“The Early Stages Of A Declining Market”: CEO
Some housing bubble reports from Wall Street, New Orleans and Washington. “The slowdown of the U.S. housing market will last through 2007 as inventories are pared enough to prompt a change in consumer psychology, the CEO of the nation’s biggest mortgage lender said.”
“Mortgage lending has slowed as rising inventories in the housing market led to a ‘hard landing’ for the industry after a decade of strong growth, Countrywide Financial Corp. CEO Angelo Mozilo said at a conference in New York. ‘We have another year of adjustment, or ‘transition’ in the industry until consumers believe home prices won’t decline, Mozilo said.”
The Globe and Mail. “First, Americans quit buying homes. Now, they may have stopped fixing and furnishing them too. Bob Nardelli, Home Depot’s CEO said job losses in the home construction market are the worst he’s seen in 35 years, and the pain is starting to spread to the home renovation market.”
“‘The loss of jobs…in the home construction market is at unprecedented levels,’ Mr. Nardelli told analysts. ‘Home builders [are] basically writing off earnest money and liquidating land. We’re starting to see a lot of that unemployment find its way over to the small repair and remodel contractors.’”
“In October, U.S. retail sales fell at an annual rate of 0.2 per cent, the third consecutive monthly decline, according to a U.S. Commerce Department report yesterday. ‘The housing slowdown left its grimy fingerprints all over this report,’ economist Douglas Porter said.”
“‘People are being very cautious,’ said economist Ian Shepherdson. ‘The housing crunch is now hurting.’”
The Star Telegram. “D.R. Horton’s earnings fell for the second quarter in a row. Horton has been…making aggressive cuts in its red-hot growth strategy and realigning management positions for a bear market, said Gregory Gieber with AG Edwards. ‘It’s like sailing and thinking it’s going to be a gale, when it’s going to be a hurricane,’ he said. ‘I think when they saw what was going on, they reacted very strongly.’”
“The moves included: Eliminating three COO positions in October. Reducing speculative inventory by starting 46 percent fewer homes than a year ago. Getting out of options to buy land and writing down costs on land purchased at higher prices.”
“‘This was the first write-down of inventory for Horton and we expect more going forward, given the continued market erosion,’ wrote Daniel Oppenheim, analyst with Banc of America Securities.”
The Dallas Morning News. “The new-home market faces at least six months of further declines, predicts Don Tomnitz, CEO of Fort Worth-based D.R. Horton Inc, the country’s largest builder. ‘We believe calendar year 2007, especially quarter one and quarter two, will be more challenging than the past three quarters,’ Tomnitz said.”
“‘I’d say we are in the early stages of a declining market,’ he said in a conference call. ‘Most of these downturns are longer and deeper than we envision at the beginning.’”
“‘We continue to operate in an increasingly challenging housing environment, as is evidenced by our increasing cancellation rate,’ he said. About 40 percent of Horton’s home purchases were canceled in the most recent quarter. The company said that about half the homes it has under construction have no buyer.”
“Horton said its biggest sales declines have been in Florida, down 51 percent, and California, down 39 percent. In Texas, sales were down 15 percent.”
From Newsweek. “For the last few autumns, when America’s real estate agents met at their annual convention, much of their shoptalk focused on navigating the red-hot housing market. What a difference a year makes.”
“The much-celebrated real estate boom has officially ended; nationally, economists now say, the housing market peaked in August 2005. ‘The biggest question I’m faced with is how far do prices have to drop and how long will it take for the correction to finally turn around in [those] markets. I don’t have an answer,’ NAR chief economist David Lereah says, conceding that those markets could stay soft into 2008.”
“But he counters that falling prices, while unpleasant for homeowners, are really a good thing, because lower prices will spur more buyers to make offers, and the resulting sales will help not only commission-hungry agents, but…other ancillaries that make housing such a vital prop to the economy.”
“And while he calls predictions that home prices might fall 30 or 40 percent ‘nonsensical,’ he can’t offer a number of his own. This slowdown (is) an anomaly, which makes it hard to predict where things will head next. Says Lereah: ‘You’d have to go back to the Great Depression to find a housing period that is this unique.’”
From Business Week. “‘We just don’t know how much further the housing downturn has to go,’ St. Louis Fed president William Poole said, according to Bloomberg News. ‘As long as the housing problem remains confined to housing, there’s really nothing the Federal Reserve can or should do.’”
“Fed policy makers are now giving the housing market what Poole called ’special attention,’ the report said. The housing market is seeing ’significant price softness’ and may be weaker than it appears, Poole said, according to Bloomberg.”
Here is a series of bearish comments; one example:
‘The question is how long will this downturn, referred by some as a recession, last? We have seen forecasts from anywhere from 12 months to as long as four years. I don’t think anybody is anticipating that it is going to turn around anytime in the next six to nine months. So, in any case, we’re looking at a minimum 12-month horizon, and certainly longer than that.’ Alan Levan, CEO Levitt Corp.’
Investors Business Daily had this yesterday:
‘Concerns about inflation could prompt an increase in the federal-funds rate, according to Federal Reserve Board Gov. Susan Bies, Cleveland Federal Reserve President Sandra Pianalto and Chicago Federal Reserve President Michael Moskow. Although the housing market has weakened in recent months, economic expansion has continued; and research by the San Francisco Federal Reserve Bank does not foresee a drop in core inflation to between 1 percent and 2 percent until the latter half of 2008.’
And who says there is little the Fed can do?
‘ The fiercely competitive home loan market leaves banks increasingly vulnerable to loan defaults if there is a major economic downturn, the (New Zealand) Reserve Bank warns. In ‘looking through the markets, the institutions and the payment and settlements parts of the systems,’ the central bank had identified concerns, Governor Alan Bollard said.’
‘He noted they were competing ‘quite aggressively,’ particularly on mortgage lending. ‘To the extent that this competition leads to credit quality slipping, overall financial system risks will rise.’ As households were already ‘quite heavily saddled’ with debt, any increased strain in servicing mortgage payments had the potential to hit bank balance sheets.’
Maybe this is the plan:
‘South Korea’s finance minister apologized Wednesday for the failure of the government’s real estate policy. In a press conference, Minister of Finance and Economy Kwon O-kyu unveiled another set of measures to cool down the real estate market. ‘I would like to take this opportunity to apologize to the public and the people who do not own houses for the recent surge in housing prices,’ Kwon told the nationally televised news conference also joined by economy-related ministers.’
U.S. Labor Input in Coming Years
William Poole*
President, Federal Reserve Bank of St. Louis
Chartered Financial Analysts Society of Philadelphia
Wilmington, Del.
Nov. 14, 2006
“…Uncertainty over trend labor force growth will complicate the Fed’s job next year. While we know that there is no long-run tradeoff between inflation and unemployment, policymakers try to maintain an equilibrium in the labor market at approximately full employment both because full employment is an important goal and because avoiding short-run strains in the labor market helps to maintain price stability. If actual employment growth slows, we will have to make the judgment as to whether the slowing is consistent with a slowing of trend labor force growth or is a sign of impending recession. If employment growth next year remains only modestly below this year’s average pace of about 150,000 per month, we will have to make the judgment as to whether this growth is outrunning available labor, which would be the case if we accept the low estimate of trend labor force growth, or whether one of the higher estimates of trend labor force growth is being realized.”
http://tinyurl.com/yjnxgd
St Louis Fed
“While we know that there is no long-run tradeoff between inflation and unemployment, policymakers try to maintain an equilibrium in the labor market at approximately full employment both because full employment is an important goal and because avoiding short-run strains in the labor market helps to maintain price stability.”
Sure. Why doesn’t the Fed just have it both ways, then, and drive both inflation and unemployment down to 0?
What happened to the Phillips Curve? Did it become obsolete or was it just bs?
It became obsolete with the first Arab oil embargo. Then economists came up with something called NAIRU, and nowadays I’m not sure what they believe.
They have no clue, because the employment statistics are cooked and squishy even when raw. The key question is what is the size of the reserve army of the unemployed.
However given how people who have been unemployed for longer than 15 weeks tend to drop off the rolls. It is very hard to quantify what is the real rate of employment/unemployment.
Also unhelpful is that fact that the labor force grows and shrinks depending on wage rates, economic distress, and preferences for leasure time vs cash money.
The big elephant is the declining real income of labor in the US (lower work week + lower real wages). People have been keeping real personal expenditures constant via increased borrowings to supliment lower real wage income.
Work is a pain in the ass. Hence the attraction of owning real estate and collecting rent.
If the REIC has it their way, then the whole country will follow Trump’s path to bankruptcy.
It’s easier to believe in Nibiru, aka Planet X, than it is to believe in NAIRU.
“I don’t have an answer,’ NAR chief economist David Lereah says, conceding that those markets could stay soft into 2008.”
“But he counters that falling prices, while unpleasant for homeowners, are really a good thing, because lower prices will spur more buyers to make offers.”
Good one, Potsy, but if you lied like to the Fonz, he would re-arrange your face.
While its true that lowering of prices moves further down the demand curve, we’re still going to see many more sellers than buyers. Given the many homeowners that bought after 2004 with I/O’s and option arms have a fairly hard floor on how far they can go (the balance owed) calling the market “soft” is a bit of an understatement.
Literally millions of homes across the country have mortgages that exceed their current and near-future market value. The only way to get prices down to a point where they’ll move is through a short sale, foreclosure, or the seller coming to the table with tens of thousands in cash in order to cover the shortfall (unlikely). Its going to ugly and painful. And as horror stories of FBs circulate, demand will further be stifled by buyer fear.
Predicting that the market will be “soft” doesn’t begin to describe it.
Trouble is that with so many FBs and speculators out there figuring out when to dump their depreciating investments, lower prices may have the perverse effect of shifting the supply curve to the right, as the bubble euphoria gives way to the harsh reality of large capital losses.
The question is how long will this downturn, referred by some as a recession, last? We have seen forecasts from anywhere from 12 months to as long as four years. I don’t think anybody is anticipating that it is going to turn around anytime in the next six to nine months.
And Bush asked congress for 86 billion to fight a 6 month war in the beginning ……….
‘I would like to take this opportunity to apologize to the public and the people who do not own houses for the recent surge in housing prices.’
When he’s done in Korea, I nominate this guy to be the next Treasury secretary. Finally someone understands that soaring prices are not an economic good.
Amen.
Did you read the bit about two other ministers offering their resignation because of the failed policy?
jb
I looked it up in history books. It has something to do with a weird concept called “honor.” Tied also to “duty.”
We had it but lost it after WWII and now replaced it with greed, i.e. Kenneth Lay, Bruce Karatz, Bernard Ebbers, Dennis Kozlowski, and John Rigas just to name a few.
Off-topic…
I was Zillow-ing my old neighborhood and found something really odd, and I was wondering if anyone had any insight as to the cause. A condo in El Cajon just sold for $315,000, about a year after another unit sold for $295,000 and just a month after a third sold for $259,000. Plus, the sales history shows a sale in September for $28,509, one month before the $315,000 sale. I was confused enough to look up the tax info on the parcel after the $28k sale, and again after the $315k sale, and both showed the same Seller. How can both sales have the same Seller?
I’m just curious as to what might be going on there and wanted to know if anyone here had any insight. The parcel# is 5071202403 in San Diego County, in case anyone wonders…
Just off the top of my head, it could be that the $28k sale was either some sort of short sale or other non-arm’s length transaction such as: inheritance or quit claim, etc.
‘The biggest question I’m faced with is how far do prices have to drop and how long will it take for the correction to finally turn around in [those] markets. I don’t have an answer,’ NAR chief economist David Lereah says, conceding that those markets could stay soft into 2008.”
Wow, The Corrupt liar David Lereah actually admits that there is a bubble and declining market. You could knock me over with a feather. What a fair weather cheerleader “Homer” this guy is. He is probably wearing a St. Louis Cardinals hat too since they just won.
I like his movable time horizon. I expect it to keep receding into the future as time goes on.
Time keeps on slipping, slipping slipping…….into the future. The Steve Miller Band.
Captian Jack posts Time keeps on slipping, slipping slipping…….into the future. The Steve Miller Band. ”
Who sang “Slipping into darkness” ? I have brain fade.
War?
Never expect a straight answer about the future from an economist. They don’t know and won’t tell you.
If DL really knew what would happen, he would be running a global macro hedge fund not working for NAR as a wage slave.
A come-to-Jesus moment for Mr. Lereah. His day of capitulation to the obvious.
Yet, despite having no idea when this will end, a price decline of 30 to 40 percent is “nonsensical”. Once again, zero foundation for his cocktail party talk….
I like how today he doesn’t have an answer, but he had answers every day for the past 5 years.
We’ll vote: who thinks Lereah will “have an answer” next time he’s interviewed.
“A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines” - Emerson
People, this is a Really Big Deal! Lereah is saying there;s no reason to think about buying a house for at least another year and a half.
Most of us have been saying this all along, but most of us aren’t the Chief “Economist” of the National Association of If We Don’t Get Our Commissions We Starve.
Exactly. And how, exactly, does that jibe with the NAR ad campaign that it’s a great time to buy or sell? Yeah, it’s a great time to buy a depreciating asset even though prices are going to go down, but I just can’t tell you how far they will fall; so just buy now and don’t worry about it. Right. Something tells me that the NAR won’t actually get around to spending that advertising money on TV ads in early 2007 (or, the ads will be vastly different, and more desperate, than the print ads).
While I believe that DL does have an estimate on how far prices will fall and how long it will take (see his powerpoint presentation, plus his reference to the Great Depression), he just can’t get himself to say it because it is too bearish and would probably result in him being fired.
No one has a real clue about how far prices will fall because so much of it depends on contingencies. The core question is how the rate of housing absorption relates to the rates of housing availability.
You really have three forces adding to availability. Natural movement, HB’s adding new housing, and recycling of forclosed homes. Each of those is linked to different parts of the economy.
As well adsorption is related to the need for owned housing which is itself a moving target.
No one knows, and anyone with a point estimate is wrong.
Yeah, it’s a great time to buy a depreciating asset even though prices are going to go down, but I just can’t tell you how far they will fall; so just buy now and don’t worry about it.
If a bank expects house values to drop ten percent or more over the next year, will it even write you a mortgage for the current asking price? If I ran a bank, I sure as hell wouldn’t.
You would because the fear and expense of forclosure causes people to continue to service mortgages even in hard times.
This isn’t like corporate financing, where you can go home at night.
Sure I would write mortgages; I would just start demanding 10-15% down.
“‘We just don’t know how much further the housing downturn has to go,’ St. Louis Fed president William Poole said, according to Bloomberg News. ‘As long as the housing problem remains confined to housing, there’s really nothing the Federal Reserve can or should do.’ Fed policy makers are now giving the housing market what Poole called ’special attention,’ the report said. The housing market is seeing ’significant price softness’ and may be weaker than it appears, Poole said, according to Bloomberg.”
Special attention = time to get the housing inflation party revved up again?
“‘We have another year of adjustment, or ‘transition’ in the industry until consumers believe home prices won’t decline, Mozilo said.”
Sounds like Mozilo is hoping ’somebody’ gets to work on convincing consumers that home prices won’t decline any further. I am not sure the NAR’s $40m BS campaign will do the trick, given widespread MSM reports of falling home prices. Not to mention evidence cited here and elsewhere (including David Lereah’s own powerpoint presentation for industry insiders) which documents that real estate busts normally take over four years to bottom out.
I don’t know, I liked this part: ‘As long as the housing problem remains confined to housing, there’s really nothing the Federal Reserve can or should do.’
I pull in resolution, and begin
To doubt the equivocation of the fiend
That lies like truth: ‘Fear not, till Birnam wood
Do come to Dunsinane:’ and now a wood
Comes toward Dunsinane.
And don’t we have the literary bunch around here.
Messenger: I looked toward Dunsinane, and methought
The wood began to move.
Macbeth: Lereah and slave!
Double, double, toil and trouble!
Savings burn in housing bubble!
Shakespear on the housing blog me thinks.When will Yorick make his appearance, left stage.
LOL!
I thought that was familiar. And to think, I always thought that “A” I got in that Shakespeare class would never come in handy. Truthfully, I have to also give credit to ‘Cliff’s Notes’.
Right about now I can hear D.L. srceaming “a horse, a horse, my job for a horse”
Quiet you egg!
See Poole’s comments above, realizing that with the bubble bursting (burst), further unemployment will force the Fed to act. But as Poole says “*I appreciate comments provided by my colleagues at the Federal Reserve Bank of St. Louis. Christopher H. Wheeler, senior economist in the Research division, provided special assistance. I take full responsibility for errors. The views expressed are mine and do not necessarily reflect official positions of the Federal Reserve System.”
Ben, Did he get Yogi Berra to script write this comment. Because this is just like a famous Yogiism would read. As long as the housing problem stays confined to housing……
housing problem? like perhaps a housing…. bubble!??! So mister fed guy, you’re admitting housing got a weeeeeeeee bit overpriced there?
Captain Jack posts ” Ben, Did he get Yogi Berra to script write this comment.”
My fav was “If I had know I’d live so long, I’d took better care of myself”….LOL Yogi
Exactly Ben. What the hell do they mean they can’t or shouldn’t do anything.
1. Who started this mess?
2. Who has always manipulated the economy through interest rate adjustments (and printing money”)
3. Who has always instituted a policy of inflation since its inception (the dollar is worth 5 cents of what is was in 1913)?
4. Who can easiliy and has a history of effecting the future of this economy (and this country) and certainly the Housing Market?
Answer:
a. A mix of honest politicians and an informed public.
b. The Free Market
c. A consortium of private bankers represented by a private institution under the guise of a federal agency.
The answer of course is “c.” The Federal Reserve (which is neither).
It seems to me they want this housing crash to happen. But why?
Because affordability is very bad, first time would-be buyers are shut out of most markets, and toxic loans on a large scale imperil the financial system.
The monied elite and RE investment corporations can buy houses cheap and rent them to the former middle class at a profit?
They do not want a crash. In 2002-3 the FED and government were staring deflation in the face and decided to do what they could to prevent it. They busted the budget, cut taxes, encouraged a dollar decline (would have on its own), went along with irresponsible lending practices, and lowered interest rates to 1930’s levels. All to help stop the deflation.
Cycels are caused by reasonable people making decisions that put off the “day of reckoning”. They make short term decisions that put off the “morning after” and drive the long term cycle.
Keynes said, “In the long run we are all dead”. That simply meant do what you can now and do not worry to much about the price to be paid later.
The Federal Reserve has the responsibility of moderting excess. Greenspan was not a courageous or good leader unlike Volker. Greenspan is not an evil man he is just a political man.
One problem I have with the FED is that it is privately owned and that so many of its chairman have been jewish. I greatly admire the jewish people and their contributions to the western world. I am disturbed by the amount of jewish enfluence out of proportion in Aerican politics, media and banking. Their numbers are about 50% more then Ameircan Indians in the USA.
Jews have high intelligence and position of leadership. In the coming economic decline the entire leadership class of America will be under criticism. I note that in Europe there is an alarming increase in anti semitic crime over the past few years. Perhaps pograms and abuse of jews cycles with the economy.
‘As long as the housing problem remains confined to housing, there’s really nothing the Federal Reserve can or should do.’
——————————————————————————-
Probably because the FED doesn’t beleive it has to inact any heroic policy. This is copied from an AP article on Yahoo Business about the FED minutes.
Fed policymakers said the housing slump was likely to remain a “substantial drag on economic growth over the next few quarters.” However, many believed that the housing cooldown was “likely to be no more severe than they had previously expected and that the risk of an even larger contraction in this sector had ebbed.”
Probably because admitting they target asset prices might not mesh very well with their image as champions of the free market.
How exactly is the fed supposed to solve the housing crisis? Seriously. By what mechanism is Ben supposed to rescue all the FB’s.
Any sort of positive market intervention by the fed will create xs inflation via increases in the money supply.
The fed’s job is to keep growth in the money supply equal to growth in real GDP + a small margin of safety.
“The fed’s job is to keep growth in the money supply equal to growth in real GDP + a small margin of safety.”
If they had stuck to this plan, then we would not be in deep doo-doo, would we?
Lol, sure. IMHO this bubble has alot more to do with sentiment than with cheap credit. Cheap credit was an enabler, but cheap loans don’t get people into the realtors office.
It all has to start with wanting more than you can afford, and then getting your wish.
There is a reason for inflation. If it were possible to increase all prices of every good and service equally at the exact same time, there would be absolutely no problem with inflation. However, then there would also be no point since there would be no opportunity for profit.
Cheap money means an opportunity to make money. Those who have access to the new money first are the ones to profit the most (draw your own conclusion who profited from the boom in real estate). The ones who get access to the money last are the ones who have paid the most for every good or service except the one they provide. Cheap money opens the floodgates. If you don’t use it, you end up losing. That is just the basics of inflation. Everything else is someone who understands the game attempting to ensure it continues in his/her favor.
IMHO this bubble has alot more to do with sentiment than with cheap credit. Cheap credit was an enabler, but cheap loans don’t get people into the realtors office.
——————————
I have to disagree on this. The cheap money CAUSED the price of housing to rise. People will usually spend what they are given (note how lottery winners spend their money).
If everyone were given a $1,000 credit to buy a Toyota Camry, what do you think they would do with that credit.
In this credit cycle, people who made around $80K were given credit for around $300K to $500K (depending on the loan and doc requirements). In a normal market, they would have qualified for around $200K-$300K. What do you think happens to prices with the increased leverage?
Additionally, the bar to homebuying was lowered to such a level that practically ANYONE who wanted to “buy” a home could do so. One used to have to qualify (work toward) for a home purchase. What do you think the effects are of unleashing this new, VERY LARGE pool of buyers into the market (with Monopoly money in hand) would do to the prices? As prices rose, others saw what was going on and decided to jump in as well.
Without cheap credit, prices would be a fraction of what they are today. It’s not only what people **want** to buy, but what they can **afford** to buy (either on a temporary or permanent basis).
the bar to homebuying = barrier to ownership
Liareah trying to spin a bad thing into a good thing.
“But he counters that falling prices, while unpleasant for homeowners, are really a good thing, because lower prices will spur more buyers to make offers, and the resulting sales will help not only commission-hungry agents, but…other ancillaries that make housing such a vital prop to the economy.”
I wonder how falling Florida condo prices are helping his investment portfolio?
I am the Great and terriblly corrupt Liareah. Pay no attention to that bubble behind the curtain.
oops. Well, it is a good bubble. LOL
“But he (DL) counters that falling prices, while unpleasant for homeowners,…”,
yeah, those poor bastards he convince to get into a home in the first place. Also known as 70% of population. I’d love to know how many of the 30% could buy a house now if they wanted!?
Uh, all 30%! Duh, 103% LTV loans, teaser rates, stated income. There is a home for everyone!!
The Dallas Morning News. “The new-home market faces at least six months of further declines, predicts Don Tomnitz, CEO of Fort Worth-based D.R. Horton Inc, the country’s largest builder. ‘We believe calendar year 2007, especially quarter one and quarter two, will be more challenging than the past three quarters,’ Tomnitz said.”
“‘I’d say we are in the early stages of a declining market,’ he said in a conference call. ‘Most of these downturns are longer and deeper than we envision at the beginning.’”
This is too honest… Its almost like something I would say at a dinner… wow.
Neil
He wants to be able to continue selling stock without a problem later on.
Tx Chick-Spot on. He cannot get sued if he told the stock holders the $hit is hitting the fan in advance of the flinging $hit.
“And while he calls predictions that home prices might fall 30 or 40 percent ‘nonsensical,’ he can’t offer a number of his own. This slowdown (is) an anomaly, which makes it hard to predict where things will head next. Says Lereah: ‘You’d have to go back to the Great Depression to find a housing period that is this unique.’”
Exactly Liareah. Even though you may not consciously be aware of it you just hit the bingo, lotto, powerball jackpot. You would, in fact, have to go back to the depression to find something like this happening to real estate. Hello McFly. What a colossal fool.
“And while he calls predictions that home prices might fall 30 or 40 percent ‘nonsensical,’ he can’t offer a number of his own.
‘You’d have to go back to the Great Depression to find a housing period that is this unique.’”
So 30-40% is nonsensical? Okay them lets take a look at the great depresssion, 25% unemployment and RE hitting rock bottom in most areas, them how in hell is 30-40% nonsensical? This fellow is a complete waste of time, like so many of these smoke blowers they continue to make ridiculous and base less statments.
Does anyone know what the housing price drop was during the Great Depression?
This seems to be DL’s answer: “30 or 40 percent is nonsensical. You gotta go back to the Great Depression to see how far this baby can fall!”
As I understand it, the real problem in the Depression wasn’t prices, but so many banks collapsed that (1) you couldn’t buy unless you had 100% cash but that (2) nobody could get to their cash because all the banks had failed. A giant Catch-22.
So houses were…free?
Pretty much, but nobody could afford even free.
Like was said many times “Steak was only a dime, but I did not have a dime”
I think back then if the bank had a note on your house or property. If were late and did not pay, they would forclose and sell at an acution. All money was keep including any left over equity you might have had.
The depression was caused by many things.
1. Massive contraction in money supply. W/o banks to create money M2 (Cash + Checks + Time deposits) –> M0 (Currency).
Velocity x Money Supply == Real GDP x GDP deflator.
So Velocity decreased as a result of less economic activity + hoarding, Money Supply decreased as a result of less deposits and lending therefore Real GDP (and the GDP deflator) both fell sharply.
I think this quote will go down as the most honest thing he’s said in his entire life. Plus, the MSM can follow him around with this and every time he’s interviewed they can ask him,
“You said that the current real estate slowdown is most similar to the great depression?”
How long will this guy last at the NAR? He may be having a come to jesus moment.
Yeah, he’s going to come to regret drawing that connection, particularly during his exit interview. (not to mention all the time in between on the way down!)
Yeah. He just admitted that prices were/are way out of whack in relation to ability to pay, and that the overhang of inventory will not clear anytime soon.
effectively undermining his $40M “good time to buy/sell a house” campaign.
LaLawyer post about DLs quote ““You said that the current real estate slowdown is most similar to the great depression?”
It will be on main street, what about the ‘wall street conect?
How can he claim that 30-40% is nonsensical if he can’t offer another number? You can’t state that you don’t know the answer and at the same time say that another prediction is wrong.
And, I agree, I can’t believe that he just uttered the words “Great Depression.” While I am sure he wasn’t trying to imply that this market is going to follow the same path as it did during the Great Depression (whether or not it will is another story, but clearly he isn’t advocating that position), it was foolish of him (in his position as chief RE cheerleader) to use that as a comparison for the “anomaly” of the current RE market because many people (including those “buyers” still sitting on the fence) will make that inference.
Well, drops of *only* 30-40% are nonsensical in the many areas that will eventually be down 60-70%.
That’s my interpretation too.
posted ” Well, drops of *only* 30-40% are nonsensical in the many areas that will eventually be down 60-70%. ”
And all will be swell on “wall street” ????
If you’ve never considered something possible you wouldn’t likely mention it (unsolicited that is). Occaisionally we’ve seen “Depression” references here by real estate people ala “it won’t get as bad as….” or “its not like the Great….”
Don’t be fooled. Someone says it, they’ve considered it. For a guy who’s been as big a mindless cheerleader as Lereah to even mention the Great Depression in passing (to me) means things are getting bad, fast.
Good point.
“For a guy who’s been as big a mindless cheerleader as Lereah to even mention the Great Depression” Sounds like they want to FED to listen up and lower interest rates. Scare tatics from the NAR, now that the Bush Men are in the minority.
Things are not as bad as they were in Austin in 1987-1990. When you see the pages of foreclosures by Govt agency RTXYZ in the Sunday paper at prices unheard of for years…then it will match that.
If you’ve never considered something possible you wouldn’t likely mention it (unsolicited that is).
Absolutely. This is like when a police officer pulls up next to a drug dealer and hasn’t yet spoken a word, when the dealer says, ” I don’t have any drugs officer. The officer says, “I didn’t say you did.” “But, since you mention it, do you mind if I conduct a consent search?”
During my Law enforcement career if I heard someone who was later tried and found guilty make an unsolicited statement like this once I have probably heard an unsolicited statement like this 700 times. Goes back to the old saying that the apple doesn’t fall too far from the tree.
You can’t state that you don’t know the answer and at the same time say that another prediction is wrong.
Great post.
Over 100 percent appreciation was sensible, but 30 or 40 percent drops are nonsensical? Something seems out of balance here…
They’re not making any more land!
They’re not making any more sense!
Good to know that DL thinks 29 percent drops may be sensible.
‘Concerns about inflation could prompt an increase in the federal-funds rate, according to Federal Reserve Board Gov. Susan Bies, Cleveland Federal Reserve President Sandra Pianalto and Chicago Federal Reserve President Michael Moskow.
Whoa. I almost missed this. If the fed tightens… Which I believe they will have too (for a short time), look out below. Although I’m betting the next meeting is a hold.
Cheap talk, IMO.
Looks like the FED might be applying ‘talk-down’ pressure to the major retailers to reduce prices for the holiday season, thus reducing core inflation and the need to raise the FFR….
There will be a hold for a long time, then a cut. Rates will not rise from their current levels.
They can cut their holiday prices all they want. But I’ll sit back and wait for the better deals in January.
Attempt to talk inflation down, I agree and, no, they won’t be raising rates for a while. The Fed history is to wait too long to begin lowering rates anyway. With a new chairman, they will hold off lowering rates until they really see some blood.
I’d bet on a cut. the PPI numbers have be negative for 2 consecutive months. which will be spun into deflation concerns. simialrly CPI numbers are starting to weaken, which will result in rate cuts. Either way the CPI will be massaged down to justify a rate cut if they want one.
and boom goes the dynamtite — up goes housing or another bubble is created to take its place (my bet: either stocks or commodities or both).
If asia doesn’t go along and loosen too then exports decline and their economies tank. Until the asians generate internal demand (i.e., their consumers become as reckless as the Americans) this game will continue.
Commodities…something fresh…they fell for paper, they fell for soil - now declare doomsday, shake some shiny metals in their faces, and the suckers will come running for “the next big thing”.
I seem to recall reading or hearing that about half of the Japanese economy is driven by consumer spending. Here in the good ole US of A, we consumers drive about 2/3 of our economy.
I greatly prefer an economy driven by Joe and Jane Sixpack to one driven by Lars and Ingrid Bureaucrat.
Even if the fed drops rates a little, housing prices won’t re-accelerate. Too much supply, too big an affordibility gap, too little demand, too little wage growth, too many “homeowners” squeezed by adjusting rates and no ability to refinance (given tighter lending standards).
Most importantly, the psychology has changed!
Perhaps at 0% to 1% 10 year mortgage rates will there be a stabilization at these levels in many markets.
Don’t bet against it. Pump enough money in the economy, and housing may well take off again.
That’s what happened in Great Britain - slowdown in 2004, then strong appreciation in 2005, 2006 again… Based on the chart in the last issue of Economist, their money supply (M2?) is currently growing at 14% annual rate, as opposed tp 4-5% here.
I don’t think we have seen the last of this bubble.
“I don’t think we have seen the last of this bubble.”
I do.
Analogies to the UK bubble are misplaced. What has funded the U.S. bubble? The Account Deficit. And the U.K.’s Account Deficit, as a percentage of GDP, is less than 50% of ours. In other words, they’ve had quite a bit more slack to keep their bubble running.
I’m with ubaldus (and NHZ) on this. I used to frequent UK housing blogs/sites in 2003-2004 (not much going on in US), and remember all the happy talk which lead to “doom and gloom”. They even had a consumer contraction in late 2004/early 2005, IIRC, that they were all “plexic” about. I thought they were leading the way (still might be) and that our fall was coming next.
Out of the blue, the UK is “back on track” and everything’s hunky-dorey (sp?). Don’t discount the power of inflated money. The stock market is making me nervous right now. Do they know something which we do not?
We need to remain very vigillant for signs of inflation/currency debasement, IMHO. I belive we are experiencing it already. Nothing else can explain how we so deftly swish around FNM/FRE financial non-statements/losses and GM/F’s bonds at junk status, hedgefund blowups, failing war(s), etc. and our stock markets are up as housing comes in for a “soft landing”.
Something is amiss…
Here’s the latest from the local Santa Cruz-San Jose RE radio Guru:
According to CNN, the San Francisco Bay Area which is Northern California is in a Bubble Proof Market.
However, there are some areas that CNN describes as markets to stay away from and I could NOT agree with this article more as it goes hand in hand with what I have been talking about in my newsletters and shows.
Two years from now we’ll see what business he’s in.
Oh yes, the famous bubble quote: “other markets will tank, stay away from them. ours is special though, and we are shielded from any downturn. RE always goes up in our area. Here, have another sip of this kool-aid.”
What a complete a$$ that radio guy must be. Denial usually comes back to bite you. Salinasron: two years from now I can see this clown selling cars, if he is lucky.
The 2-3x price increases in the Bay Area over the past few years have been driven by fundamentals. It was special then, but it’s even specialer now!
DL is special all right.
“D.R. Horton’s earnings fell for the second quarter in a row. Horton has been…making aggressive cuts in its red-hot growth strategy and realigning management positions for a bear market, said Gregory Gieber with AG Edwards. ‘It’s like sailing and thinking it’s going to be a gale, when it’s going to be a hurricane,’ he said. ‘I think when they saw what was going on, they reacted very strongly.’”
Wrong metaphor. Here is a better one:
—————————————————————————–
Down dropt the breeze, the sails dropt down,
‘Twas sad as sad could be;
And we did speak only to break
The silence of the sea!
All in a hot and copper sky,
The bloody Sun, at noon,
Right up above the mast did stand,
No bigger than the Moon.
Day after day, day after day,
We stuck, nor breath nor motion;
As idle as a painted ship
Upon a painted ocean.
Water, water, everywhere,
And all the boards did shrink;
Water, water, everywhere,
Nor any drop to drink.
Yep, HBs and FBs looking at their houses as albatrosses hung around their necks.
I seem to recall on three occasions while growing up in Pensacola I read in the newspaper about some smart ass who got the bright idea to outrun a hurricane in his boat. Each time the idiot ended up dead. Nuff said.
Pcola Popper said, “I seem to recall on three occasions while growing up in Pensacola I read in the newspaper about some smart ass who got the bright idea to outrun a hurricane in his boat. Each time the idiot ended up dead. Nuff said.”
This, to me, is the alltime funniest post that I have ever read on this site. I can’t stop laughing out loud.
Stucco,
with captain jack sparrow of pirates of caribbean as my handle I have to like you sailing and ships analogies.
Nardelli of HD isn’t qualified to bag product at HD (though that would be a good place for him). What does he mean, the worst construction losses “HE’S SEEN” in 35 years? He ran a place that built airplane engines!
Excuse me, but isn’t Home Depot the place where most of the checkout stands are automated self-checkouts? Meaning that there wouldn’t be much need for Nardelli to bag customer purchases?
HD is my store of last resort. Lowe’s first, then Ace Hardware, then (reluctantly) HD.
Live floor help and live cashiers have almost completely disappeared at HD.
Hmmm, is it too late to short their stock?
Agreed. Home Depot SUCKS. Horrible service is a very common complaint. I thought Nardelli said he was going to work on that one. Guess not. I view them like I do Wal-Mart, absolute last resort. In my opinion, Home Depot has gone overboard in new store openings, and this will further contribute to their many issues. Honestly, barring a housing bubble, how many home improvement stores does a town need? I can drive to four or five within 15 minutes.
Ironically, they are just now increasing their hiring, to offset the poor customer-service image. Pretty unfortunate timing.
Nardelli ran Power Systems. He got pissed off and stomped his feet when passed over by John “just call me Jack” Welch for chairman and ceo.
“‘We have another year of adjustment, or ‘transition’ in the industry until consumers believe home prices won’t decline, Mozilo said.”
Well Mr. Mozilo, I hate to break it to you but “the honeymoon’s over”, there ain’t gonna be a ‘transition’ unless it’s your assets to the bank.
It was.
http://finance.yahoo.com/q/it?s=CFC
“And while he calls predictions that home prices might fall 30 or 40 percent ‘nonsensical,’ he can’t offer a number of his own.”
Well, if Lereah is calling it nonsensical, it’s a virtually certain to happen and be even worse than that. 40-60% decline, perhaps?
DL-speak translations: nonsensical=disastrous; unique=bad.
what’s the deal with that major project in Utah that was going to be twice the size of san francisco?
http://www.findarticles.com/p/articles/mi_qn4155/is_20060416/ai_n16165945
Wasn’t there something about there supposedly being a lot of oil up there in salt flats (even though the jury is not out on whether it will be energy-efficient to produce)? Maybe that has something to do with it.
“Sorta” speaking of which, Tyson Foods just announced that all of its meats might cost more because the donors are fed on corn and corn prices are up because of…drum roll…purchases by ethanol producers. Hopefully not even the stupid are surprised by this. I wouldn’t spend a nickel extra to have an E-85 motor in my car or truck. When wishful-thinking ignores economics, this is what you get.
Apologies if someone has posted this up previously but looks like GetStucco’s PPT turns out to be Bill Gates or at least his foundation;
Gates Foundation beefs up holdings with home builders
“WASHINGTON (Reuters) - Microsoft Corp. (MSFT.O: Quote, Profile, Research) Chairman Bill Gates, through his charitable foundation, showed a strong interest in home builders despite a struggling market, reporting that the entity had taken new stakes in seven of the nation’s largest home-building companies.
The Bill & Melinda Gates Foundation Trust reported new stakes in KB Home (KBH.N: Quote, Profile, Research), Centex Corp. (CTX.N: Quote, Profile, Research), Pulte Homes Inc. (PHM.N: Quote, Profile, Research), Lennar Corp. (LEN.N: Quote, Profile, Research), Beazer Homes USA Inc. (BZH.N: Quote, Profile, Research), Ryland Group Inc. (RYL.N: Quote, Profile, Research), and WCI Communities Inc. (WCI.N: Quote, Profile, Research) in its quarterly filing with the U.S. Securities and Exchange Commission on Tuesday, which shows its holdings as of September 30.”
Because Bill Gates likes things that crash? Perhaps someone should explain it to the foundation as “The housing industry is about to blue screen of death” *ducking*
Bwaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaahahahahahah
Spitting soda all over my computer. Too funny (but true too!)
Because Bill Gates likes things that crash? Perhaps someone should explain it to the foundation as “The housing industry is about to blue screen of death” *ducking*
Now that’s definately a “keeper”
Is Paul Allen’s doing his investing. Just check his track record of success!
Who is CEO of the Gates Foundation Trust? Betcha that was quite a nice lunch date he had with the HB presidents when he concluded it was time to put Bill Gates money into their coffers.
I wonder what Bill Gates thinks about his foundation investing in HB stocks? In other words, instead of distributing some charitable funds to the startvation in Durfur, Africa, the foundation feeds the hungry homebuilders of America!!! Boo! Yah!
Isn’t Buffet involved with Gates’ Foundation? Buffet doesn’t seem to be worried about housing bubble spillover as he jacked up his holdings in Lowe’s over the third quarter.
Berkshire Hathaway ups stake in Lowe’s
Wednesday November 15, 9:39 am ET
Warren Buffett’s Berkshire Hathaway Inc. has increased its holdings in Lowe’s Cos. Inc. by nearly twentyfold.
Berkshire owned 7 million shares of Mooresville-based Lowe’s as of Sept. 30, up from 390,000 shares on June 30, Reuters reports, citing regulatory filings.
Nebraska-based Berkshire, which engages primarily in the insurance and reinsurance of property and casualty risks, reported owning $49.7 billion of stock as of Sept. 30. Berkshire’s stock, which has traded between $85,400 and $108,800 per share over the last year, closed Tuesday at $106,475 per share.
Buffett, the world’s second-richest individual after Microsoft Corp.’s Bill Gates, favors investing in companies with stable businesses that are industry leaders, and whose shares appear undervalued, the news agency reports.
Lowe’s (NYSE:LOW - News) operates more than 1,275 home-improvement stores in 49 states. The company’s stock, which has traded between $26.15 and $34.85 per share over the last year, closed Tuesday at $30.23 per share.
Published November 15, 2006 by the Charlotte Business Journal
Even Gates’ billions would not be enough to prop up the builders against the tsunami of bad news that has washed over them for the past six months.
Looks like we have GS and a rag tag group of Bears against the combined financial and intellectual forces of Bill Gates, Warren Buffet, and HFA.
I hope you brought your slingshot GS because all I have is a couple of rocks.
We all know who won that battle!
Buffet was buying up Pier 1 a few years ago and got his A$$ handed to him. He is agreat investor, but someone give me a few million and let me start out on 3rd base and see if I can “hit” a triple!
Agreed. Even the great Buffet makes the occasional slip up. Hard to say how this Lowe’s deal will pan out for him. That being said, I do believe that Lowe’s will fare much better than their competitors, especially the Depot. Perhaps he believes they will dominate the home improvement industry of the future? He does usually invest with a longer term outlook. Or, perhaps he knows how shoddy many of these bubble homes are, and he is betting that all the owners will be frequenting Lowe’s in order to keep their house standing!
So I just checked out Amazon to see DL’s latest book. The book title (paper back) is:
Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today’s Expanding Real Estate Market (Paperback)
But Amazon has it under the URL:
http://www.amazon.com/Real-Estate-Boom-Will-Bust/dp/0385514352/sr=8-1/qid=1163619371/ref=pd_bbs_sr_1/002-4511447-0197618?ie=UTF8&s=books
Mmmm, irony.
Isn’t it great that even DL’s book title seems designed to attract GFs into thinking that now is the time to buy?
My favorite irony about his book is the cover illustration, with the house hovering in midair. Its message is that houses are unnaturally, unreasonably high and out of reach for ordinary Americans.
Just like Heaven.
Just like Dorothy’s house before it landed on the wicked witch of the east.
irony of all ironies.
From the Newsweek article:
“But agents told of other, less obvious side effects of the slowdown, such as the shortage of lockboxes they use to gain access to homes for showings. With so many homes languishing on the market—in September there were 3.7 million homes for sale, up from 2.8 million a year earlier—lockbox manufacturers can’t keep up with demand.”
A lockbox shortage? Wow! Now if that isn’t a bearish indicator.
Maybe now realtors, lacking surplus lockboxes, will only take sellers willing to cut their prices to the market. Naaa… that would make sense…
Neil
Buy lockboxes. They’re not making them anymore.
Lockboxes? Can’t they just use Al Gore’s? It’s not like he’s using them for anything.
LOL Good one!
“‘I’d say we are in the early stages of a declining market,’ he said in a conference call. ‘Most of these downturns are longer and deeper than we envision at the beginning.’”
In a perverse twist of fate, many of the most credible comments about the housing situation over the past year have come from CEOs at homebuilders and lenders. And many of the most duplicitous remarks have passed through the lips of REIC and institutional economists.
True, but the comments by Toll last summer still bug me, when he said that housing prices would continue to rise unabated and that kids would live with their folks until they were 40 before they could afford to buy $2 million dollar POS starter homes.
It is pretty amazing how bearish the HB and lender CEOs are these days during their conference calls.
Sarbanes Oxley repercussion?
Nobody can accuse Bob Toll of being a stuck clock!
Nobody can accuse Bob Toll of being a stuck clock!
Even a stuck clock is right twice a day.
Has anyone else noticed that, except for a few local realtors (who must be a little slow getting their directions from the NAR), absolutely no one is talking about a “soft landing” anymore? This was the mantra of the NAR, HBs, economists, and experts for the past year. And it has virtually disappeared from the lexicon in the last 2-3 months (since Mozillo said he’d never seen a soft landing?). Sure, they’re still spinning, but their new spin is starting to paint a pretty ugly picture (e.g., DL’s reference to the Great Depression) compared to their previous spin.
The game plan now is to paint the direst possible outlook for the Fed, in order to get them to reduce interest rates or, failing that, to allow the REIC to pin the blame on the Fed instead of their own fraud-ridden industry.
But it’s a great time to buy or sell a home!
Surely the market can’t be both bad and good at the same time too..
Can it?
I agree with GS. I don’t see much blood in the streets, even here in Cali. The REIC talking housing doom-and-gloom before we’ve really see the crunch is all politicial spin to get the Fed to lower rates. As if that will save them.
I don’t see much blood in the streets, even here in Cali.
Blood on the rocks. Blood in the streets. Blood in the cellar. Every last drop you bleed. If you want blood….You got it.
-Bon Scott- AC/DC
Somebody needs to keep a scorecard like in baseball so when we get into the 2nd inning or later on in the ballgame we can keep track of what pitches these guys were throwing after we have lost track due to all their smoke and mirrors,
That Great Depression comment is gonna haunt him for the rest of his career, IMO.
Why? He can spin it later and claim he predicted the great depression of 2007-2010…..
The L.A. Times has just pronounced the market stable and no further declines coming. Wonder who they are talking too.
http://www.latimes.com/business/la-fi-homes15nov15,0,5939595.story?coll=la-home-business
Let’s assume that they’re right, and prices have stabilized at $484k for the median house.
If prices aren’t going up, then there’s no incentive to buy until it costs more to rent than to own.
So we have two possibilities: (1) prices stay stuck at $484k until rents have more than doubled in order to catch up with the cost of owning, i.e., prices drop in real terms but not in nominal terms - this could easily take 20 years - or (2) prices don’t stay stuck.
(2) has happened numerous times throughout history. I strongly doubt that (1) has ever happened. We have the forces of history on our side.
Conforming loan limit to stay put if home prices fall
By Rex Nutting, MarketWatch
Last Update: 3:39 PM ET Nov 15, 2006
WASHINGTON (MarketWatch) — The maximum conforming loan limit for U.S. mortgages will be frozen at current levels if home prices fall, the agency charged with figuring the limits said Wednesday.
The conforming loan maximum is the largest loan that can be purchased by mortgage giants Fannie Mae. Loans larger than the maximum, known as jumbo loans, typically carry higher interest rates.
For most of the country, the maximum is $417,000. The maximum loan limit is typically increased each year by the level of home-price inflation. If home prices show a decline from October 2005 to October 2006, the limit will be kept at current levels for a year, and then adjusted for 2008, James Lockhart, director of the Office of Federal Housing Enterprise Oversight, said in a statement Wednesday.
“Such a decline in price appears likely this year as the September number showed a 3.1% decrease,” Lockhart said. The October price data will be published Nov. 28. If prices rise year-over-year, then the maximum loan limit for 2007 would be raised as usual.
OFHEO is the agency that supervises Fannie and Freddie.
Lockhart said the decision to freeze the limit was made to avoid disrupting the market. “If house prices fall, loan limits should reflect that, but we need to ensure an orderly and transparent process for any downward adjustment,” he said. “We want to make sure that guidance exists to avoid disrupting the end-of-the-year pipeline of mortgages or the market for mortgage-backed securities.”
Lockhart said that any mortgages previously purchased or guaranteed under a higher limit should not be affected by any reduction of the limit.
Welcome to the beginning of the bailout the floor has been laid.
“OFHEO is the agency that supervises Fannie and Freddie”
Now there’s a bunch of hardworking guys. What do they do? Check in once every two months to read email?
“First, Americans quit buying homes. Now, they may have stopped fixing and furnishing them too. Bob Nardelli, Home Depot’s CEO said job losses in the home construction market are the worst he’s seen in 35 years, and the pain is starting to spread to the home renovation market.”
This is outstanding news, and pretty much what most on this blog predicted. The amazing thing is that relatively few of us thought it would be this bad already - we’re not even out of 2006 yet!
The only problem is nobody predicted Home Depot would shoot up 3 plus percent yesterday after the announcement. Oh well.
“And while he calls predictions that home prices might fall 30 or 40 percent ‘nonsensical,’ he can’t offer a number of his own. This slowdown (is) an anomaly, which makes it hard to predict where things will head next. Says Lereah: ‘You’d have to go back to the Great Depression to find a housing period that is this unique.’”
What an ass. 30% to 40% is practically “in the bag” in the major bubble markets.
Didn’t house prices fall around 90% during the Great Depression?
As mentioned above, essentially 90-100%. Houses were free, but nobody could afford free.
Even free houses are expensive to own and maintain when their prices are not climbing ever higher.
I can do “free.” Somebody’s got to help out. Might even do two.
It appears that not all builders are dropping plans for the next 5-7 years. This one mentions high rise condos down in the east bay, the first of their kind in this particular city. Looks like he might have overpaid for the land.
http://www.insidebayarea.com/argus/localnews/ci_4655214
I just looked out my office window and saw an unwelcome sight. An SUV with advertising on the back window:
“Stop paying your landlord! Ask me about 100% financing! Phone number follows”
I guess the MBS market is still going full steam ahead.
I’ll stop “paying my landlord” as soon as that SUV driver stops paying Saudi Arabia.
I just looked out my office window and saw an unwelcome sight. An SUV with advertising on the back window:
Remember back in the 80’s all the cars had stickers that said, “Lose weight now, ask me how.”
Ill tell ya home prices are going to lose some weight.
I wish more (or any, really) contrarians would populate this blog. We cannot have a real debate when everyone is playing for the same team. Perhaps i will send an “Evite” to the other side. We should be accomodating and not bash those who venture. Truth is there are some that probably already lurk but, dare not post in this feeding frenzy.
I think many would agree that this blog is not about “debate” for debate’s sake. If you are unsure of your own mind and views on whether there is a housing bubble, then maybe you need to further educate yourself on your own time. This blog is about sharing information, hashing through information, and learning a thing or two. The truth is rarely the middle point between two conflicting views. Sometimes the truth really does belong to one side and not the other. Thank heavens there aren’t more shilly bulls barfing up their “opinions” here.
There is a danger though of constantly rebreathing your own air while taking extreme positions. However ranting on the HBB is fairly harmless.
“There is a danger though of constantly rebreathing your own air”
well that was the problem on Apollo 13 now wasnt it. But the Nasa guys helped Jim Lovells crew make an Air scrubber out of parts so the crew could re-breathe without problems. Seems as I recall they did it sucessfully also.
“We have to fit this… into this… using nothing but these (spills out boxful of spare A13 parts onto table”. My favorite line from that movie. The space race really did bring out the best in American engineering.
My attitude is that its going to be bad, but not as bad as people here are constantly talking about. I expect that we will see alot a facilitated refinances/forberances b/c banks do not want to have non performing loans and prefer to have them performing to some extent.
As soon as a forced losses from forclosure exceed the losses from renegotiation, expect to see alot of renegotation. I expect the 40/30 loan with an exit fee will become a popular tool for these refinancings.
While many people are upside down, alot more are in the sitution where they started at 75% LTV and are now at 90% LTV. Banks have no interest in pushing those people over the edge.
The same thing will happen with the home builders, they can’t afford to be in a situation where each new house they build reduces the value of all the unsold houses left in inventory. At that point the losses from new house construction exceed the gains and buildin stops.
Question: If a loan is packaged and sold as MBS, who decides whether to foreclose or forebear? Would it be the servicing agent (not sure if this is the right term - trying to describe the company that receives payments, etc.), the holder of the MBS, or someone else? Or would the contract with the servicing agent dictate how to handle it? Just curious, since this may have some impact on how defaults are handled.
I agree. There’s a lot of (mostly deserved) sense that “we were right”, and thus a tendency not to keep an open mind. The trouble is this is not some ideal science experiment where the laws of physics are playing out. The rules can change and there are strong interests/forces working behind the scenes. I’m a bubble sitter and in my mind things were very simple: by now mortgage rates would be 8% and prices would have dropped 25% and I would have paid cash for my next house. Hasn’t quite worked out that way. I agree that one of the extremes is a price drop of 40%, but there are a couple of other extremes, including a government bail-out, serious recession (everybody looses), dead-cat bouce stretching this for another 2-3 years, and so on. I have a feeling that the most religious bubble believers on this blog are the ones that really, really need prices to drop 75% to buy a house. They come down like a ton of bricks on anyone disagreeing with them.
Well I own my house outright. Not planning to move anytime soon. I think prices will fall at least a third in even the best markets, 60% in the worst. I base it on simple affordability and supply. I’ve never seen so much supply in my life nor have I seen such unaffordibility. Something has to give and as interest rates are unlikely to fall significantly the only thing left is price. Finally, look at any asset bubble in history and you’ll see once the psychology FINALLY reverses prices fall very dramatically and don’t recover for a long time.
I’m not happy about it but I can’t short my own home (at this time) and I’m resigned to its decline in price. I also don’t have any great desire to own more property (its a giant hassle to be a landlord under even the best of circumstances). I may buy something of real quality or something of a great cash flow positive nature if the opportunity arrives but I’m going to let those opportunities come to me, on my terms, or not do anything at all.
I’m here because I’m a student of markets, psychology, economics and investing. I find the quotes from the “players” fascinating (compared to like quotes in other bubbles) and I look forward to seeing any points others bring up that I may have overlooked. Got nothing to gain by a decline in prices unless they really tank (60%) around me and I doubt that will happen.
Even the Harlem globetrotters need someone to play so they can put on the basketball show. What is that team they play every game? I think it’s the kentucky colonels or something.
MD — with respect, there are many other blogs that entertain contrarians. Lou Minatti, a frequent poster here, loves them. If you need links to more, we can provide them, probably ad nauseum. You’re a newbie here. Please do not send an “evite” to hostile blogs/posters. Ben’s blog has been spot on, every month of its life. Few if any of us ignore external signals that something could be amiss with our forecasts. We don’t post in, as you seem to surmise, a vacuum. What is difficult to find is intelligent relative harmony that has proven accurate, IMO; dissonance is accessible all over the Net.
Oh, we have lots of room for debate.
Despite the obviously bearish theme of this blog, I find way too many people here overly optimistic about the eventual effects of the housing bust.
Chip,
I believe MDMORTGAGEGUY has been posting here for some time, but I could be wrong.
I’ve experienced the “other side” of RE blogs like the WSJ board before Ben came on-line. The bulls there were relentless and entirely too offensive. They made personal attacks and provided no numbers/logical arguments to back up their viewpoints.
That being said, I think there is room for us to debate the various possible outcomes of this credit bubble — as long as people do not resort to personal attacks and bring data/logic to the table.
IMO, if we are unable to defend our positions with data & logic of equal or better quality, then we need to rethink out strategy.
So far, many of us have been very correct on some points (housing), and very wrong on others (like the stock, currency and bond markets). IMO, they are all part of the same package, and we need to find out how they all correlate, if at all.
Understand, I do not like trolls who just spout the bull’s party line!!! We need intelligent, insightful and informed people from the bullish side to keep out minds sharp, IMHO.
I live in Montgomery County, MD. I hate to say this as I am a staunch supporter of a housing correction. Lately, I am seeing more and more under contract signs showing up in Bethesda, Potomac, and Rockville areas. I’m hoping these are selling for a lot less than the asking prices. Maybe it’s just a false bottom - anyone else seeing the same?
Under contract does not mean closed. Also, it wouldn’t surprise me if more than a couple of those were RE agents’ own speculative flipper houses that they only pretended to have on the market.
I’m not seeing that here. I’m just seeing homes taken off the market.
BUT, prices have come down a bit. So it wouldn’t surprise me if some people buy now, thinking they’re getting a “deal”. Buyers have also been being encouraged to “make offers” for the past few months now. And any seller who’s cautious about this market would be inclined to take offers that, 6 months ago, they would have scoffed at.
If you want to see whether those homes sold below asking, just check the county records in a month or two. It’ll tell you the “sold” price.
At any rate, I wouldn’t panic and think that the bust is over. Like the Home Builders say, this is just getting started.
“I think it’s the beginning of a long-term, stable market,” said John Karevoll, DataQuick’s chief analyst.
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Sounds so similar to that “other” great quote…..”permanently high plateau”…It gets so frustrating sometimes having to read these pronouncements from dumbshits without the reporters ever questioning what’s been said.
I think it is the beginning of a long-term, stable effort to find GFs with bank (or at least the ability to get a liar loan) who believe that a bottom has been reached.
the economy is not that weak, and housing has a long ways to go down.
This is about all the fat cats wanting the government to keep their
gravy train flowing. Wah! Lower rates! Wah! Can’t expense stock options!
Wah! Sarbanes Oxley is overkill! Cry me a river you bitches.