No Recovery In Sight: CEO
Some housing bubble reports from Wall Street and Washington. Paul Muolo, “We continue to hear tales that the subprime industry’s loan buyback problem isn’t getting any better. Bear Stearns has been identified as being one of the more aggressive Wall Street firms in terms of buybacks. One joke making the rounds goes like this: Bear Stearns doesn’t buy loans — it rents them.”
“According to Friedman Billings Ramsey, the credit performance of securitized non-agency mortgage loans weakened in the 361 metropolitan statistical areas from August 2005 to August 2006. Default rates (90-day or longer delinquencies, foreclosures and real estate-owned) rose year-over-year among prime, alternative-A and subprime loans.”
“In a sign that all ends of the housing spectrum continue to deteriorate, luxury builder Toll Brothers Inc. and conventional builder Beazer Homes USA Inc both reported order declines of more than 50%, and both are taking land-related write-downs in their latest fiscal quarters.”
“‘We continue to look for signs that a recovery is imminent but can’t yet say that one is in sight,’ said CEO Robert Toll. Toll’s orders declined 56% in its fiscal fourth quarter that ended Oct. 31, while Beazer’s fell 58% in its fiscal fourth quarter that ended Sept. 30.”
“Both companies also took large write-downs on land and land-related options in the latest quarter. Toll said it expects to take a charge of between $50 million and $100 million in land-related write-downs when it posts its fiscal fourth-quarter earnings results. Beazer took a charge of $23.8 million in land-related write-downs as well as a charge of $1.1 million related to severance costs associated with the company’s overhead cost-cutting measures.”
“Nearly 25 percent of the cancellations came in the Orlando, Florida and Northern California markets, Toll said.”
“WCI Communities Inc, a builder of homes and tower residences, Tuesday said its third-quarter net income fell 73% from a year earlier. The home builder said its decision to abandon land option contracts resulted in a charge of $14 million in the latest quarter.”
“Home builder KB Home said late on Monday it has received an additional notice of default related to its bonds from US Bank, which is the successor trustee of the debt.”
“(Builder) Technical Olympic USA Inc. Tuesday said it requires additional time to file its Form 10-Q for the third quarter ended Sept. 30 due to a change in its financial-statements presentation and the expectation it will report ‘a significant change in its results of operations’ due to asset impairment charges.”
“H&R Block Inc. said late Monday it may sell its Option One subprime mortgage business as the tax-preparation specialist looks to cut exposure to a slowing housing market. H&R Block also said it’s closing 12 Option One branch offices over the next four months, reducing its loan operations by a third.”
“H&R Block has already experienced problems from a slowdown in the real estate market. In August, the company announced an unexpected $102 million charge related to Option One. The losses covered loans it could be required to buy back should a borrower default on their first payment.”
“HomeBanc Corp. today reported a net loss attributable to holders of common stock of $2.4 million. Patrick Flood, HomeBanc CEO, said, ‘The Company’s third quarter results reflect the continuation of adverse market conditions in the mortgage industry, specifically in relation to loan originations. As a result of current conditions, and our expectation that these conditions will continue into 2007, we accelerated and intensified our expense reduction initiatives during the quarter.’”
“Flood continued, ‘With adverse market conditions as a backdrop, we expect to elect not to operate our public company as a REIT in 2007.’”
“For the quarter ended September 30, 2006, Anworth Mortgage Asset Corporation ANH announced today an unaudited net loss to common stockholders of $3.4 million.”
“During his last year as Fed chairman, Alan Greenspan often said he did not see a national housing bubble, but rather ‘froth’ in some markets. At the conference yesterday, however, he attributed much of the recent housing boom to a ’speculative surge’ caused by global financial conditions that pushed mortgage rates down to very low levels until the last year.”
“Greenspan said he could not predict when home sales would begin rising again or when home prices would stabilize. He said of prices, ‘it’s hard for me to believe that they can stabilize at the level they are now because we had too much of a speculative surge. We have to lose some of that.’”
“Greenspan defended the central bank’s actions during his tenure, disagreeing with one former colleague about whether the Fed fueled speculative investment in housing by holding interest rates too low for too long in recent years.”
“Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech Thursday that because of faulty price data during this period, the Fed’s benchmark short-term rate was cut to a level that ‘turned out to be lower than what was deemed appropriate at the time, and was held lower longer than it should have been.’”
“Greenspan disputed such criticism, saying the recent housing boom resulted…from global financial conditions that lowered long-term mortgage rates worldwide. ‘In retrospect, I know of nothing we would have done differently,’ Greenspan said of Fed policy during those years.”
And yet WCI’s stock is up 3% today.
They had negative 4 sales last quarter : ). I guess people didn’t see the negative sign and took absolute values. *shrug*
I guess when all the hedge funds are trying to do the opposite of what a normal person would do in order to be a contrairian it causes stocks to go up on bad news and drop on good news.
Time Warner had a great quarter and the stock dropped int he toilet.
Did you guys see TOA - it is down 3 1/2 from 10.8 to 7 and change. There may be a race between TOA and WCI to see who goes BK first.
WCI blew smoke on their ‘07 projections, with an estimated $1 - $2 EPS. My guess is that some shorts are covering today. Still, the volume isn’t heavy.
They’ve got 14 towers closing in the next 6 months. They said in their conference call that any condo cancellation can easily be resold at 90% of original list. (Right … makes sense when the original purchaser has opted to forfeit a 15% deposit.)
Most of the condos to be delivered over the next 6 months were sold at ‘05 prices — right at the peak. Cancellations should be heavy. The only issue is how much WCI will need to discount the original price to get the units sold, and how long it will take to do it.
In the meantime, they continue to buy back stock, and continue to run up their debt/equity ratio.
Why is the concept of expectations so difficult for investors to understand. Success in the stock markets (from the company’s perspective) over the short term (1day to 3 months) is determined by one thing–performance relative to expecations. To give an example, let us imagine that the average company performs at a rating of 5 with great performances earning a 10 and failure in a quarter earning a 0. If Wall St expects the company to fare poorly (perhaps even fail) expectations are 1-2 and the company has a lousy report that is a 3, the stock is highly likely to rise. However, if a company is expected to have performance of 7-8 and they turn in a 6 the stock is going to tank.
It’s a pretty simple (and some would even say fun) game, but you have to be able to correctly percieve what expectations are for most companies at any given period of time.
Right now expectations for the builders are low while expectations for TimeWarner have been very high (especially so post Ichan). It’s also important to know what the big money will be keying on which isn’t always EPS (at Wal-Mart it’s same store sales, but at Costco it’s gross and net margins). If those dissapoint, it doesn’t matter what the rest of the company is doing the stock will react to those.
True, but when business prospects are lousy and getting worse, and, as Toll says, there is no recovery in sight, what fundamentals support the price going up? The liquidation value of the company? The market is a forward-looking mechanism, and if there’s no prospect of earnings rising any time soon, the price going up makes no sense to me. But then, I guess that’s why I’m not an investment guru.
Analysts are useful for one thing, codifying where the median large investor’s expectaion is for earnings (publically) and financial statements (privately). In this case, the expectations were for worse results than they posted, so expectations increased slightly (it’s not that profits will rise now, rather they are falling more slowly than they had been expecting and if you were paying 13 for a stream of earnings yesterday and new information means that that stream of (declining) earnings is now bigger than you were expecting, your expected value increases. I’m not arguing that they are right, rather that to beat them in swing trading you must correctly tell when expectations are incorrect and take the position that the market will move when the expectations adjust.
Stay the course. I believe him, because
Of course greenspan wouldn’t have done anything differently. The rise in housing costs had nothing to do with his actions. A fact that he has stated many times:
“there is no housing bubble”
“immigration is responsible for rising housing prices”
“housing prices are likely to stop rising, but a decline is almost certainly unlikely”
“a cooling of house price appreciation is healthy for the economy”
“this is the bottom (of the bursting of the bubble that never existed)”
“the collapse of communism caused a reduction in the debt risk premium which caused a rise in US housing prices” ROFLMAO everytime I read this most ridiculous attempt at rewriting history
I too agree with greenspan, slashing rates to 1% and holding them there while oil rose 3 fold and housing rose at 25%/yr all the while claiming there was no inflation is totally rational. Furthermore looking the other way on nodocs, down payment loans & gifts, and 0/0/0 option ARMs, all of which are supposed to be regulated by the fed, could not possibly have contributed to a parabolic rise in the cost of housing.
Lastly I would suggest anyone who continues to believe greenspan to read his speeches from 1999-2003 where he repeatedly admonished his critics who suggested that he stood by while the stock mkt bubble was inflated. Then read the fed meeting minutes for the same period, which are only released after a 5yr delay, in which the esteemed governors were at the same time very concerned about the bubble and joking about the consequences of the bubble popping.
And this is why we experienced the “record low unemployment” and “robust economic growth”…
The curb of this re-fi-hi-way is littered with broke(n) souls… from the 6-figure appliance store salesmen to the 8mpg SUV dealer.
Perhaps this is the ultimate in “trickle down economics”…
hate to say it but hb and lender stocks point to some bail/rebound
a new HUD ? for suburbs
government’s gonna step in to save all of the helpless victims. could be hud, could be homeland security (it is their jurisdiction), but it will be some lumbering cumbersome bureaucracy in the very near future. wheels are coming off the cart in droves today, guess that’s why the dow is peaking.
Only if the “helpless victims” are the banks/lending institutions.
The FB”s will be on their own.
FB’s = bagholders.
Anyone talking in retrospect is generally trying to figure out why things went wrong.
Or trying to cover it up.
“H&R Block has already experienced problems from a slowdown in the real estate market. In August, the company announced an unexpected $102 million charge related to Option One. The losses covered loans it could be required to buy back should a borrower default on their first payment.”
This is pathetic. I may not ba all that old (41), but I have never heard of problems of this scale. First payment defaults should be nearly unheard of. How can underwriting be so lax even the first payment is in question?
It’s one thing for a few to slip through the cracks, but for it to be so prevalent it causes an earnings blip is quite a condemnation of the management. This is bigger then the Bre-X scandal was for gold. It’s just plain and simple fraud, annd it’s going to cast a cloud over mortgage backed securities for years.
NEW has a big problem with this too.
‘the company sold $410.0 million of non-prime mortgage loans during the third quarter of 2006 at an average discount of 12.9 percent of their outstanding principal balances compared with $415.1 million for the second quarter of 2006 at an average discount of 5.0 percent. The severity of the discount increased due to the inclusion of a higher percentage of non- performing assets in these sales and a lower average price for loans with minor defects.’
‘We expect the volume of discounted loan sales and the severity of the discount to continue to challenge originators in this industry,’ said Mr. Cloyd. ‘Loan buyers have become more vigilant, increasing the number of loan files reviewed in their due diligence process and decreasing the percentage of loans they ultimately purchase.’
‘In addition, loan repurchases have increased as a result of higher early payment defaults. While we expect this industry trend to continue in the near-term, we believe our additional underwriting guidelines and continual focus on process improvement will help mitigate this trend.
Gadzooks this pass-the-hot-potato mortgage game is complicated. What if (ha ha) only the real lender could originate the loan? Ha ha. I don’t even charge the borrower a fee to originate the loan. I don’t even charge myself a fee. The people who send me postcards trying to buy my notes are a bunch of sharks, though. I think they figure I was just taking paper on my own property. So if I write a note for 9% they try to buy it on a basis that will yield them 14%. I laugh. Maybe my borrowers are deadbeats, only time will tell. The first 13 years were good, and the current year is perfect. I feel a little like a Mom&Pop grocery. An anachronism, but one that magically continues to function in the midst of chaos.
If H&R Block sells Option One, does that alter its liability if their clients wanted to bring any fraud charges against them?
Keep in mind HRB was a new entrant to the mortgage originations biz. Like a lot of speculators, they entered the space with high margin expectations. In addition to very little mortgage originations experience, they also failed to anticipate other market entrants and subsequent competitive reactions.
This kind of thing happens all the time to highly attractive markets with very little barriers to entry. Everyone doing a SWOT analysis recognizes the opportunity and enters the space at the same time; ulitmately, the market becomes saturated, profits dry up then all the new entrants cry uncle and disappear or at best are consumed by the larger more experienced players.
The PC product life cycle prompted similar market behavior over a longer period of time.
I once worked for H&R, though not in a related and management/oversight was spotty tending towards laissez-faire. I could see how something like this could infect, get some legs and spread
AS far as I can tell, this first payment default is the symptom of the cash-back fraud. Crooks take advantage of stale comps and desperate sellers. They use identity theft or other fraud to get a borrower with a good FICO, then bid the seller his asking price with a side agreement that he kick them back a big chunk of cash after closing. The FICO and the stale comps get the loan, then the crook gets the cash and disappears.
libertas,
I’d actually heard that the AG in NY was going to look at any loans that went into default in the first 12 months! That’s shaky enough, but on the very first payment? Come on.
What we may all be over looking is the fact that most of the loans under written from 2002-2005 were done more on the momentum of the market itself and the individual borrower being more and more of a “straw buyer” regardless of their FICO score.
I mean think about it. When that local market is appreciating at 10-15-30 % + a year what’s in a name? FICO schmiko, who cares! If this putz defaults we have deed on the home and will sell it at a profit. Pffft, we hope he DOES default. At this point under writing standards just get in the way of making money! Seriously, that’s why Spitzer started to look into it. Lenders weren’t even willing to work w/borrowers in arrears b/c it was too lucrative to just accelerate the foreclosure process. That’s where we’re at. Rather, where we were at.
I am thrilled to hear that Elliot Spitzer is on this - Mr. Bulldog.
Spot on. A property in my zip, 91104, was first listed at 1M and, after 9 months and several reductions, went down to 755K. Still no takers. Recently I zillowed it and saw that has finally sold at … 800K. ? . Unless the buyer is stupid, it is fraud. Can we take a more proactive action against this? Or is it just a problem of the lender, for relaying in a funny appraisal? Just sickening.
What’s really funny about this quote, is that, when I opened my browser to this page, there was an ad on the side to become an approved Option One broker. Hilarious.
Click on it and transfer $ from them to our intrepid blog owner.
http://archives.cbc.ca/IDD-1-73-1211/politics_economy/bre-X/
A good friend of mine was a manager for Option One a year ago and said they were one of the most shadiest and frauduent companies. He saw the company going down about 18 months ago and bailed out and found a new job. Also, my gf, who works for an accounting firm, audited Option One and said the same thing.
In case you missed this from yesterday:
‘Home prices will fall 10% on average in 2007 and it will likely take three years to clear out the huge inventory of empty unsold homes currently in the market, according to a UBS report released Monday. A surge in new construction and a pullback in demand led to the inventory glut that’s currently plaguing the sector.’
‘UBS analyst Margaret Whelan estimated that the industry overbuilt to the tune of 900,000 homes between 2003 and the first half of 2006. ‘Most of those homes are vacant,’ which means they’ll rely more heavily on price discounting to get sold than if they were homes with people living in them, she said.’
What about all the job losses coming? That will accelerate prices even further. Combine that with resetting mortgages and you have a recipe for the apocalypse. Oops, I meant disaster.
And by 10%, they mean 25%.
And by three years, they mean ten years.
You get the point
Toll Brothers said its fourth quarter was hurt by an above-average 585 cancellations. One-fourth of the quarter’s cancellations came from Orlando and Northern California.
Wait a minute, this isn’t all the media fault?
http://yochicago.com/today/housing-trends/dept-of-protesting-too-much-its-a-great-time-to-buy-a-home-really_3052/#comments
Wow, is Joe a Realtor ? What a tool….
I think they all are either realtors or recent homebuyers. They’re hoping against hope.
“UBS analyst Margaret Whelan estimated that the industry overbuilt to the tune of 900,000 homes between 2003 and the first half of 2006. —->>>>‘Most of those homes are vacant
And the new homes are still going up, at least here in Chicago. And they’re putting them in wierd spots too. Like on a strip of land next to power lines just off a 4 lane interstate across from an industrial park. Sure, those are worth $400,000+!
“Greenspan said he could not predict when home sales would begin rising again or when home prices would stabilize. He said of prices, ‘it’s hard for me to believe that they can stabilize at the level they are now because we had too much of a speculative surge. We have to lose some of that.’”
I bet the NAR will not be using this quote in their revised ad.
Yet, he prognosticates that the worst is behind us.
They can’t stabilize here. We need to some of the speculative surge. The worst is behind us.
I don’t trust the math or the mathematician.
that would be: ‘lose some of the speculative surge’
I see the contradictions coming. Uh oh.
As a professional mathematician, I resent Greenspan the claim that Greenspan is a mathematician.
The claim is laughable on the face of it. I have a very hard time picturing any professional mathematician at the helm of the Fed, where there is often no time to formally prove much of anything before taking a seat-o’-the-pants course of action.
“Greenspan defended the central bank’s actions during his tenure, disagreeing with one former colleague about whether the Fed fueled speculative investment in housing by holding interest rates too low for too long in recent years.”
“Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech Thursday that because of faulty price data during this period, the Fed’s benchmark short-term rate was cut to a level that ‘turned out to be lower than what was deemed appropriate at the time, and was held lower longer than it should have been.’”
“Greenspan disputed such criticism, saying the recent housing boom resulted…from global financial conditions that lowered long-term mortgage rates worldwide. ‘In retrospect, I know of nothing we would have done differently,’ Greenspan said of Fed policy during those years.”
And so the CYA fingerpointing begins…
Global, not local finacial conditions. So the Bubble is not the Fed’s fault. Good to have that cleared up. Oh, and then there’s the fall of the Berlin wall too. Amazing that the Feds did so well under those conditions. Good job! Give those guys a well earned 4 week vacation. No wait, make it 4 years.
It is all the fault of the pesky and aggressive Asian savers who loaned us the money at suboptimally low interest rates.
I’ve been watching for signs of an upcoming Toll development in Fauquier County, VA, where Centex recently pulled out of a ‘luxury’ seniors’ project. The plan is to build 150 or so Toll homes, and they are still claiming they’ll open in “Fall 2006,” yet so far I’m only hearing crickets chirping.
There is currently a 16-month supply of properties in the Fauquier zip code Toll is building in, if one goes by September sales. I don’t understand how they will sell even one house without undercutting the competition’s price significantly.
Chicago Fed Reserve Bank president Michael Moskow said Nov 6 to the Chicagoland Chamber of Commerce that “by [his] standards, inflation has been too high.” As a result, Moskow said more rate hikes may be necessary to bring inflation growth back within the 1-2 percent of annual rate of growth that he would prefer.
Moskow has an assessment similar to that of Richmond Fed Reserve president Jeffrey Lacker. Moskow will be a voting member of the FOMC in ‘07, along with Lacker. Only 5 of the 12 Fed Reserve bank presidents get a rotating vote on the FOMC. More and more voting members of the FOMC think inflation is the bug-a-boo haunting the land, not FBs.
FBs and the RE professional keep saying that the Fed will drop interest rates next year once the SHTF on the RE market. I’d say that the Fed doesn’t care about the RE market; what they care about is something larger to the economy: inflation.
Interest rates will go up next year, once the Nov 7 Federal election is out of the way and the political cost of higher rates decreases significantly. And when rates go up, the collective scream of anguish coming from the suicide ARM 1T reset RE market will be deafening, ’cause they know they are well and truly F’d.
And what will be truly entertaining is the slow realization by the Fed Res presidents that a screwed RE market will not support the US economy as it has over the last few years. By the time they drop rates, the RE market will be in free-fall. And if our timing is right, we “bitter renters” might actually get cheaper housing for decent rates.
But like all good things in life, you have to wait for them…none of this could happen till 4Q07 or 1-2Q08.
The December meeting will be telling. If they raise rates they are political hacks.
I would love to agree with your comments…but the Fed DOES CARE about the sinking housing market. I guess my point is that they SHOULDN’T care so much. Their first priority SHOULD be inflation at this point…which is rampant if you look at the real numbers. I WISH they’d leave the housing market to fend for itsself and its immenent quick correction and deal with the ever declining USD!
And the real estate industry will spin that it’s a good time to buy at 10% discount because we have almost a million unsold vacant houses ,so buy now before we run out of those houses .
I think they need to figure out what discount it will take to move these houses , if there is even enough buyers at a 30% or more discount .
Had the lenders practiced safe underwriting from 2003-2006 would Greenspan’s money policy of been ok for the times in that you would of not got the speculative/unqualified buyers mania had lenders been doing their duty and the over-building would of never never taken place ,or the prices would of remained at the lower 2002 or 2003 prices ?
Did Greensapan think it was valid owner-occupied demand just as the secondary market thought it was ? I’m just wondering how much Greenspan knew , not that I’m defending him .
I tend to agee with what you say. Certainly, keeping real rates below 0% for as long as they did wasn’t too bright. However, I am not 100% sure the FED can control where the $$$$ goes once the flood gates are opened. I fault the lending industry more than anyone due to their complete abandonment of underwriting standards. They created whole new buying pools of people who were NOT credit worthy of buying homes. They have loaned money to anyone with a pulse (and some without). They have allowed people to use their homes as ATMs as well as allowing people to leverage themselves up to their eyeballs, whether it be an “investment property” or the home they live in. How anyone with 2 working brain cells couldn’t see areas such as Florida, Arizona, Las Vegas,etc. were overrun by speculators is beyond me. I think he and the band of idiots at the FED knew, they just weren’t aggressive enough with the rate hikes to curb the insanity. The can control the short end, but not the long end. Now it is too late and we have to deal with the consequences. Thanks a lot “Maestro”.
yeah, but there is a dirty little secret behind this boom that often is overlooked… local governments have made a bonanza off property taxes without raising rates as assessments have soared. Remember, if the assessment doubles and rate stays the same, tax revenue doubles.
Tax assessments tend to stay sticky to the upside, so it will be interesting to see how quickly these adjust.
Agreed. People here in FL are screaming bloody murder about the tax issues. Add that to the homeowner insurance problem here due to the hurricanes and you have real problems. It is estimated that 90% of the workforce in Palm Beach County (where I live) cannot afford the median home. People here are paying just as much in taxes/insurance as they are in principal/interest. Something is going give.
Houses that couple of years ago were in the 70-100k range in Tampa are going over 200k /meanwhile people were barely able to afford them at lower prices. Now even if those same houses returned back to 70k they would still be unaffordable with the taxes and insurance so it will be interesting to see what the real market value for these houses will be. Another problem with the new houses is the shaddy construction, as they sit unoccupied they will start to fall apart with the sun and humidity and possibly become fixeruppers. Most of the new high end housing has been bought by people who have relocated here with their companies. I just heard from a friend who had to move to tampa from NJ because it was either they move or husband will be laid off. They just found out after less than 2 years in Tampa that the husband’s division will be eliminated anyway. He is looking for other opportunities and so far not very good.
Thankfully we have Prop 13 to help control rising taxes. They’re (Socialist Democrats) in Sacto put Proposition 88 on the ballot to be able to increase taxes without a vote of the people.
Increase in propery taxes here in California should be a wind fall, but all the excess funds are going to the pension system. Pension contributions and health benefits for government employees have tripled in the last five years. As real estate goes so should the California Govt pension system. They will ask the taxpayers to bail them out. Another domino in the housing bubble.
I just had an epiphany.
I know where all of the RE peeps are going to go once they lose their jobs. . . to the county assessors office because of all of the tax assessment appeals that are going to be filed!!
HAHAHAHAHA!
I think in a lot of places the assesment lags behind the market value of the house. So if the assesment and market value were 300K in 1999, and the house went to 750 in 2005, the tax base might have gone to 450K.
Now that the house is falling back towards 450, states won’t have to cut revenue. If prices fall back even further, things will get ugly, state deficits will return, but that’s probably a ways off.
I have seen new construction assessments on remodeled homes come out in a year at pretty close to market value. Plus they go retroactive to the year the project finished.
“I think in a lot of places the assesment lags behind the market value of the house. So if the assesment and market value were 300K in 1999, and the house went to 750 in 2005, the tax base might have gone to 450K.”
True, for those that have owned since 1999. But for those that bought in 2005 at the peak, for $700K, and now they’re suddenly left with a property that’s worth $250K or $300K, they will most certainly repeal the value, if they are smart enough. Boy, that is giving them a lot of credit, huh? I spose they didn’t have enough sense to keep from buying at the peak in the first place. Dunno.
I agree with your Fed assesment Notorious but I think the problem is bigger than the Fed and it has more to do with risk management perception evolving from things like FDIC insurance, implicit taxpayer guarantees with the GSE, moral hazards, and CDS counter-party risk which in some cases lead back to FDIC deposits. The common denominator in most if not all examples of risk taking behavior is an implicit taxpayer guarantee. As a result, everyone thinks they are bullet proof.
“The common denominator in most if not all examples of risk taking behavior is an implicit taxpayer guarantee. As a result, everyone thinks they are bullet proof.”
mrktMaven, I wholeheartedly agree. That’s a huge problem. I am so sick of taxpayer bailouts. That comes from us, and goes to corporations who are screwing and robbing the taxpayer blind. No one ever asked me if I want to bail out the financial industry. I don’t. They are the one who piss and moan about “free markets”, but don’t want to pay the piper.
I would rather spend tax payer money on Wars all over the world than taxpayer bailouts for decent housing for US citizens. What a country!
At first I misread “Wars” as “Mars”. Personally i have written a few papers on Mars surface geology…just a hobby…anyway I have little enthusiasm for the social utility of the space-exploration program, but I would rather spend tax payer money on Mars than on bailouts.
“I’m just wondering how much Greenspan knew , not that I’m defending him .”
If we knew it, how the heck could he have not known it.
You make probably the most valid point on this board, lala. Incidentally, all you guys are making good points. Very thought provoking.
Greenspan will become the most reviled individual of this decade. It will all be blamed on him because it is indeed his fault (well the Fed’s anyway. He is the Fed personified)
1% interest. What was he thinking? The housing bubble was the unintended consequence of the historically low interest rates. Poor if not downright illegal lending practices etc, also to blame.
The big question is “Why didn’t he stop it, or at least say something.
lala, you said it all “If we knew it, how the heck could he have not known it?”
This is where I think the stalled airplane metaphor may best apply. Can any of the pilots who read here verify whether, if I send my plane straight up sufficiently fast and don’t have enough thrust to keep it climbing, the plane will go into a nosedive and crash? So it goes with negative real fed funds rates and housing price appreciation. The steep climb came as builders responded to the speculative demand fostered by excessive and protracted monetary stimulus, and the overwhelming force of gravity obtained from the weight of a new home inventory avalanche piling in the the market. Could someone in the Fed bank research departments please add some equations to this chain of thought so we can properly call it a model?
An airplane stalling is caused by exceeding the critical angle of attack. All that means is that you pulled on the stick too much in relation to how much airspeed you had, separating the airflow over the wing. No airflow attached to the wing as it flows over it, stall. That is pretty much it.
Too bad the FED’s communication skills are lacking. If you can’t explain an aspect of your profession to a person who spent their life studying something else, you missed the boat somewhere along the line.
Just a thought, but could the steep incline have been premeditated (03-05) at the end, so as to have the decline be just as vertical? Therefore decreasing its duration? I keep coming back to this, but am having trouble wrapping my brain around it. (possible lack of econ courses
)
(“Greenspan disputed such criticism, saying the recent housing boom resulted…from global financial conditions that lowered long-term mortgage rates worldwide.)
Well, he does have a point. All assets are overpriced, all rates of return low. Look at long term interest rates — they are lower than short term following the Fed’s increases.
Perhaps the only thing that could have stopped the price bubble was regulatory intervention on all the mortgage “innovations.” Even that might not have stopped the builders.
“Well, he does have a point. All assets are overpriced, all rates of return low.”
Long live the conundrum!
Long live the symbiosis!
“Perhaps the only thing that could have stopped the price bubble was regulatory intervention on all the mortgage “innovations.” Even that might not have stopped the builders. ”
You are correct. Intervention into “free money” lending standards would have stopped the mania. Without 1% loans, the price of houses could not rise, as the affordability, based on incomes would not support prices rises more than a couple of percent.
ARM’s added additional pressure. But 20% down payments would have kept a great deal of speculation out of the market.
Who cares what the builders would do? Let them build a million more homes……Supply/ Demand……It would have REDUCED prices, not increased them. (Discounting supply cost inflation).
Another thing that would have worked - punitive taxation on RE capital gains would have kept the flippers out of the market in the first place.
The Chinese did it and it works.
‘In retrospect, I know of nothing we would have done differently,’ Greenspan said of Fed policy during those years.”
How about keeping real interest rates above 0%!!!???
Greenspan and the Fed are central planning frauds.
Ineed I did see that prices were predicted to fall by 10%, but was that comment relegated to new homes? I could buy that. But I am curious about what will happen to areas like the bay area that haven’t had as much new home building and still suffers from NIMNYism to an extreme. I’ve been waiting for a year now as homes in my neighborhood sit unsold, but none of the sellers seem interested in lowering the prices signifigantly. As far as the number of homes for sale here, if it will take 3 years to sell inventory elsewhere, at the rate they are selling here it will take 4, as nothing is selling. period.
Guys/Gals-
Is there a way to navigate this blog without having to re-read all the comments? I absoutely love the site and people that post on it but, looking for new comments drives me crazy. Pls tell me there is something i am missing.
It’s a choice. When Blogger hosted this site it was very confusing because there was no way to comment on someone else’s comment without scrolling up and back. As the number of comments grew, it became confusing and frustrating.
This is better.
I often read Ben’s excerpts, then wait a few hours to get at the comments. Once a new entry is posted, the number of comments on the older entries slows dramatically.
Ideally, Ben should have a forum like SoCalMortage guy does. This allows for general discussion and allows threads created by anyone.
In addition, he should have a News forum that only he can create threads in, but to which anyone can reply. This is where we would respond to specific articles.
This is the way Ars Technica works. It is my favorite forum online.
IF IT AIN’T BROKE, DON’T FIX IT. Why screw around with the
#1 blog on the real estate bubble. I’ve tried all the rest and this is the best.
I’m with you. Besides, us old people have a hard time learning new stuff. I’ve gotten used to this blog as is.
While I love SoCal’s posts, he has gotten about 66 comments in the past 6 weeks. Ben has gotten 450 in 11 hours. If every one could open a thread, it would be a nightmare for reading and monitoring.
Sure it would be great to sort by time entered or poster, or entry. Perhaps in Rev 2. Until then I find it pretty easy to use.
Only a half-dozen or fewer very-regular posters have been on this blog longer than I, and there are a dozen or so regulars-turned-lurkers who post from time to time. As Ben evolved this site, we all adapted to it quite well. I try a few other sites from time to time, but I believe this format is the best. Anyone committed enough to follow intently the thinking of a thread, will find their way back to the proper place to post.
So tell us about the mortgage biz in MD. Booming?
Backstage, Thanks for the insight though, i was hoping for something better. Mdmortgageguy just means that i am a mortgage guy who lives in Md. I work for a bank that lends nationaly. We tend not to market in Md so, ironically it is the place that i have the least amt of insight. I dont do purchase loans, never have. Mostly sub-prime refi and bill consolidation seconds. There has been a lot of schpincter tightening from our investors over teh last 6-12 months. Everyone is hurting. I have been doing it for 10 years now and unlike my sales breathren, have socked most of it away. The funny thing about my business is the majority of loan officers dont have two nickels to rub together and have huge credit issues yet they act as “guidance counselors” to customers on their finances. There are 90-100 lo’s at my bank and i think i am the only one that contributes to the 401k.
Sounds like the used car business. I worked for a dealer years ago and knew a sales manager who made well into 6 figures, but when he bought a $5000 used car had to finance it with one of those shady 20% interest lenders.
It is true of all sales people. I take loan apps from all different ilk of employment and sales people are teh worst at managing their budgets. I can’t tell you how many apps i have taken over the years from people that make 100-300k/yr that also have 100-300k in credit card debt.
yet another truism about my bus. is that the more money that you save someone with a loan offer, the least likely they are to take it. Why???? Becasue if you put your self in a situation where i can save you 2k/month off of your bills then you obviously have no concept of what you are doing and refuse to listen to anyone that does.
Regarding Toll Brothers: I am renting near a couple of their projects in the east bay area. These are fairly large condo developments, and I would say they have well over 500 units currently under construction. Probably pushing 1K units, truth be told. Question is, why are they taking so long to complete? The article mentioned their cancellation rate was over 50% now. I smell a blood bath coming here. A couple of the buildings have been sitting without stucco since the beginning of summer. How will the OSB hold up after exposure to high summer heat, and now the recent rains?
Okay, Stucco, you want to know why this rally is continuing? Here you go. Prepare to barf.
http://www.newsday.com/business/ny-bzbonu074964689nov07,0,271479,print.story?coll=ny-business-print
good god i am in the wrong business
I interviewed with both a PE firm and a couple of hedge funds this year. Can’t remember now what my problem was with working for them
Oh yeah, I’d have to get up and go to work.
Work?!?!?
Don’t they like…make peasants for that or something?
Who hands them the freshly-printed money, and how?
The other symbiosis…
—————————————————————————
Goldman Sachs workers again most active political givers
Last Update: 8:19 AM ET Nov 7, 2006
(This article was originally published Monday)
NEW YORK (MarketWatch) — While the tale won’t be fully told until early next year, Goldman Sachs’ employees are far and away the most active political givers in the securities industry in the 2006 election cycle.
The bank’s employees and its related political action committee have given approximately $2.6 million in contributions during the current cycle, well above that of other investment banks, according to the online donor database run by Center for Responsive Politics.
Goldman’s nearest rivals are the employees and PAC of Morgan Stanley, which have given around $1.6 million in political donations, followed by UBS, which accounts for $1.5 million in donations. Goldman has dominated every cycle since 1994, a year in which the top slot was held by the employees and PAC of Morgan Stanley, according to the database.
Goldman Sachs did not respond to a telephone call seeking comment by the time of this article’s publication. Morgan Stanley declined to comment on the political giving of its employees.
The prominence of Goldman-related political donations lines up with the high profile of many of its former officials on the nation’s political scene. New Jersey Governor and former U.S. Senator Jon Corzine once led the bank, as did current U.S. Treasury Secretary Henry Paulson, among others.
http://tinyurl.com/yjwr7q
I cannot help but wonder how much of the success of the major trading houses, derivatives market, etc. have been PPT (plunge protection team) transactions?
This is why you never hear of any “windfall profits tax” proposals for Wall Street firms, despite the fact they’re leeching off virtually every transaction a consumer makes.
I believe it was Warren Buffet pointed out that in 1998 or 99 the entire equities market made 438 billion in profit and that there was 440 billion spent by the public buying and selling. Churn and Burn, baby!
and you wonder why this “hedgefundanalyst” guy thinks he’s King of the World?
“Greenspan disputed such criticism, saying the recent housing boom resulted…from global financial conditions that lowered long-term mortgage rates worldwide. ‘In retrospect, I know of nothing we would have done differently,’ Greenspan said of Fed policy during those years.”
Let the fingerpointing begin within the hallowed Temple walls of the Fed.
“In a sign that all ends of the housing spectrum continue to deteriorate, luxury builder Toll Brothers Inc. and conventional builder Beazer Homes USA Inc both reported order declines of more than 50%, and both are taking land-related write-downs in their latest fiscal quarters.”
I guess we should expect Toll and Beazer to both enjoy higher stock prices by the end of the day on this gloomy news?
“In a sign that all ends of the housing spectrum continue to deteriorate, luxury builder Toll Brothers Inc. and conventional builder Beazer Homes USA Inc both reported order declines of more than 50%, and both are taking land-related write-downs in their latest fiscal quarters.”
Only 50%? Now that the McMillionaire shortage is coming to light, who is buying the other 50% of Toll’s new McLuxury homes?
Realty Times is making fun of the National Association of Home Builders whining: “Negative Media: Is It The Scourge of Real Estate?”
http://realtytimes.com/rtcpages/20061107_negmedia.htm
Who’s next? NAR?
Pretty ballsy of them to print such a mocking piece when the editor of Realty Times, Blanche Evans, prints drivel such as this .
Try again, here’s the link.
Love it. Hooray for Peter G Miller
Bernanke is a bigger dove than Greenspan. Gold broke out last year when his chairmanship was announced. fed won’t let free markets do its thing and bring back the housing to where it belongs.
November 07, 2006
Wake-up Call for Homebuilder Bulls?
During the housing boom, Florida homebuilder Technical Olympic USA (toa) hasn’t been shy about setting up off-balance sheet joint ventures to acquire land and other housing assets. According to the company’s 10-K, these joint ventures ”reduce and share our risk associated with land ownership and development and extend our capital resources.”
At least that’s the way it was supposed to work.
http://blogs.marketwatch.com/greenberg/
Sorry — I accidently put this post as a reply; meant to put it up stand-alone.
But this is the terrible beauty of a housing bust: The more policymakers try to save the situation by stimulating housing demand, the worse the long-term imbalance becomes thanks to piling additional unneeded new home inventory on to a record number of new homes for sale. I would like to hear how anyone thinks a bailout would not worsen the inventory avalanche already underway, because I don’t see it.
Me too, housing starts plunged 60% in 1974. What did the Fed do back then? 10 Yr treasuries barely moved; 8.1% in 74 and 7.4% by 77 (then they went UP again). And inflation in that era was 12% in 74 and 7% in 75.
Seems like the fed didn’t have any choice back then. Then again, inflation sustained the nominal prices of existing properties so there was neither a bubble or a crash back then. In 1980, however, under Volker, prices of new and existing homes were slightly negative or flat (even with another 60% decline in housing starts). So far, housing starts are down, what? 30%? Still got a long way to go to hit the average, much less the recent “worst case” in housing starts since 1960. If history is any guide the Fed won’t do much, very soon, IF they still have an inflation concern.
“… IF they still have an inflation concern.”
But my point is that if they want to respike the punchbowl (after a some negative nattering about the perils deflation), they will inadvertently pile on more new homes to the avalanche in progress.
They don’t care. They have been covering up the facts since the 2000 recession, probably even longer. I think they are playing a high-stakes game with China and the rest of Asia. Asia can’t afford to loose the US market (yet!), so they accept the slow, painful drop in the value of their US-bonds.
I think this is the plan: doctor the inflation numbers even further, showing an inflation in the 2-4% range no matter what, flood the market with money to make interest rates drop, let the dollar drop (ever so slowly). This should keep the leaking ship floating until at least the next election. China is not ready to untie their currency from the dollar, so the cheap crap in Wallmart will stay cheap.
And by the way, Miller was a bigger dove than his successor, Volcker. Guess which one saved the US economy? Guess which one lasted in office the longest?
Pity that TOA isn’t part of the SPDR Homebuilders ETF (XHB). Right now XHB only has one dead man walking at this point (KBH). I don’t think KBH realizes that the hedge funds are the control position here.
“Whitebox said it and another holder represent 36 percent of KB Home’s 6.25 percent bonds. It also said it has received oral commitments from other holders representing 39 percent of the 5.875 percent bonds.”
There arent many instituational holders who will withhold consent to save KBH from BK. Probably lots of vulture type hedge funds are circling.
Either the bond holders are just extorting cash (best case) or they are serious about “loan to own” and/or getting a very favorable exchange offer.
“Bear Stearns has been identified as being one of the more aggressive Wall Street firms in terms of buybacks.”
Anyone here remember the Orange County bond debacle in, what?, the mid 90s? If I recall correctly, Bear Stearns was the broker who wouldn’t “play ball” and drove a panic in the muni bond market back then.
Does this sound familiar? Orange County ended up in default (Merrill paid $800 million in fines for their part in it) but I believe it was some kind of derivatives play that Bear Stearns pulled the plug on (apparently to protect its investment).
‘”We’re obviously going through a significant slowing period, which as best as I can judge is quite likely to be temporary,” said Greenspan, 80, who retired in January after more than 18 years leading the world’s most influential central bank and whose words are still closely monitored in financial markets.’
Seven years = temporary. In the long run we are all dead.
‘The Fed’s policy “amplified speculative activity in the housing and other markets,” Fisher said. Now, he added, the correction in the housing market is “inflicting real costs to millions of homeowners across the country” and complicating the Fed’s task of containing inflation.’
Fisher actually made a far more potent remark: “Today, as anybody not from the former planet of Pluto knows, the housing market is undergoing a substantial correction and inflicting real costs to millions of hohomeowners across the country.” (WSJ Op-Ed page, Nov 6, 2006)
Well, not hohomeowners, but otherwise that is what he said