third quarter of 2006 related to land deposit write-offs and asset impairment charges.”
“HomeBanc Corp., which invests in and originates residential mortgage loans, on Friday forecast a wider-than-expected loss for its third quarter, saying rising interest rates hurt loan originations.”
“The company, which saw a 28 percent decline in loan originations from a year ago, said its HomeBanc Mortgage Corp. unit cut general and administrative staff by 8 percent, or total associates by 4 percent. ‘The by-product of the industry downturn is overcapacity, margin compression and aggressive credit practices,’ HomeBanc CEO Patrick Flood said.”
“Countrywide Financial Corp., the largest U.S. mortgage lender, on Tuesday said..loans fell 22 percent from a year earlier to $115.1 billion, as rising home prices and higher interest rates led to a drop in borrowing demand.”
“It may buy back up to $2.5 billion of stock, and intends to buy back $1 billion to $2 billion this quarter by issuing hybrid securities. Countrywide is cutting jobs and expenses to reduce its cost base by more than $500 million annually by year end. ”
“‘The mortgage market is on track for pretty significant year-on-year declines, and that’s sharply at odds with the capacity that Countrywide has built up,’ Robert Lacoursiere, an analyst at Banc of America Securities in New York, said. ‘They’ve signaled they’re in a relative retreat.’ Countrywide’s mortgage-banking profit declined 40 percent.”
“Popular new mortgage products that have helped fuel the U.S. housing boom will soon lead to more delinquencies and foreclosures as rates are reset, the chiefs of Fannie Mae and Freddie Mac said Monday. Next year, a trillion dollars worth of mortgages will have their rates reset, said Dan Mudd, CEO of Fannie Mae. That’s a significant share of $9 trillion in mortgages outstanding, he said.”
“The danger of mortgage rate resets have emerged along with ‘all of the innovation that has gone on in the market,’ Mudd said. ‘I would be the first to argue for that innovation,’ Mudd said, but he cautioned that a wave of mortgage resets could be disruptive.”
“One excess of the housing boom has been a glut of financing filtered through new mortgage products, said Richard Syron, Freddie Mac’s CEO. ‘There is too much capital chasing too little profit,’ he said. ‘We’re all getting squeezed out on the risk curve.’”
“Syron foresaw ‘a pretty tough correction’ for housing after ‘coming off probably the best 10, 15 years in the mortgage industry in the world.’”
The Milwaukee Journal Sentinel. “Up to 4% of America’s mortgaged homeowners might lose their homes to foreclosure in coming months, one of the nation’s largest lenders predicted Monday, as those homeowners find themselves trapped by heavy debt and the housing slump.”
“‘This downturn is going to be tougher because we’ve been though an unprecedented period’ of good times, Michael Perry, CEO of Indymac Bank of California. told about 6,000 Mortgage Bankers Association conventioneers.”
“A media firestorm is ahead, he warned, and one target is the newer, more aggressive lending practices that lenders call ‘exotic’ or ‘non-traditional.’”
“Other speakers agreed that the next year or two could be rough for borrowers and lenders alike. ‘It’s going to be a fairly tough correction,’ said Dick Syron, CEO of Freddie Mac. ‘There’s going to be a lot of heat about this, a lot of noise.’”
“That’s because the damages could be enormous, said Daniel H. Mudd, CEO of Fannie Mae in Washington, the nation’s largest mortgage financier. ‘Getting more people into homes is a good thing,’ Mudd said, ‘but it’s not entirely clear that everyone knew what they were getting into
From Forbes. “Two years ago, specialty mortgages were all the rage. Today, the financial grim reaper is at hand. Hundreds of billions of dollars in adjustable-rate mortgages that were underwritten in the first wave of the trend will get kicked up.”
“As credit counselor Suzanne Boas put it, ‘Instead of a homebuyer, you became a home speculator.’”
“‘M.D.C. said home orders in the third quarter fell 40% to 2,120 from 3,551 in the year-earlier period. The cancellation rate jumped to 48.5% from 25.7%.”
Does anyone have a rational explanation for why the builder share prices always go up on bad news? (Trolls feel welcome to jump in here
)
http://tinyurl.com/fzeuw
cfc up also
none of these co’s have any hard assets
are the lenders a short?
i think they buyers feel that the reduction is ‘baked in’ by the time the news hits google/yahoo.
That is the standard “perfectly forward-looking agent” story that you would have learned in graduate school finance class a decade ago (not sure if they are still telling the rational expectations party line these days or not). But that explanation does not very well explain the slight uptrend in builder stocks against a backdrop of steadily eroding fundamentals which has taken place since early last summer, unless you believe the investors who drive price movements all possess very powerful and accurate crystal balls.
A whole generation of investors has been taught to invest and/or trade as a contrarion (ala Jim Cramer style).
Because their book values continue to go up. Note: MDC still had a profit. They did give an interesting piece of data that they didn’t give out before. ASP (average selling prices) were $371K, down 7% YOY but ASPs in the backlog are down to $320K. Wonder how long until these companies actually post losses and book values go down. I think in 2 or 3 quarters depending on how big the company’s backlog is.
ASP ASP does not compute!
Programmed to buy on bad news and sell on good news. Contrairian logical thinking.
It’s all about position size. Look at who the top institutional and mutual fraud holders are and how much they own (both actual share and percentages). There is no way they could get out of more than a small part of their positions on a bad news day without crushing the stock instantly, leaving most of them with a large number of unsold, now worthless shares. So they buy to protect their positions. And create a rally to sell into. Got to mark ‘em up before you mark ‘em down. Of course, many of the HB stocks are down substantially over the last several months, so somebody’s been doing some selling. But ultimately, a lot of the big boyz are stuck.
My opinion… Plunge Protection Team… and a bunch of desperate, but financially illiterate Americans falling for the recent stock market hype and specuvesting what little money they have left in the stock market.
### IMPORTANT ###
Here is an important site with information for all who participate in any way in the U.S. stock market. Ever wonder what “naked shorts” are? What is the SEC doing about it? This is an explanation that raises critical questions that we all should be thinking about. Find a quiet hour, pour yourself a cup of coffee and dig in. You won’t regret doing so.
http://www.businessjive.com/nss/darkside.html
What’s the summary for those of us without an hour to kill?
The summary is this: the stock market is rigged against you by very large players who can break the rules with impunity.
Outstanding presentation, well worth the time.
Dawnal — am halfway through it. Fascinating stuff. Do you (or anyone) know if there is a way to download the entire presentation, to save? It looks to me like you have no choice but to play it from the site each time.
The presentation was great!! There were a few drawn out areas, but all in all it was great! I’ve always thought that the stock market is a legal form of gambling complete with vegas style rigging, but I didn’t realize how true it was. It’s all a game of craps in the end.
Wow. Great Presentation. Filing it under “stuff ‘they’ don’t want you to know.”
You can pick up the zip’d file here:
http://www.businessjive.com/podcasts/market-liberation/
That is a great link. Some very scary stuff there.
It’s because they’re still making money. People don’t realize that once they’ve sold all the homes that were built on land purchased 2004 and earlier, they won’t be able to turn a profit on the land that they purchased in 2005 and later.
Building a house is simply a way to sell land. The more expensive the land, the more difficult it will bo turn a profit in coming years.
Some of the analyst have started making the same comments. The Homebuilders just build homes so you can sell the land that they are long. Beware those that are carrying lots of recently purchased land. CTX just reported and the wrote off $90 million of option deposits and land pre-acquisition costs and wrote off another $41 million for land valuation adjustments. Home Building operating earnings declined from $458 million last year’s quarter to $124.5 million.
‘China plans to sell up to 60 billion yuan (US$7.6 billion) of asset-backed securities this year, letting the country’s insurers invest in the financial product. The central bank is allowing banks to start selling asset-backed securities so they can raise cash and better manage risks. China’s government also wants to develop the bond market to reduce companies’ reliance on bank loans.’
‘The production of U.S. home loans will slide 19 percent this year to $2.46 trillion, the fifth-highest year on record, and then drop another 14 percent in 2007 before stabilizing the next year, the Mortgage Bankers Association said on Tuesday. Mortgage creation should drop to $2.12 trillion in 2007.’
‘USG Corp., a maker of wallboard and other building materials, said Tuesday third-quarter profit dropped 3 percent, as the housing market continued to sag. The company said the market environment has been hurt by a ’steep drop’ in new housing starts. CEO William Foote said the company is adapting to the market conditions to by shifting production to its ‘most efficient’ facilities and cutting higher-cost operations. The company expects lower demand for wallboard to continue during the rest of 2006 and into 2007.’
‘Growing market hopes over the last few months for a Fed easing were dealt a big blow after Bloomberg News reported Oct. 23 that the Fed’s September Green Book — projections by staff economists issued in conjunction with the minutes from the Sept. 20 FOMC meeting — implies that unless the economy slows more than the Fed now expects, the central bank may have to resume raising interest rates sooner rather than later to control inflation.’
Anyone see CNBC this morning ? Maytag/GE warning it is seeing slowing sales of appliances in US
Ya think? Sheesh!
Is “Goldilocks” For Real Or Just Another Fairy Tale?
Lance Lewis
Oct 24, 2006 1:31 pm
…everything that typically benefits from “Goldilocks” (stocks, dollar, bonds, economy) will soon head south, while assets that have been under pressure (gold, foreign currencies, various commodities) will make new highs…
Editor’s Note: Minyanville would like to introduce Lance Lewis, the newest professor to our community! Get to know Lance and join us in welcoming him into the ‘Ville.
Much ado has been made about a possible reappearance of “Goldilocks,” but what exactly is Goldilocks?
Goldilocks was the nickname given to the soft-landing in 1995 that kicked off one of the biggest 5-year bull runs in the equity market in history. That soft landing consisted of a slowdown in growth along with a corresponding falling rate of inflation that allowed the Fed to ease, cushion the economy’s landing and thereby avoid a recession.
The result back in 1995 was that commodities turned down despite continuing growth in the US. Corporate profit. Long-term interest rates followed the Fed’s lead and fell, and earnings multiples on equities expanded as the Fed lowered interest rates and made money “cheaper.” The resulting positive financial flows into the equity market and bond market also helped to rally the dollar, as dollars from overseas were “re-invested” back into US financial assets. It truly was a Hollywood-ending. This is the Goldilocks dream, but the odds of a “repeat” of that dream are about as good as the odds of the US military pulling out of Iraq by the November elections.
One of the primary “facts” that many cite as support for a Goldilocks case today is that the rate of inflation is moderating (or in some cases merely “will” moderate); but is that a fact or a fairy tale?
One of the major factors contributing to Goldilocks back in 1995 was obviously the decline in the rate of inflation. And while I believe most government inflation measures are basically “engineered” to show as little inflation as possible, the core CPI (ex-food and energy) is worth looking at for our purposes since even this measure of inflation shows no sign of turning down anytime soon.
Unlike in 1995’s soft landing, when the core CPI was already trending down, today the core is making new highs and is above its 200-month moving average for the first time since inflation peaked back in 1980.
But what about the recent drop in oil? What about the fact that the CRB broke its uptrend since the 2001 low? Doesn’t all that mean that commodity prices and inflation have peaked? Not really.
Never mind that high commodity prices work their way through the economy and into the prices of goods and services with a lag. The rise in commodity prices doesn’t even appear to have abated yet either.
Take a look at a chart of the equal-weighted CRB (CCI) below from October of 1965 through the end of September. The old equal-weighted CRB, which is now the CCI, equally weighted each commodity within the CRB up until June 20, 2005 when the weightings were changed to more than double energy’s weighting from 17.6% to 39% of the CRB index.
Not only has the upward trend not been broken during the most recent pullback, but a look at the weekly chart below also reveals that the CCI is once again nearing new highs, this time led by a breakout to new multiyear highs by the grains. Does that look like the inflationary trend has been broken? On the contrary, the rally appears to be about to enter an acceleration stage.
Now, many have cited the fact that the new CRB has broken its trendline going back to 2001 as a sign that the commodity inflation of the past 5 years has ended. With energy being as important and as large a market as it is within the commodity complex, I admit that it makes sense to give it a higher weighting in the CRB index.
The problem with looking at this new CRB is that the apparent “trendline” going back to 2001 is actually completely meaningless, since prior to 6/20/05, the only data that we have is based on the old equal-weighted CRB, which is now the CCI. Thus, the “trendline” break in the CRB that many have cited as signaling that commodity inflation is over, is not in fact a trendline break of anything at all since it combines new oil-heavy CRB data post-6/20/06 with old equal-weighted CRB data pre-6/20/06.
So, if inflation has not peaked, then how can we have Goldilocks? The answer is that we can’t. Despite the hopes of many, today’s environment is nothing like 1995. We can debate about what that environment is (which I believe is basically stagflationary at best), but it’s most definitely not Goldilocks, because the key component of Goldilocks (i.e.- a decline in the rate of inflation) is not present. In fact, not only is rate of inflation not moderating, but we also stand a very good chance of seeing it actually accelerate in the coming months. I am not alone in this view. Consider that former Federal Reserve Chairman Paul Volcker recently said that he’s worried both about inflation and pressure on the US central bank to not do anything about it.
If it’s not Goldilocks, then how did we get here, and where are we going?
In my view, the Fed has only itself to blame for the current environment. The fact is that the Fed’s massive easing following the stock market’s peak back in 2000 was in essence a monetization of the biggest stock market bubble in history, and we are now feeling the inflationary consequences of that monetization via rising commodity prices and a chronically weak currency, both of which are highly inflationary.
What about the “deflation” of the housing bubble?
Sure, the housing bubble has popped, but it was the first place to see a dramatic inflation. And it only finally peaked because prices got so whacky relative to income levels that it eventually led to an exhaustion of sorts. Nevertheless, in an environment of a weak dollar and booming emerging markets that are increasingly less dependent on US growth, a drop in US consumption as a result of the housing bubble’s implosion is unlikely to be enough to halt the rate of inflation.
What about those who say much of the increases in commodity prices are the result of investment demand and not real world demand?
This is true in my view, but that’s what happens when there is too much liquidity in the system with nowhere to go. As I mentioned above, the bottom line is that there is too much money and credit, and it’s manifesting itself in the form of rising commodity prices (among other things like record low credit spreads, the private equity boom, etc.).
What many have dubbed the “commodity bubble” is in fact a liquidity bubble or “dollar bubble” that resulted from both the Fed’s ultra-easy monetary policy following the collapse of the stock market mania in 2000 and the various imbalances that have been building in the world’s financial system for years, many of which were only exacerbated by the Fed’s actions in the wake of the mania.
Whether via real world demand or investment demand, the result of commodity inflation is the same. It feeds through into the real world and eventually makes its way into the prices of goods and services, producing “inflation.” And the longer the Fed waits to mop it up, the more painful it will be to stop.
Caterpillar’s (CAT) lowered guidance last week is a perfect example of the rising costs that companies are seeing as a result of higher commodity prices, which in Caterpillar’s case also resulted in the company passing on some of those cost increases to its customers by announcing price hikes for much of its equipment next year.
How does it end?
I don’t know how it all ends, but it’s definitely not Goldilocks. The most likely and optimistic outcome, given the Fed’s propensity to do what is politically “easy,” is a long period of stagflation in which the Fed looks the other way (or potentially even tries to ease, depending on how bad the consumer is hurt by the housing bust). This, while inflation accelerates and a slowing consumer-based economy is sandwiched between both a rising cost of living and a housing bust, which takes away not only the housing ATM that the consumer has come to depend on but the jobs that the housing bubble provided as well.
Sure, the Fed may talk “tough” on inflation, just as it has since it “paused” back in August, but its actions (or rather the lack thereof) speak louder than its words. And thus far, the Fed’s actions show little or no concern about inflation, which means it’s only going to accelerate.
The bond market might not like that idea of course, and it might even show its displeasure by pushing rates in the long end higher, which will have the added effect of accelerating the bust underway in the housing market.
We may even be already witnessing the bond market express its displeasure to some degree. Despite the Goldilocks party hats coming out over the past several weeks, long-term interest rates have been climbing since bottoming in late September. That’s not Goldilocks, ladies and gentlemen.
Nevertheless, it’s the market’s opinion that matters at the end of the day, and for the moment the Goldilocks trade is “working” for the most part. The market is never “wrong,” but the market also frequently changes its mind. If the market has it “wrong” about Goldilocks, then the tables will soon be turned.
And if so, everything that typically benefits from Goldilocks (i.e.- stocks, the dollar, bonds, the economy) will soon head south, while those assets that have been under pressure for the past two months (gold, foreign currencies, various commodities, etc.) will roar back to life and make new highs
It’d be funny if it weren’t so sad. But basically, our economy and capital markets have been reduced to a game of “follow the bouncing liquidity ball.”
Stock market boom and bust? No problem. We’ll slash rates, throw out some free credit and give you a housing bubble.
Dammit. That’s bursting now, too. Got to have a Plan C. I know! Let’s create a commercial real estate/REIT bubble. We’ll sit idly buy while so much money floods the sector that dividend yields on REIT shares plunge to all-time lows, banks make more commercial R.E. loans as a percentage of capital than at any time in history, property transaction values skyrocket, and capitalization rates collapse to multi-year lows. Yippee!
And on the side, let’s also look the other way while a gigantic wave of debt-fueled buyouts washes over the markets. This pretty much seems to be the Fed’s modus operandi
The fact is, there is just too much damn money seeking higher returns in a no-volatility, flat yield curve market. Incidentally, Jim Jubak had a nice column about the migrating bubbles and the problems they create back in September. Here it is:
http://finance.sympatico.msn.ca/content/jubak/P45698.asp
More thoughts on interest rates and the markets here…
http://interestrateroundup.blogspot.com/
It’d be funny if it weren’t so sad. But basically, our economy and capital markets have been reduced to a game of “follow the bouncing liquidity ball.”
I’ve often wondered where and when we went so wrong, then I gave up and realized it was when the human race moved from a nomadic hunter-gatherer society to a centralized agrarian/industrial one.
Did anyone read this ridiculously long post in its entirety? My eyes glazed over about 1/3 of the way through.
Yes, I did, but I read it on Minyanville. Thanks txchick for mentioning that site in one of your posts. It has been alot of fun and very educational.
I don’t always agree with numerous economists and analysts, but sometimes you have to read the “long post” to learn something in life my friend.
TX has contributed quite a bit to the discussion here. Bill, sometimes if you dont have anything constructive to add, its better to just stay quiet and appear intelligent than to open up your mouth and make it apparent that you may not be intelligent after all.
“Did anyone read this ridiculously long post in its entirety? My eyes glazed over about 1/3 of the way through.”
A college education might possibly encourage the practice needed to remedy your problem.
I have to agree with questioning the usefulness of posts longer than Ben’s summaries. Aren’t summaries with links what we’re here for?
TX,
thanks for the ongoing education. I routinely read Minyanville’s articles, as well as The Daily Reckoning (although they seem to push gold so I take what they say with a grain of salt). Because of you and Stucco and Cote and JJ, I have been learning quite a bit more about econ and money. I thought I knew a lot more than I did before I got to this blog. Keep it up.
Great article, txchick.
Thanks for posting it.
“The danger of mortgage rate resets have emerged along with ‘all of the innovation that has gone on in the market,’ Mudd said. ‘I would be the first to argue for that innovation,’ Mudd said, but he cautioned that a wave of mortgage resets could be disruptive.”
__________________________________________
How many FED bosses and other Parrot Heads spoke in the last 12 months that the Re_Sets would be a non-issue. Now they are? What changed? Did you do some actual research or just read this blog?
crispy (TM)
- “Up to 4% of America’s mortgaged homeowners might lose their homes to foreclosure in coming months, one of the nation’s largest lenders predicted Monday,”
Here in So Cal I believe that the default figure will be higher than 4%. I base this belief on the information that my brother (who is a sub prime broker in Orange County) has shared during the last 3-4 years. The crazy stories of how folks were qualifying for huge loans was a continuing source of amazement. Many illegals would team up with one legal resident to buy 300-400k homes in Riverside / San Bernadino.
Yes. Remember the chart put out by Money, I think (hard to remember I read so many magazines at Savon) most of these horsh#t loans are concentrated in Cali and FLA. CA and LA will be poster child for “Toxic Loan Avenger”. Say bye bye to Beemers, say hello to bus.
Your brother saw something that I also see in Santa Barbara.
There’s a taco stand across the street from my shop in downtown SB. Alot of non-English speaking, manual labor types eat there. Several real estate agents have placed their business cards on the cash register counter. The cards are printed in Spanish. How do these realtors expect a $6.50/hr bricklayer to pay for a $800,000 house?.
I suspect that because of their nonexistent english skills, many undocumented “immigrants” are being fooled into thinking that the housing boom is still in full gear. Places such as this website only speak english, which means that a Spanish speaking person has no clue as to what’s happening. What’s the Spanish word I’m thinking of that describes these homebuyers, it sounds like “poo-lo”.
I find that most English speaking residents of the U.S. also have no clue of what’s going on. C’est la vie. I think that’s French.
“Innovation?” Creative mortgage products were innovated 25 years ago, and the pyramid scheme on which they are based has been around for, what, centuries? The only new thing here is the stupidity of the mortgage brokers/banks who let these loans out of the wealthy investor corral and into the sub-prime market where they have no business being.
Are neg-ams new? If so, the only reason they are new is that the financial minds of the past were actually sane, and therefore incapable of inventing them.
these loans were “innovative” same way Jesse James was “innovative”
“these loans were ‘innovative’ same way Jesse James was ‘innovative’”
Good one.
What changed?
Shilling was convicted.
correction-Skilling
Skilling was convicted for “shilling”
The very sad partof his conviction is that he truly believes he did nothing wrong.
that’s fine. let him play victim for the next 24 years. it’ll just make the time that much harder.
“Other speakers agreed that the next year or two could be rough for borrowers and lenders alike. ‘It’s going to be a fairly tough correction,’ said Dick Syron, CEO of Freddie Mac. ‘There’s going to be a lot of heat about this, a lot of noise.’”
“That’s because the damages could be enormous, said Daniel H. Mudd, CEO of Fannie Mae in Washington, the nation’s largest mortgage financier. ‘Getting more people into homes is a good thing,’ Mudd said, ‘but it’s not entirely clear that everyone knew what they were getting into”
Hold on to your hats folks, because here we go. Poop, meet fan.
“but it’s not entirely clear that everyone knew what they were getting into”
Fannie Mae does not know what it got into since for years it has not been able to figure out its own financial data.
i’m amazed that after 6 years of a republican controlled government, absolutely nothing has been done to get this FNM crap under control. and the democrats will be even less inclined.
well, at least on the bright side you just have to love those chinese. instead of investing in upgrades to health care, clean drinking water etc. for their own people, they prefer to buy FNMs mbs’ and invest in their military.
Greenspan did his best Nero imitation as he urged FB’s to take out ARMS at the bottom of the interest rate cycle.
The FED is there for the banks, not the consumers, always passing the risk.
I remember that day like it was yesterday. It was very revolting. I about puked.
Ditto, or make that double ditto. The strangest piece of advice ever tauted by a central banker..
what really strange is it ONLY time imploder understood what man was saying! imploder knows THAT must mean something!
Wait a minute, do you think he was trying to get people like imploder to USE an ARM loan? I thought Greenspit™ was good guy and was there to help imploder!
LINK:
http://tinyurl.com/26aaw
SPEECH TITLE:
Remarks by Chairman Alan Greenspan
Understanding household debt obligations
At the Credit Union National Association 2004 Governmental Affairs Conference, Washington, D.C.
February 23, 2004
KEY EXCERPT:
American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance.
American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.
http://interestrateroundup.blogspot.com/
How can one say a fixed rate is more expensive in a interest increasing market . For years I went with a adjustable when the interest rates went from 12 %to 5 % , than I switched to the fixed when I knew fixed was at a low .
In many foreign countries the adjustable has not started to climb yet and many foreign countries just do not offer the fixed rate .
Make no mistake , the secondary market does not like fixed rate notes because they do not like to tie in to a fixed yield for 30 years .
In the early ’80s I traveled to London a lot, made a lot of friends who were middle and upper-middle income. I could swear that fixed-rate loans there, at the time, were either non-existent or nearly so.
everybody treats these central bankers like merlin the wizard, instead of their actual role as court jester.
G is for Globalization, folks.
That speech was the endgame, not the foreshadowing.
People just interpreted it incorrectly.
The MSM hasn’t a clue as to how big this housing debacle will be.
The appraiser’s who post on this blog have given the readership a pretty damn good insight to what goes on behind the scenes.
The whole friggin’ game has been rigged.
What Skillings, Lay, Ebbers, et., el., have done pales in comparison to what the mortgage lending industry has wrought.
The Federal regulatory agencies have all turned a blind eye to the complaints filed by legit appraiser’s because of political heat from top.
To stop the housing inflation-was to kill consumer spending which sustains 75% of the economy.
Now the chickens have come home roost.
And no one in a position of responsiblity dares to estimate the scope of this coming financial apolcalypse.
The Bubblemen™ blew it!
The shower curtain has been ripped back and the housing industry left exposed, naked and shivering. This whole scam is over with. I can happily report that I am having a much harder time finding ANYONE who is not onto the fact that housing is going to crash. No amount of spin can hide the ugly truth about what is transpiring right now. And we are just warming up. Once mass ARM resets, foreclosures, large price drops, and massive job losses ramp up, it is going to be fugly. I shudder to think…
Homeowners are taking a bath, the housing market is in the shower, and there is tons of liquidity that needs to be sopped up.. with a towel or something? It is tough keeping all of these analogies straight. Oh and I guess homebuilders are in the sh*tter.
hd74man, are you jas jain by anther name?
Dude-
I’m afraid not-
But after having my 20+ year profession ravaged and destroyed by the mortgage sleazes and their rubber stamping appraiser co-horts, I am having my day in the sun on this blog.
hd74man: “…I am having my day in the sun on this blog.”
I thank you and all of the appraisal and mortgage-industry insiders whose posts boost my knowledge of your professions and their cancers, and bolster my confidence that I did the right thing by bubble-sitting.
If we ever have that party at Melody’s, I’ll be delighted to buy you a drink.
Mudd …….cautioned that a wave of mortgage resets could be disruptive.”
disruptive in same way ground is “disruptive” to suicide jumper.
What is the last thing that goes through a flipper’s mind?
The sidewalk.
What I’m having trouble understanding is how builders and mortgage companies can sustain a 40% drop in sales and still report a profit. Most companies suffering a 40% drop in sales would be reporting losses on their income sheets. Does this speak the the excess profit margins in the industry or to the ability to quickly reduce the cost structures as sales plumet?
I witnessed Richmond American Homes increase the price of a small 3 bedroom home (same model in different developments) from $140K to over $220K in the course of two years. So yeah, they have oodles of profit margin to cut and still make money.
True, but I would guess that they are far less efficient, dollar-wise, selling 220K houses than 140K ones. That extra $80,000 buys lots of mental toys, the most obvious the sense that the good times are here to stay. Like ATM-home owners, they have a much higher basis now, and the trip down will prove harder than the ride up.
Mo Money — that is why I’m thinking the best use for my housing $ will be to have a house built in 2008-09, when the builders are very hungry. Some neighbors are going to be super-pissed when they see something mighty-like their own little castle being built for way less than they paid. That part will blind-side most of them.
Profit margins are high; many companies with high profit margins can sustain a large initial drop–going forward, I don’t expect them to continue to be profit positive.
In the situation with countrywide. THere is a lot money betting against them (shorts), so they initiate a buyback program and “squeeze” the shorts. Fundamentals will ultimately prevail, in six months or so? Who knows. THey have the money to buy back their own stock, but for how long?
That’s where charts and fibonnaci ratios come in handy.
Yes, their profit margins are extremely high. Also, banks are very flexible service oriented machines. With good leadership, some are able to turn on a dime and chase the next profitable growth sector without skipping a beat. Moreover, they have very diversified income streams and are able to turn them on and off quite easily.
It’s hard to bet against the MegaBanks™. In addition to the unique position they hold in the economy, they also poses a great amount of leverage over the political and legal environment. Raymond Vickers describes the power and leverage of the MegaBanks™ in Panic in Paradise, Florida’s Banking Crash of 1926:
“….Since the Great Depression and despite federal deposit insurance, regulators and bankers have argued that secrecy was necessary to prevent bank runs. They have persuaded Congress that the public would panic if the government disclosed the true condition of the nation’s financial institutions.
This policy of official secrecy continues after the failure of a financial institution. The public is prohibited from seeing the federal government’s regulatory and liquidation records of a defunct bank or saving and loan for another fifty years. The federal records of an institution that failed in 1990 will be sealed until the year 2040.
Next year, a trillion dollars worth of mortgages will have their rates reset, said Dan Mudd, CEO of Fannie Mae. That’s a significant share of $9 trillion in mortgages outstanding, he said.”
only 10% of all outstanding mortgages are resetting next year? what’s the big problem? people can just put extra 1000 or 1500 per month mortgage payment increases on their J.C. Pennys card.
I’m losing my shirt. I bet against countrywide and their stock is going up. Called it too early I guess. I bought Jan 32.5 puts against them and their stock is up 5 percent. Damn.
We could both probably learn something from txchick57. But, don’t despair yet… the elections aren’t over yet.
Looking at CFC chart:
It had a reverse head and shoulders back in the summer. Kind of an irregular one but it’s worked out so far. Over the 200 dma today. I’d consider shorting it around the double top in the 39ish area, not before, unless it flags from here.
I wish I’d bought that sucker when it broke the neckline. A gimme trade.
Do not panic, It will go down, way down. People who are buying it now do not undrestand what “interest earned, but not collected?” is. Wait another year. I am going to short it myself.
Check out LEAP puts–they may be too expensive, but it will give you the time you may need for the problems to really pick up steam.
I bet against countrywide
They are an incredibly screwed up company.
The internal processing and underwriting people I worked with the mortgage division were incredible nit-wits.
These people would dump my appraisal reports and go with a real estate agent recommended rubber stamper in order to keep a loan alive.
Hang tough-they will fall.
Anecdotally, I know a girl who works for countrywide. Big hooters, great hair, tiny waist….no brain.
OFF TOPIC:
Ford just released its horrible Q3 results and they expect worse for the Q4.
Ford stock is up 4% today!!!
Has common sense being declared “out law” in this country?
What is going on, insanity goes on and on and on.
Remember that bowling ball on the stairs - bump, bump, bounce, bounce, then the smashing crash as it hits the floor.
Yes, except many bowling balls these days seem to miraculously disobey the force of gravity.
imploder has dice like that, always land on 11.
Ford is probably using these. So is Countrywide.
These dice must be used sparingly, otherwise chumps get wise and beatings begin
11…?
Hell, these dice are always coming up 13!
“Popular new mortgage products that have helped fuel the U.S. housing boom will soon lead to more delinquencies and foreclosures as rates are reset, the chiefs of Fannie Mae and Freddie Mac said Monday. Next year, a trillion dollars worth of mortgages will have their rates reset, said Dan Mudd, CEO of Fannie Mae. That’s a significant share of $9 trillion in mortgages outstanding, he said.”
So much for using loose lending standards to make housing more affordable for Joe Soccermom.
It’s interesting to read who’s being blamed, the person who took out the loan… After seeing how many people get “cash on closing,” I actually feel sorry for the buyers who didn’t realize why home values were going up– because their neighbors were ripping off the banks…
Nah, they only cared that the price didn’t drop for the comps.
“‘We expect cancellations to remain high as long as home prices deteriorate,’ wrote Banc of America Securities analyst Daniel Oppenheim.”
And I expect home prices to deteriorate as long as home builders continue to build like there is no tomorrow and lending standards remain at historically loose levels which virtually assure that today’s buyer of an unaffordable home will become tomorrow’s bankrupt household returning the keys to the lender.
Actually, the worst thing that could have happened to the uninformed buyer was incentives - they served only to prolong this bubble, reeling in more and more FBs. Every day they continue delays the inevitable true drop in prices, which in itself will sucker in even more FBs. Years to go before its done.
I am not sure about “years to go.” I was very encouraged by the Bressi Ranch auction results chronicled here a couple of days ago.
“I was very encouraged…”
Me too. I live about 8 miles East of Bressi Ranch. I drove through after reading the blog on the auction. This is a nice area only a few miles from the coast with an awsome ocean breeze, close to shopping, small airport, restaurants, newer industrial parks, freeways etc.
I will start picking up flyers and watch for reductions.
And I expect the homes themselves to deteriorate as home builders continue to build like there is no tomorrow.
Normally the cost of maintaining a home is borne by an owner-occupant household, but when the ratio of homes to households climbs to absurdly high levels, then the cost of maintaining more than one home per household (on average) imposes a collective drag of capital depreciation on aggregate US national wealth. This collective drag was recently masked by the most extreme period of real estate price inflation in US history (1998-2005), but will morph into a palpable vestige of the bubble for years to come.
“Other speakers agreed that the next year or two could be rough for borrowers and lenders alike. ‘It’s going to be a fairly tough correction,’ said Dick Syron, CEO of Freddie Mac. ‘There’s going to be a lot of heat about this, a lot of noise.’”
‘Neither a borrower nor a lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.’
Shakespeare’s timeless advice is particularly relevant to American households at this moment in history.
“‘This downturn is going to be tougher because we’ve been though an unprecedented period’ of good times, Michael Perry, CEO of Indymac Bank of California. told about 6,000 Mortgage Bankers Association conventioneers.”
“A media firestorm is ahead, he warned, and one target is the newer, more aggressive lending practices that lenders call ‘exotic’ or ‘non-traditional.’”
“Other speakers agreed that the next year or two could be rough for borrowers and lenders alike. ‘It’s going to be a fairly tough correction,’ said Dick Syron, CEO of Freddie Mac. ‘There’s going to be a lot of heat about this, a lot of noise.’”
“That’s because the damages could be enormous, said Daniel H. Mudd, CEO of Fannie Mae in Washington, the nation’s largest mortgage financier.”"
I’m wondering if the news that Australia’s Treasurer has recommended Australia and other Asian nations begin a move out of the US Dollar played any part in the starker admissions.
Sorry if this has been posted before. Hanley Wood Market Intelligence publishes a housing demand and supply “grade report”- grades are not too high.
http://www.meyersgroup.com/homebuilding/homebuilding.asp
Thanks, Brandon, for the link. I’m not a stock jock like so many of our posters, so seldom see stuff like this. I like the pane on the left, whereby I can get good detail (as much as I care about, anyyway) on each performance measure. Interesting that everything is graded C, D or F except the “A” for Housing Growth Ratio.
Hey, Ben. Here’s one for the “no bubble in Dallas” crowd. Can you IMAGINE paying 700K in the M Streets????? This is typical McMansion built there after scraping off the 1940s cottage that was there. There are no buyers for this kind of thing. You got 700K, you can go to Preston Hollow or University Park and your kids go to much better schools.
http://dallas.craigslist.org/rfs/225124419.html
These houses will all end up in foreclosure IMO.
Nice house… Not 700k nice but nice nonetheless. Looks a little overbuilt for the lot too.
Looks “not quite” to me, as a McMansion. Window surrounds are the cheapest. In a real gourmet kitchen, that Viking would be a 48″ or 60″ cooktop and there would be two ovens and at least a warming drawer, all located elsewhere (in other words, no range in a kitchen that big). Looks like a Web-bought plan/design with non-pro detailing.
“‘The by-product of the industry downturn is overcapacity, margin compression and aggressive credit practices,’ HomeBanc CEO Patrick Flood said.”
Uhhh, the industry upturn was a byproduct of overbuilding, obscene margins and aggressive credit practices so it is only fitting. These credit industry people have all been drinking the same kool-aid. They’ll go down in flames refusing to acknowledge that the housing bubble was a response to their actions. Housing isn’t a push industry on the credit market, the credit market is a pull on the housing market.
Nice to hear from you again, Robert.
Agreed! I always enjoy Robert’s comments, and have learned quite a bit from him. I hope Robert will post more often like in days gone by.
3rd the comment, without Robert jack booted (humorous) posts the blog is missing something.
http://tampa.craigslist.org/cas/225046797.html
This is safe for work.
Who says buying a house can’t be fun? If you’re looking for an agent to help you buy or sell your house, with benefits, look no further. I’m 5′10, slender and love to have discreet fun. Contract and/or loan pre-approval required before “services” will be rendered.
I’m sending that to the Craigslist flag forum. That’s prostitution.
Even if I just incentivize her with cupcakes and a Mercedes?
Analyzing housing data is applaudable. Discouraging what you percieve to be moraly reprehensible is not. Pls dont interfere with the ladies offering their “services”. As Carlin says, “You can give it away but you can’t sell it?”
mmmmm…..cupcakes
txck57 don’t spoil our fun. We’re just country boys!
“That’s prostitution.”
A victimless crime. Immoral, sure. Churches and prudes should protest about it. But jail?
Very sad!
I wonder how many calls that ad gets.
Don’t go getting any ideas mrincomestream, that only works for the fairer sex.
Bwwwaaahhhaaa I was just asking
I just contacted her and filled out. As it turns out, I was not “preapproved”.
Sigh