Bits Bucket And Craigslist Finds For October 29, 2006
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Does anyone read any of the homebuilders’ 10Qs? Perhaps some of them have their own PPT units. Here is an insightful quote from ctx:
On May 11, 2006, our Board of Directors authorized the repurchase of an additional 12 million shares. In the three months ended June 30, 2006, we repurchased an aggregate of 3.5 million shares of our common stock at a total purchase price of $187.2 million, including commissions paid. As of June 30, 2006, our remaining share repurchase authorization totaled 11.0 million shares. In July 2006, we repurchased an aggregate of 1.0 million shares of our common stock at a total purchase price of $50.8 million, including commissions paid.
Didn’t Enron have some similar arrangement, involving off-shore “subsidiaries?” It is hard to envision how massive stock repurchase operations (aka Get Shorty) fit in with the builders’ core business, but I do recall Mr. Toll saying something about killing the shorts…
In the CTX case, it appears that they actually bought the stock.
Some companies who’s stock is in trouble put out a press release saying they “intend” to buy x million shares over the next several months.
They don’t have to buy or they can buy waaaay less than they “intended” to buy. I wonder if shareholders can still sue if a company doesn’t follow thru with their “intended” buy because shareholders felt mislead with original intented buyback announcement.
Does anyone have any insight into this?
So… did you reset your clocks?
No. Thanks for mentioning it.
Except AZ, they don’t bother.
true, but i’m not in az right now
My clock is stopped
Here is last week’s tidbit from a pay site (the privateer) concerning the housing market. Nothing really new but interesting layout.
An Echo From The Beginning Of The End:
The end of what? The end of the global fiat currency era which began when the US Dollar was severed
from what remained of its Gold backing in August 1971 and the world’s currencies, now all paper,
“floated” in March 1973. On October 26, the US government reported that new home prices had taken
their biggest year-on-year hit in 35 YEARS in September 2006. Median (half above - half below) new
home prices fell 9.7 percent from their levels in September 2005. This was the sharpest drop since
December 1970. In other words, it was the sharpest drop in the entire fiat floating currency era!
It gets worse. While the year-on-year slump was 9.7 percent, almost all of it actually occurred over the
ONE MONTH between August and September, during which median prices fell by 9.3 percent. It gets
worse still. The price slump in September took median house prices 15.5 percent below the record high
they had recorded in April 2006, only five months previously.
Perusing these figures, if there was any remaining doubt in your mind as to why the US Federal Reserve
stopped raising official US interest rates in June 2006, they should now be laid to rest. It is a well known
fact that in the US, consumer spending makes up 70-80 percent of US economic “growth”. It is an
equally well known fact that up until mid 2006, the main source of borrowed money to fuel this consumer
spending was the increasing valuations on real estate, the phenomenon which the Fed resolutely refused
to call a “bubble”. Well, the bubble has not just burst, it has vaporised.
In a comparatively liquid market like the stock market, a 9.3 percent month on month price fall would
almost qualify as a crash. In an illiquid market like the housing market, it DOES qualify as a crash.
Please remember that this fall in median house prices is for the sale of NEW homes, a minor slice of the
entire US housing market. The fall here was the fourth largest on record. But the National Association of
Realtors reported on October 25 that the year-on-year drop in the median prices of existing homes in
September was the largest ever recorded in the US.
As it was in 1970 (or in 1870 for that matter) so it is in 2006. For the vast majority of Americans, the
house is by far their biggest asset, while the mortgage is their biggest liability. In 1970, the “solution” to
plunging house prices was to debauch the currency by severing the Gold link. What is the solution today?
It can’t be just “print money”. It can’t be just make more loans. I can’t even be lower interest rates, because, long terms rates would rise. The government will actually have to put money in the hands of the working and middle and even upper middle classes. How can they do this?
1. Drop money from helicopters
…. a bit expensive and inefficient, heh?
2. Mail checks to people…but those will need to be a lot bigger than the couple of hundred dollars from the tax cut checks.
3. Forgive/pay off X% of all outstanding mortgages for people and “reinvent” the system…change the rules to 25% or 35% down and fixed rate financing only. This would collapse prices but keep people in the game and spending (hopefully more prudently).
4. F* the borrowers…prices collapse further as credit and the money supply shrink. Depression ensues. People jump in housing market at 50% down only to catch a falling knife as declines head to 90%. Make work programs in the army (fighting for oil) or homeland security or local manufacturing when US cannot afford to import too much any more. Govt would need to bootstap the latter as policies have been ingrained in people to shut down not start up manufacturing operations in the US. Maybe some business people could do it…?
5. ???
I really don’t know how to place my bets! Perhaps some old standbys - gold and Confederate paper money
Maybe keeping a large supply of ammo is not such a bad idea. Y2K Y2K Y2K.
The sooting sounds of Patsy.
http://housingcrashvideos.blogspot.com/2006/10/patsy-cline-sings-about-great-2006.html
Lou,
That video is destined to become a housing bubble classic!
Very creative and well done Lou…
Good work, but shouldn’t the “going up $222 per day” page, have been “going down $222 per day”?
It was simply a reminder of the salad days, when people thought they were Donald Trump’s because they signed on the dotted line for a loan.
oh ok, the good old salad days, when taking an neg. amort, IO ARM, made one a sophisticated investor, a real financier’..
I like the Trump comment, it “echos” my sentiments..
Trump will be in Anaheim this next weekend. Will they be able to dig up 50,000 more wanabee millionaires to pay his $1.5 million speaking fee. I’m tempted to visit just to count the house, just to see what the bottom of the barrell looks like. Spin on, Mr. Trump
Please do david. And take photos for the HBB gallery
Thanks Lou…Nice Sunday morning chuckle…
Buddy at work is trying to negotiate a short sale with his two lenders. He has a buyer already, but the offer will not even cover the first mortgage (I guess about 80% of his total loan?). He wants to take it and get out ahead of this thing, so he’s written a letter to the banks explaining that he is perfectly happy going into foreclosure if they don’t agree.
Seeing as the lender for the down payment get screwed (right?), what do you think my friend’s chances are? Thanks for any insight.
IMO, They will call his bluff and ruin his credit, so as not to set an example of being soft this early in the bust.
Exactly, way to early for a 20% slice. He basically asking the second to zero out that’s not going to happen.
where is it?
A La Jolla condo. Oops.
Like Catching a Snake in Tall Grass:
http://www.xanga.com/home.aspx?user=russwinter&nextdate=10%2f29%2f2006+23%3a59%3a59.999
Club? Yes — the guys in the club all make more dough when the conference calls amount to a smoke screen.
You gotta check out Lou’s video!!
Anyone who can read a .pdf and missed this in yesterday’s posts needs to have a look, if for no other reason, to realize that not all economists are clueless when it comes to the housing situation…
“mountain of unsold completed homes”
Inventories of completed new homes is actually skyrocketing not falling (see Chart 2 on Page 3):
http://www.billcara.com/ML%20Oct%2026%202006%20D%20Word.pdf
Nice data stucco…Thanks…
First ,is the short sale a arms length transaction ?Second , have other houses sold in the area for more than the short sale price lately ? Is a real estate agent involved in the sale ?
Third , does your friend have any assets to bring to the table, did he lose his job ? And last, was your friend a owner-occupied seller or was this a investment purchase ?
Right ,GS good article/charts . By the way ,my above post is a response to WE RENT above regarding his friend wanting a short sale .
First, I don’t know what that is.
Second, I don’t know - but yes on the agent.
Third, highly doubt any assets - he’s a fellow teacher whose wife is in grad school. No on the job loss.
Last, it WAS an investment purchase - he “owned” a different condo in Pacific Beach (San Diego) when he bought the La Jolla place. Then, a year or so later, he sold the PB condo and moved into the new one (about a year ago). That is, owned the new condo for about a year before moving in - now has lived in it for about a year.
It sounds like you friend has some assets and has income . If the lenders feel they can make out better in foreclosure sale because the condo is in a good location they might not go for the short sale .
Housing in New York
A big deal
Oct 19th 2006 | NEW YORK
From The Economist print edition
A record-breaking and politically hot property sale in Manhattan
CorbisGoing, going, gone
SOME of New York’s shrewdest investors are evidently unimpressed by the notion that America’s housing market is in trouble. This week, in a record-breaking deal, a bunch of them splashed out $5.4 billion to buy an 80-acre (32-hectare) residential estate on the lower East Side known as Stuyvesant Town and Peter Cooper Village. That was almost 10% more than the asking price set by the current owner, MetLife, an insurance company. It had been expected to go for closer to $4 billion, not least because of fierce political opposition to the sale of what has long been—for good reasons and bad—the emblem of affordable housing in the city.
http://economist.com/world/na/displaystory.cfm?story_id=8058346
“…who is buying the estates with BlackRock, an investment bank,”
a.k.a. - other people’s money…
When things are going up, investors are very trusting of those investing on their behalf…I suspect that will change as returns gets smaller or money is lost…all of it sudden it will be either, “you put my money where?”, soon followed by, “where are you putting my money?”…
Blowing bubbles in Miami…
http://miami.craigslist.org/rfs/227214736.html
Now is the time to buy at Ten Museum Park. The building will be complete soon. Units are currently in resale and prices are NEGOTIABLE! But call now! Direct Bay view units in a new high end building which will be the talk of the town…..Owners are very motivated and trying to avoid closing. This is the time to get a fantastic deal on new construction in Miami’s hippest new neighborhood on the water. I believe in this area and that is why I am a resident….Buy before new construction boosts property values further.
http://video.google.com/videoplay?docid=-7096347728462586708&hl=en
“Units are currently in resale and prices are NEGOTIABLE! “
So the buildings are not even built and they are already up for “resale” Why in the world should I buy if the first owners only bought there at pre-construction prices so they could flip it and sell it to some sucker for an inflated price. And if these “owners” can’t sell they will either go into foreclosure which will drop prices even more or rent it out to anyone which will probably make it a not very nice place to live.
Good morning everyone,
In this morning’s (10/29) Boston Globe Business Section (E5) there is a letter from a developer/appraiser here in Mass. who is very unhappy with the current state of affairs, regarding the housing market. He wrote his letter to the Globe saying that he was happy to have seen them print a recent article in the Oct. 23 edition of the Globe, which stated that we are at or near the low (i.e. bottom). He wishes more articles like that were printed, instead of the typicl doom and gloom that we have been seeing for the past twelve months. He further states that it is a great time to buy, because of the low interest rates and lower prices that we have seen over the past few months, plus all of the incentives and seller concessions. BUT..he sees a big problem…evidiently, there are way too many buyers out there with a “wait and see” attitude and perpetuating a real estate recession of sorts. He feels too many buyers are fearful of buying, because we no idea of where the bottom is. And then, there are the buyers on the other side, who are making offers so low, that only the desparate can accept them, thus affecting the true market value of values across the board. Hi last sentence, “Ultimately, these sales will affect many aspects of the real estate industry and hurt homeowners who have purchased in the last 24 months.”
So there you have it folks, it all those nasty wait and see, fence sitting buyers. It’s all their fault. It has nothing to do with anything else. It doesn’t matter that the “appraisers slapped a $500,000 value on 40 year ranches and capes”, it doesn’t matter that banks lent ridiculous sums of money to people who in reality don’t have two bucks to their name, it doesn’t matter that the industry convinced people that real estate only goes up and that you can sell or refinance with a moments notice, it doesn’t matter that the NIMBYs here don’t want anything built on less than an acre, it doesn’t matter that the many of the real estate sales people have zero ethics, etc., etc., etc.
‘BUT..he sees a big problem…evidiently, there are way too many buyers out there with a “wait and see” attitude and perpetuating a real estate recession of sorts. He feels too many buyers are fearful of buying, because we no idea of where the bottom is.’
I guess he is oblivious to the fact that Realtors’ (TM) stopped-clock warning has finally become relevant, as almost all would-be buyers are now priced out?
Yep..I guess someone, somewhere, should have asked the question,
“what happens when the majority of people in an area get priced-out?”
the first answer is, of course, “they stop making buyers”.
Thus the old theory that all it would take for the bubble to burst is to simply have a period of flat prices that weren’t going up anymore. I guess this is synonymous with “stop making more buyers.”
America’s main “product” these days is debt and all of the specuvestors needed this housing bubble to maintain their middle-class lifestyle. The lack of double-digit appreciation is enough to destroy many households as debt bubbles can only continue with ever-larger debt bubbles as part of a Ponzi scheme. IMHO, this is really the crux of the situation and not necessarily that people are any more priced out now than they were last year or two years ago. When you’re “paying” 0% down with a neg-am 125% 80/20 or some such foolishness, you’ve probably been priced out for some time. The expectation of appreciation (and lots of it) was the only thing keeping this bubble afloat. Now that’s gone and there’s no way to bring housing back for a long time.
More ponderables: What will these people do now to keep up with the Joneses (maintain middle-class status)? Does every giant credit bubble economy crash on the rocks of a housing bust? Can the private balance sheets of these FB’s and GF’s be a metaphor for the entire US economy?
GDII/WWIII here we come.
It is worth noting that Albert Einstein said:
“I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.”
Maybe the levered up FBs were right.
“as almost all would-be buyers are now priced out? “
But people they can always get a second or third job at the local Quicky Mart, they still have blood and organs they can sell, they can still sign their children’s name on a perpetual mortgage, all they have to do is stop off at one of the many friendly mortgage brokers offices who will give them the long, long, long term debt they need to by a 2 bedroom/1 bath, 800 sf fixerupper on a 900 sf lot for the low, low, low price of $750,000 so they too can have the home of their dreams.
“long, long, long term debt”
Why not just go for an I/O Option ARM, which allows the buyer to pay less than the interest accrual and tends to be very short term?
Because after the loan is done with you will find that you have not bought anything since you still owe and often owe more then when you started. These Option ARMS are often not “buying” they are just leasing.
Maybe I am just old fashioned but I don’t think you have bought anything until you stop paying for it.
“These Option ARMS are often not “buying” they are just leasing.”
Much worse than leasing, because when you lease, you don’t own the asset price risk (Thomas Sowell, take note if you read here).
One thing that I think will be a contrary indicator around the time of a bottom is that people will hate debt and not be so contemptuous of holding cash. The thing I’ve noted in the last few years that blows my mind is how people have come to see debt as good, and laugh at the idea of why would you want to have 6 months income in cash in a reserve fund, just get a HELOC as that would be more “efficient.” Lots of people out there are about to find out that the multiplier effects of debt work on the downside as well as the upside.
“…long term debt they need to by a 2 bedroom/1 bath, 800 sf fixerupper on a 900 sf lot for the low, low, low price of $750,000 so they too can have the home of their dreams.”
Ah, I see you’ve been studying the San Francisco real estate market…;)
YEA all these people sitting on the fence. Man what are they going to do. HAHA HAHAHAHHAHAHAHA, They will just Keep Waiting!!
The housing market has had a used car sales mentality for so many years. It is good to see things changing. Time is on the buyer side.
Someone needs to send this guy a blanket and some pacifiers so he can cry himself to sleep so he doesn’t have to witness the drop in home values and the money he is going to lose on the way down.
If this guy is a developer/appraiser he has a dog in the fight ,so of course he wants it to go back to the happy happy market talk .
Nobody likes a correcting market ,(except priced out buyers ),
but to ask the news media to just print spin articles so this guy can sell his POS is self-serving . Sorry dude ,you got caught in a downturn correction after a false run up ,so bite the bullet .Nobody cares if you didn’t make the big money you wanted to being a speculator .
Exactly. Most people would have the intelligence to make the arguement in a way that disguises or at least compilicates their self-interest. This one’s dumb and a cry baby.
It’s a “Buyers Strike” not a “Buyers Market”.
“He further states that it is a great time to buy, because of the low interest rates and lower prices that we have seen over the past few months” ……>>No problem, Mr. Developer. Offer me a money back guarantee, that if prices tank lower, I get cash back if I paid to much. And since I know you builders have such integrity and honesty, lets l put half my purchase price in escrow for about 3 years, just in case you forgot the money back guarantee as you file for BK.
So, I’ll take your word for it that it is a good time to buy, are you willing to give me that iron clad guarantee that I won’t lose money?
Typical self centered RE observation.
Headline news in today’s SD Union Tribune
—————————————————————————————————
Fiscal tour warns of trouble ahead
U.S. debt could become a crisis, official says
By Matt Crenson
ASSOCIATED PRESS
http://www.signonsandiego.com/uniontrib/20061029/news_1n29roadshow.html
October 29, 2006
Associated Press
David M. Walker, the “accountant in chief,” spoke last month in Austin, Texas.
AUSTIN, Texas – David M. Walker sure talks like he’s running for office.
“This is about the future of our country, our kids and grandkids,” Walker, the comptroller general of the United States warned a packed hall at Austin’s historic Driskill Hotel. “We the people have to rise up to make sure things get changed.”
But Walker doesn’t want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.
Basically, that makes Walker the nation’s accountant in chief. And the accountant in chief’s professional opinion is that the public needs to tell Washington that it’s time to steer the nation off the path to financial ruin.
From the hustings and the airwaves this campaign season, the political class can be heard debating scandals on Capitol Hill, the wisdom of the war in Iraq and which party is tougher on terrorism.
What they don’t talk about is a secret everyone in Washington knows or should know. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course and will founder on the reefs of economic disaster if nothing is done to correct it.
There’s a good reason politicians don’t like to talk about the nation’s long-term fiscal prospects. The subject is short on political theatrics and long on complicated economics, scary graphs and very big numbers. It reveals serious problems and offers no easy solutions. Anybody who wanted to deal with it seriously would have to talk about raising taxes and cutting benefits – positions that might doom any candidate who prescribed them.
…
(BTW, I am reasonably certain the following passage was lost in translation by the journalist who never took an econ course, as the comment about “projecting to an infinite time horizon” is misleading at best.)
Economists Jagadeesh Gokhale of the American Enterprise Institute and Kent Smetters of the University of Pennsylvania estimate that by 2030, Medicare will be about $5 trillion in the hole, measured in 2004 dollars. By 2080, the fiscal imbalance will have risen to $25 trillion. When you project the gap out to an infinite time horizon, it reaches $60 trillion.
Thanks for the great link GS,
I used to send on links like this to my friends and relatives. But it has come to my attention that no one wants to know.
“But it has come to my attention that no one wants to know.”
That’s the interesting paradox I am running into: the worse things get, the *more* they don’t want to know. I suspect that many of them are the same folks who pulled their stop-losses when the dotcom market was tumbling.
I think that it’s time for someone in gubmint to speak up. Some one’s got to talk about the long term effects of our actions today. This guy is in the perfect position to do so.
The Fed has become so politicized that they cannot be trusted to act in a rational, even-handed manner, one that takes the interests of the whole nation and the whole economy into account.
I hope he continues to speak out. But, alas, the drumbeat of all the other discourse in America and the controlled, myopic vision of the MSM will drown him out or sideline him. Unless there is a shock, and his voice resonates with people he will be another voice crying in the wilderness.
The blogosphere would do well to elevate his stature.
The report about Mr. Walker from AP was in today’s StarTribune, too, which is the largest newspaper in the Twin Cities. They didn’t tell, however, when he is supposed to speak where - I would like to listen to him, rather than another politician with a 2, 4, or 6 year horizon.
Here is a lead on a book which is destined to become a housing bubble classic right up there with Lereah’s offerings…
————————————————————————————————-
HOUSING SCENE LEW SICHELMAN
Traditions hold sway in housing industry
October 29, 2006
WASHINGTON – Home sellers who are at their wits’ end may want to invoke the good graces of Joseph of Nazareth, patron saint of the home. Stephen Binz did, and within a week he snared a buyer.
His house in Little Rock, Ark., had been on the market for several months when his Presbyterian realty agent suggested he bury a statue of St. Joseph in his yard. But Binz, a biblical scholar and author, thought the idea “was a ridiculous and superstitious practice.”
After a few more months of waiting for a buyer, though, he “decided to give it a prayerful try.” And lo and behold, “the man who bought the house a week later came to my house the morning after the burial ritual.”
Many people believe that burying a statue of St. Joseph will bring a buyer to your doors. Since Binz sold his place, he has spoken to religious goods’ store owners who say that St. Joseph statues outsell their nearest competitor, the Virgin Mary, 5-to-1. “It is amazing how this practice has swept the country.”
Some say the statue should be buried upside down, perhaps close to the for-sale sign in the front yard. But others say it should be buried facing the house, in the backyard, exactly 6 inches deep. And still others say don’t bury it at all, but attach it to the sign or front door.
Once the house is sold, custom has it that the statue should be dug up – or taken down – and given a place of honor in the seller’s new home as a reminder of the efficacy of St. Joseph’s intercession.
Binz has written a book that is, in part, about his experience, called “St. Joseph, My Real Estate Agent” (Servant Publications, 2003). “I’ve written several more scholarly books, but Joseph really is the patron of home life,” the author says.
“Joseph was a home builder, not only because he built homes for a living as a carpenter, but because he was a husband and father. He earned a living; he provided for his family; he taught his son, he cared for his wife; he struggled with independence as a teenager. Who could be a better patron of homes than the man who established a home for the world’s most remarkable family?”
Whether burying a St. Joseph’s statue actually brings forth home buyers has never been proven. While it has no basis in Scripture, it is a pious tradition that has been handed down from the Middle Ages.
It also is one of many superstitions, rites and customs of earlier eras that have survived to this day.
http://www.signonsandiego.com/uniontrib/20061029/news_1h29sichel.html
I still want to know who you do that for a high rise condo. Do you glue to to the ceiling of the neighbor below you? If you bury it in the ground, ‘your’ buyer may end up buying someone else’s condo.
Any RE theologians out there can shed some light on this?
I keep hearing about all these buyers on the sidelines. I think these folks are kidding themselves, because most GF’s have jumped in the game a long time ago. I really do not think there’s the massive pool of buyers ready to pounce as many believe (hope). For the most part, what’s left of the “sideliners” are folks like us who know the game and aren’t going to drink the koolaid. If anyone is holding on to this hope, then the only thing that will shake these buyers out of trees is a massive correction.
“because most GF’s have jumped in the game a long time ago.”
Agreed, and some of them have jumped in several times and are desperately trying to jump out.
I also agree that there isn’t this huge pool of buyers waiting on the sidelines to buy . The new home builders will get a limited amount of the Greater fools that are itching to buy with their discounts .
They had a realtor on Fox News this morning that was spinning the “great time to buy” BS ,(based on the inventory of homes is up ). More supply is why the prices are going down ,making it a risky time to buy . Well, we will see what price point the market gets buyers again .
Anecdotally, I have to disagree. I was at a party in St. Petersburg, FL last night full of 20-30 somethings. Almost everyone rents and is dual income, saving for when it’s “affordable” again. I think in some areas there may be a pool of buyers that were “priced out” the last few years. I was, and I want to buy, but not yet.
Trust me, I am totally a bubble believer, but I also look at all of my friends and most of us have just been renting and saving for the last five years. In fact, of my inner-circle exactly nobody owns and has cash reserves.
The mistake people (sellers, builders) make is that they think that the fence-sitters are as stupid as those that dove head first into the shallow end.
No thanks. I am not interested in a $300k 2br. condo. Good luck with that.
Your friends will get their wish. I put them in the ‘know the game’ category. They are normal, rational buyers
Those folks who think there are lots of buyers on the sidelines want a replay of the investor scenario where one in three houses were purchased simply for their future appreciation. This sucked up normal inventory and created a shortage. This caused GF’s to rush in and buy ‘or be priced out forever.’ Liquidity was the lubricant.
That market was abnormal. The market in the coming years will be abnormal. The MSM is highlighting it, and people are beginning to feel it. The coming recession will drive it home.
Sure, there are a lot of folks on the sidelines. I’m one of them. But I am not a buyer…not in this market.
If you really want to see some entertaining spin on the economy in general, take a look at bloomberg website that has a interview with Treasury Secty Paulson. Tried to link it but it wouldn’t work. Anyway, when the interviewer pressed him on the weak GDP #’s , he started doing some strange facial movements and his eyes were rolling up looking at the ceiling. It was very strange to watch this guy, former chairman of Goldman Sachs, have no composure at all. You could just plainly see how difficult it’s getting for him to bs this stuff. A must see recommendation!
His public speaking style needs a huge amount of work. Very surprised that he apparently had no coaching during his career. He spends most of his time looking at the ceiling, which doesn’t give the observer any warm fuzzies about the potential for truthfulness in his statements.
He looks like he’s annoyed by the questions. I’ll bet he takes ‘TV interviewing for Public Figures 101′ starting Monday.
The buyers that are on the sidelines are the sellers who cannnot sell their home at astronomical prices. Well there is the exception of person who bought in anticipation of sellign their home, they are just screwed.
nnvmtgbrkr;…I have been looking for your post…How is the Reno/Carson market ??
As dead as ever, but with a pathetic hope that hangs in the air heavier than the fall chill that forbodes winter. So many here rely solely on housing’s performance that they cannot bear to contemplate the possibility of another year like the one we’ve just experienced. Everyone’s been drinking the Koolaid punchbowl labeled “It All Turns Around Early Spring ‘07″. It’s hard to fathom what I’m seeing right now, but I guess desperation breeds incoherent thinking. So many are maxing remaining remaining HELOC’s, using up the limits on credit cards, thinking if they can just make it to Spring it’ll all be good. It’s this kind of activity that makes me think that by 2nd quarter ‘07 the fun really begins.
We’re still at about 10%-15% down from the top (Nov ‘05), and when the newer rash of reductions finally pop and can be used as comps we’ll be further down from there.
Spring 2007 the final housing battle!!! Coming to a suburban neighborhood near you. Don’t miss it, you will laugh, you will see FB’s cry, we will see the economy go bye bye.
Oh, you won’t miss, but you’ll wish you did.
I has also noticed that people really do think there is going to be a spring bounce in 2007. Goes to show you how much people listen to the spinners in the news like the talking heads of the NAR and Car and your friendly realtors.
Thanks for the update nnvmtgbrkr…..
This is why prices will keep going down for quite a long while. That and the builders that continue to build.
When resale prices are below what it costs to build a home, the builders will stop. Then 2-3 years later it will bottom out.
Americans are trading in their ARMS for fixed-rate mortgages
By Steve Brown
THE DALLAS MORNING NEWS
October 29, 2006
Thousands of Americans are making the move from adjustable-rate home loans to old-fashioned fixed-rate mortgages.
During the last few years when interest rates were near record lows, adjustable, or ARM, loans were a cheaper alternative to standard mortgages.
But now that interest rates are going up, they’ve become a liability for some homeowners.
“People borrowed money at 3.5 percent for years with these loans,” said Mike Anderson of Dallas-based Reliance Mortgage. “Now they are in the mid-7s.”
“Every ARM note on the market is indexing higher,” he said. “So why not lock in at a rate of 6.5 percent or lower?”
…
“Rates have come back down in the last seven weeks,” said Amy Crews Cutts, deputy chief economist for mortgage giant Freddie Mac. “That’s why we are seeing such a rise in refinancings.
“It’s not the people who are holding onto a low fixed-rate loan,” she said. “It’s people who have ARMs going up or are looking for some cheap cash.”
About 88 percent of borrowers who are refinancing increase their debt balance by more than 5 percent, according to Freddie Mac.
Cutts said many borrowers who took ARMs were hoping that interest rates would remain low for many years.
“It’s hard for me to believe that the average ARM borrower didn’t know what he was getting into,” she said.
http://www.signonsandiego.com/uniontrib/20061029/news_1h29adjust.html
That’s great for the people who can do this. I wonder what the percentage is of people who have a) equity, and b) good credit? I honestly don’t know. It sounds like most Californians shat away their equity over the past 5 years on granite countertops and Escalades, but I also realize that Ben’s blog can be an echo chamber sometimes. What are the true numbers?
“I wonder what the percentage is of people who have a) equity, and b) good credit?”
Well, I bet, not many. Otherwise, they would have had the money and income to have put 10, 15, 20% down and have taken the 15 or 30 yr fixed when they bought. I don’t think many people use exotic financing as a long term financial strategy, but rather they use it as a short term get in the game tactic. Think about it people, you have a decent paying, decent job, you have saved your pennies, etc…you aren’t about to throw a grenade into that, by taking out some suicide loan. No..not at all..you would put some of those saved pennies down to have a good slice of equity, take a nice stable fixed rate loan product (maybe a 5 or 7 yr ARM), and then move in, and start your pmts and pre-pmts.
And if everyone were this prudent (including the lenders), prices could never have reached the permanently high mania plateau where sellers seem to believe they remain.
Good credit, in this context, must also imply enough income to handle the spike in payments that will result from the re-fi. Many owners who have good scores to date and at least a little equity, may still not be able to handle the hit to their payments that a fixed would render, so they’ll have to bail out.
We bought our home in 1994 and got an arm. It was a fantastic loan. When rates were so low in 2004, we considered moving to a fixed, but new we would be selling, so decided against it.
Had we stayed, I would have gotten a fixed mortgage in 2004 and stayed with it.
If you know what you are doing, and pay evel a little attention to trends and history, you can use mortgage rates like any other investment tool.
Problem is that very few follow history or motivated enough to educate themselves.
If you can fog a mirror then you qualify for the free refi money.
Do downpayment requirements unfairly undermine the mission of providing affordable housing?
—————————————————————————————————
Down payment was half purchase price
ASSOCIATED PRESS
October 29, 2006
TUSTIN – Winners of an affordable-housing lottery found out they couldn’t qualify for homes being built at the former Marine Corps Air Station because down payments were nearly 50 percent of the purchase price.
The homes – priced between $55,100 and $311,400, well below Orange County’s $626,000 median house cost – were advertised by Lennar Corp. and William Lyon Homes with the words “3 percent down payment required.”
http://www.signonsandiego.com/uniontrib/20061029/news_1h29lottery.html
Wow. I though commuting from Bakersfield to LA was tough, but this is crazy! All in search of a $150k home.
“Pravada is centrally located. Whether you have friends and family in Los Angeles, Las Vegas, or Phoenix you are just a short ride away.”
http://rhodeshomesaz.com/html_site/location.html
The starting prices are 149,990 to 354,990 for houses with no upgrades with vinyl floors, formica counters, etc. on 7000 square foot lots. Golden Valley is an area of mostly mobile homes on 1-2 acre lots. He hasn’t started building yet, still waiting for approval to open his own water company. He has nearly 1000 lot reservations already, nearly all are Las Vegas “investors”. They insist that families will commute from Las Vegas (100+ miles away). This Las Vegas Builder purchased a huge amount of Mohave County land and has approval for more than 150,000 new homes.
Mish had this builder and the Arizona water issue on his blog in February. It’s on Peak Water. http://tinyurl.com/yyy82j Arizona has no laws regarding water in the rural communities. They cannot stop a builder from building even if they know there is not enough water. The builders are only required to put that information in for the first buyer of the property. If you are the second buyer of a property, the seller is not required to tell you that there is no water available for your future use.
Jeez, and the hits just keep on coming…
Hi all,
I need your help. Any devout Catholics out there? I found this house that I really, really like and want to make a low ball offer on. The problem is, I don’t know which statue I should bury in the front yard to ensure that my offer gets accepted.
Any thoughts?
Hmmm, St Lucy, Patron saint of Blindness? She will make the sellers see that your offer is a good one!
If you’re bored… you could probably find a better one here:
http://www.catholic.org/saints/patron.php
St. Anthony, patron saint of lost causes.
Saint Anthony of Padua, patron saint of lost and stolen *articles*
Saint Jude Thaddeus, the Catholic patron saint of desperate cases and *lost causes*.
Gotta love (as W says) “The Google”
Not sure why you would be asking a Catholic, since burying statues has nothing to do with Catholic teaching.
But you knew that.
Hmm, maybe it’s like rock-paper-scissors. You just need to figure out what beats St. Joseph (which the seller is using against you). Try a pink Buddha. And if that doesn’t work, ask the seller to go two out of three.
http://www.itulip.com/forums/showthread.php?t=550
Looking at those aggregate household savings charts left a pit in my stomach.
The summary paragraph seems worth repeating here. This guy seems likely to be proven right again in the near future…
‘Once the credit markets roll over, many of the credit bubble driven mega-deals you read about in the paper for the past couple of years, now reaching a crescendo of greed, will go the way of the AOL-Time Warner merger that closed in January 10, 2000, near the top of the equity bubble. Instead of dysfunction in equity based financing as we experienced after the tech stock bubble, we will see dysfunction in credit based financing, the heart of capitalism. Distressed debt will be the order of the day. Every credit dependent industry, especially construction and real estate, will fall hard, but the advertising driven media industry will suffer, as well. Some industries and regions of the US are already in recession, such as the automotive industry, and others are entering recession. In a diversified modern economy, many regions and industries must be in decline together for the entire US economy to be called officially “in recession,” but this definition is academic and of little use to most of us.’
How about Saint Basil - he was known for shoplifting and giving to the poor.
Saint Bernard: known for massive slobbering tendencies and finding lost tourists, I believe.
I believe Saint Basil is masquerading as Captain Credit on this blog.
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Arithmetic on the way down and geometric on the way up. Say you bought a $1,000,000 house at the peak of the market and the house lost 50 percent during the downturn. That left you with a $500,000 house. Then, over the next few years, your house gained 50 percent in value. So now your house is worth $750,000. In order to recoup your full original $1,000,000 the house would have to actually appreciate 100 percent. 50% Up will not offset 50% Down.
Here’s some BS from Reno:
http://news.rgj.com/apps/pbcs.dll/article?AID=/20061029/NEWS/610290332/1002
The next bubble?
SEC Expected to Ease Margin Requirements
(AP) WASHINGTON
Federal regulators are expected to ease requirements for buying securities on margin, rules put into effect after the 1929 stock market crash.
The staff of the Securities and Exchange Commission has approved the New York Stock Exchange’s application for a new type of trading account that would set margin requirements based on the types and weightings of securities in the account - stocks, options and futures.
“It’s a very significant change,” said Robert Colby, deputy director of the SEC division that oversees U.S. stock markets.
If approved by a majority of the five SEC commissioners, as is expected, the proposal would allow for margin requirements for financial institutions and hedge funds that are below current levels of as much as 50 percent - cutting trading costs. Proponents say the new system would make margin requirements more closely reflect the risks involved and make U.S. financial markets more competitive with those abroad.
The proposal, first reported Monday by The Financial Times, is expected to be voted on by the SEC commissioners within a few weeks.
Margin requirements, set by the Federal Reserve, limit borrowing to 25 percent to 50 percent of a security’s purchase price. Under the new system, they could be reduced to as low as 15 percent for institutional investors.
Ordinary investors buy stocks on margin by borrowing part of the purchase price from their brokerage firm and putting up the securities as collateral for the loan. The requirements set by the Fed are considered minimum levels; most brokerages impose higher margins.
Perhaps the stock market will bubble up a little more before the credit expansion exhausts itself? The Chinese and Japanese need something to recycle their trade surpluses into! Long live the carry trade!
WTF is wrong with the SEC??? About the only thing that they’ve done right has been to maintain tight controls on margin trading, and now they want to dismantle it? The Federal Reserve and Washington aren’t moving us toward a complete collapse of the financial fast enough, so now New York needs to give one final push?
My god, the greed of the richest .5% of America and those who directly serve them knows no bounds…
I liken it to the final scene in Thelma and Louise when Louise punches the gas.
That is a good metaphor for many aspects of the death throws of the bubble. This includes last-ditch efforts by lenders on the lookout for any potential borrowers who can fog a mirror on their own, and builders who are accelerating the pace of new home construction at the time of the all-time greatest new home inventory crash in US history.
The majority think that the real estate correction will be drawn out for years but why can’t the total of the crash happen fast like in Florida in 1926? The Florida market in 1926 was a high speculation buy on margin market also like today and all of a sudden the buyers just quit and it crashed quickly .
I just think that when you have a market that prices inflated based on a mania you get the potential for a faster correction .
ASIA MARKETS
Nikkei retreats following Wall Street weakness
By Chris Oliver, MarketWatch
Last Update: 11:02 PM ET Oct 29, 2006
Hong Kong (MarketWatch) — Asian stocks were mixed to lower Monday, with Japan’s Nikkei 225 Index losing ground after weak quarterly U.S. GDP data weighed on exporters such as Toyota Motor and Honda Motor while NTT Docomo Inc. fell back after posting disappointing half-year profit figures.
U.S. stock indexes ended weaker Friday after the government reported the economy grew at a slower-than-expected annual rate of 1.6% in the third quarter, below economists’ expectations of 2%.
Japan’s Nikkei 225 Index (JP:1804610: news, chart, profile) fell 1.6% in early-afternoon trading to 16,407.18.
Data released ahead of trading showed Japanese industrial production fell 0.7% while inventories rose slightly in September from a month earlier, according to the Nikkei daily, citing figures from the Ministry of Economy, Trade and Industry.
Elsewhere around Asia, Australia’s S&P/ASX 200 was up 0.6% and South Korea’s Kospi was down 0.9%. Taiwan’s Weighted Price Index was down 1%. Markets in Hong Kong were closed for a public holiday.
http://tinyurl.com/ykb259
I have three observations:
1) As I ponder my ballot choices for the upcoming election, a task I normally relish as part of my civic duty, I consider the tax effects of any and all measures. This year, as in all previous years, there are bond measures. We are already leaving a legacy of profound debt to future generations. Why add more, especially in light of huge increases in property taxes due to the 5-year bubble in housing prices? If homeowners challenge assessments and succeed in getting lower assessments in a falling market, the net tax collected has to drop. Could result in a quick and painful squeeze. This may be, temporarily, as good as it gets.
2) All of the talk about affordability got me thinking. If all of the 3% or so who can afford to buy a house in OC, CA., did so before EOY, and the 10% in LA did so, etc., who would or could buy next year?
3) My wife and I just got back from 2 weeks in Japan. I asked many of my wife’s high school friends and spouses (we are now 54) why they didn’t borrow cheap yen and invest in US dollars over the years. They all understood the potential to make money but decided that the exchange rate risk was a prevailing consideration. Two of the to-date smartest spouse investors have invested in South Africa, for several reasons. Never encountered anyone talking about investing in US MBSs. Most of them are highly educated -
robin,
Welcome back!
I think most voters seem to be more wary of new bonds these days. Fewer seem to pass compared to 10+ years ago, or does it just appear that way just to me (I’m not officially tracking anything, just noting when bonds pass).
I used to work for a public school district, but voted against all bond measures, just because I think the money currently spent could be spent much more wisely. IMHO, the whole political system needs to be revamped from the ground up (and I’m technically a “liberal”!).