November 27, 2006

Bits Bucket And Craigslist Finds For November 27, 2006

Please post off-topic ideas, links and Craigslist finds here.




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Comment by az_lender
2006-11-27 05:04:23

Comical banner on the front of a Wildwood NJ oceanview condo building: “Open House Every Day”

Comment by GetStucco
2006-11-27 05:55:24

Comical large helium balloon floating high above a condo converted apartment complex in Rancho Penasquitos for the past twelve months, or so: “Condos now selling.” The sign out from says “From the low $200s.”

Comment by aladinsane
2006-11-27 09:33:44

Balloon pretty, me buy house.

 
Comment by JWM in SD
2006-11-27 09:35:38

Yeah, I drive past that every morning on the way to the 24hr Fitness…always nice to start out the day with a chuckle.

Comment by GetStucco
2006-11-27 14:29:16

JWM –

Have you driven north on I-15 lately? Somewhere up near Temecula is a humongous sign on the hillside, in plain view of the freeway, announcing “New Homes for Sale.” That is one appealing marketing gimmick — makes me want to drive straight to the sales office and buy a $500K McMansion every time I drive past…

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Comment by RE_ONLY_GOES_UP
2006-11-27 11:51:15

I too drive by, don’t forget the sign spinners, usually there on the weekend.

Comment by GetStucco
2006-11-27 14:31:56

Yesterday at one street corner near where I live (92127), we passed four human directionals — one on each corner — advertising four different condo conversion projects in the nearby vicinity.

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Comment by waaahoo
2006-11-27 06:47:15

Hey AZ, You are in my neighborhood. Wildwood is toast. A lot of Philly blue-collar “investors” with no reserves to ride out any storms. A lot of horror stories coming out of there.

 
Comment by oxide
2006-11-27 07:38:35

Comical banner on a newly-built FB semi McMansion in suburban Maryland: “Nice interior.” As of a couple months ago, there was no interior at all. The inside was just wall studs, not even any plumbing fixtures.

 
 
Comment by jmf
2006-11-27 05:05:05

just in time……

Investors Are Turning Optimistic

the wonderful thing is that that leaves a lot of room for disappointments…….

plus also a piece on how private equity rules the hotel property markt.

http://www.immobilienblasen.blogspot.com/

Comment by CarrieAnn
2006-11-27 06:18:33

From the above link:

“The percentage of investors who think that the economy is likely to slip into recession, meanwhile, has shrunk to 8 percent from 20 percent last month.”

I always assumed a much larger percentage of investors understood what was going on but were making hay while the sun still shined….are the investors on this blog really so different or does anyone question those confidence numbers?

Comment by GetStucco
2006-11-27 06:23:44

With a persistent 56 bps inversion between the 6-mo T-bill and the 10-yr T-bond yields, it appears that bond market investors are certainly questioning them…

http://www.bloomberg.com/markets/rates/

Comment by SunsetBeachGuy
2006-11-27 07:50:31

One of the two markets is going to be spectacularly wrong.

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Comment by tejano66
2006-11-27 08:09:59

Remember this is a new paradigm according to Greenspan, the so call conundrum. The entire worldwide savings glut is finding the way to purchase all of the 10 yr T Note. IMHO, this is all BS, sanity will prevail and recession will rear its ugly head to all of our dismay.

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Comment by jmf
2006-11-27 06:39:23

this is even more impressing

.. 59 percent of fund managers now say they believe that the economy next year will remain as strong as it is now or will improve, according to a recent survey by Merrill Lynch. That’s up from 32 percent of fund managers who thought so in October

in the meantime the macronews has gone from bad to ugly.

it looks like the sentiment moves in tandem with higher or lower stockprices regardless of the funfamentals.

Comment by P'cola Popper
2006-11-27 07:44:59

Both the MarketWatch and Bloomberg survey are expecting an increase in the next release of the third quarter GDP growth on Wednesday. The MarketWatch estimate is 1.7% and the Bloomberg estimate is 1.8%.

I guess there was nothing substantial underlying the hubbub about the error in the first release related to the automobile industry.

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Comment by SUSPICIOUS 2
2006-11-27 11:24:01

Change the trem “fund managers” to cheerleaders and it will make better sense.

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Comment by Chip
2006-11-27 17:35:37

Does this have anything to do with the timing and amount of the fund managers’ annual bonuses?

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Comment by tl
2006-11-27 07:10:06

Well, in early 2000, investor sentiment became even more optimistic as many of the doubters of the stock market run-up finally agreed that “it IS different” now. It’s when few people think that the economy is headed for a fall that it is most likely to happen.

 
 
Comment by txchicK57
2006-11-27 05:05:18

A lot of people want to know how to play a housing dislocation for profit. Here’s some good information.

Investing
Wrecking Ball Looms for Big Housing Spec
By David Merkel
RealMoney.com Contributor
11/27/2006 7:21 AM EST
I have tried to make this column’s topic simple, but what I’m writing about is complex because it deals with the derivative markets. It’s doubly or triply complex because this situation has many layers to unravel, but there are two good reasons to address such a complex topic.

First, because residential housing is a large part of the U.S. economy, understanding what’s going on beneath the surface of housing finance can be valuable. Second, anytime financial markets are highly levered, there is a higher probability that there could be a dislocation. When dislocations happen, it’s unwise for investors to try to average down or up. Rather, the best strategy is to wait for the trend to overshoot, and take a contrary position.

There are a lot of players trotting out the bear case for residential housing and mortgages. I’m one of them, but I don’t want overstate my case, having commented a few weeks ago on derivatives in the home equity loan asset-backed securities market. This arcane-sounding market is not small potatoes; it actually comprises several billions of dollars’ worth of bets by aggressive hedge funds — the same type of big bettors who blew up so memorably earlier this year, Amaranth and Motherrock.

A shift of just 10% up or down in residential housing prices might touch off just such another cataclysm, so it’s worth understanding just how this “arcane-sounding” market works.

I said I might expand on my earlier post, but the need for comment and explanation of this market just got more pressing: To my surprise, one of my Googlebots last Tuesday dragged in a Reuters article and a blog post on the topic. I’ve seen other writeups on this as well, notably in Grant’s Interest Rate Observer (a fine publication) and The Wall Street Journal.
How a Securitization Works (Basically)

It’s difficult to short residential housing directly, so a market has grown up around the asset-backed securities market, in which bulls and bears can make bets on the performance of home equity loans. How do they do this?

First, mortgage originators originate home equity loans, Alt-A loans and subprime loans. They bring these loans to Wall Street, where the originator sells the loans to an investment bank, which dumps the loans into a trust. The investment bank then sells participation interests (”certificates”) in the trust.

There are different classes of certificates that have varying degrees of credit risk. The riskier classes receive higher interest rates. Typically the originator holds the juniormost class, the equity, and funds an overcollateralization account to give some security to the next most junior class.

Principal payments get allocated to the seniormost class. Once a class gets its full share of principal paid (or cancelled), it receives no more payments. Interest gets allocated in order of seniority. If, after paying interest to all classes, there is excess interest, that excess gets allocated to the overcollateralization account, until the account is full — that is, has reached a value equal to the value of the second most junior class of trust certificates — and then the excess goes to the equity class. If there’s not enough interest to pay all classes, they get paid in order of seniority.

If there are loan losses from nonpayment of the mortgages or home equity loans, the losses get funded by the overcollateralization account. If the overcollateralization account gets exhausted, losses reduce the principal balances of the juniormost certificates — those usually held by the originator — until they get exhausted, and then the next most junior gets the losses. There’s a little more to it than this (the prospectuses are often a half-inch thick on thin paper), but this is basically how a securitization works.
From Hedging to Speculation

The top class of certificates gets rated AAA, and typically the lowest class before the equity gets rated BBB-, though sometimes junk-rated certificates get issued. Most of the speculation occurs in securities rated BBB+ to BBB-.

The second phase of this trade involves credit default swaps (CDS). A credit default swap is an agreement where one party agrees to make a payment to another party when a default takes place, in exchange for regular compensation until the agreement terminates or a default happens. This began with corporate bonds and loans, but now has expanded to mortgage- and asset-backed securities.

Unlike shorting stocks, where the amount of shorting is generally limited by the float of the common stock, there can be more credit default swaps than bonds and loans. What began as a market to allow for hedging has become a market to encourage speculation.

With CDS on corporate debt, it took eight years for the notional size (amount to pay if everyone defaulted) of the CDS market to become 4 times the size of the corporate bond market. With CDS on home equity asset-backed securities, it took less than 18 months to get to the same point.

The payment received for insuring the risk is loosely related to the credit spread on the debt that is protected. Given that the CDS can serve as a hedge for the debt, one might think that the two should be equal. There are a couple reasons that isn’t so.

First, when a default happens, the bond that is the cheapest to deliver gets delivered. That option helps to make CDS trade cheap relative to credit spreads. But a bigger factor is who wants to do the CDS trading more. Is it those who want to receive payment in a default, or those who want to pay when a default occurs?
How It Impacts Housing

With CDS on asset-backed securities, the party writing protection makes a payment when losses get allocated to the tranche in question. Most protection gets written on tranches rated BBB+ to BBB-.

This is where shorting residential housing comes into the picture. There is more interest in shorting the residential housing market through buying protection on BBB-rated home equity asset-backed securities than there are players wanting to take on that risk at the spreads offered in the asset-backed market at present. So, those who want to short the market through CDS asset-backed securities have to pay more to do the trade than those in the cash asset-backed securities market receive as a lending spread.

One final layer of complexity is that there are standardized indices (ABX) for home equity loan asset-backed securities. CDS exists not only for the individual asset-backed securities deals, but also on the ABX indices as well. Those not wanting to do the credit work on a specific deal can act on a general opinion by buying or selling protection on an ABX index as a whole. The indices go down in quality from AAA to BBB-, and aggregate similar tranches of the individual deals. Those buying protection receive pro-rata payments when losses get allocated to the tranches in their index.

So, who’s playing this game? On the side of falling housing prices and rising default rates are predominantly multi-strategy and mortgage debt hedge funds. They are paying the other side of the trade around 2.5% per year for each dollar of home equity asset-backed securities protection bought. (Deals typically last four years or so.) The market players receiving the 2.5% per year payment are typically hedge and other investment funds running collateralized debt obligations. They keep the equity piece, which further levers up their returns. They are fairly yield-hungry, so from what I’ve heard, they’re none too picky about the risks that they take down.
Wait for the Bounce

Who wins and who loses? This is tricky, but if residential real estate prices fall by more than 10%, the buyers of asset-backed securities protection will probably win. If less, the sellers of protection probably win. This may be a bit of a sideshow in our overly leveraged financial markets, but the bets being placed here exceed ten billion dollars of total exposure. Aggressive investors are on both sides of this trade. Only one set of them will end up happy.

But how can you win here? I believe the safest way for retail investors to make money here is to play the reaction, should a panic occur. If housing prices drop severely and home equity loan defaults occur and you hear of hedge fund failures resulting, don’t act immediately. Wait. Watch for momentum to bottom out, or at least slow, and then buy the equities of financially strong homebuilders and mortgage lenders, those that will certainly survive the downturn.

If housing prices rise in the short run (unlikely in my opinion) and you hear about the liquidations of bearish hedge funds, then the best way to make money is to wait. Wait and let the homebuilders and mortgage finance companies run up, and then when momentum fails, short a basket of the stocks with weak balance sheets.

Why play the bounce rather than try to bet on the success of either side? The wait could be quite long before either side loses. Do you have enough wherewithal to stay in the trade? Most players don’t; that’s why I believe that waiting for one side or the other to prevail is the right course.

Because both sides are levered up, there will be an overshoot. Just be there when the momentum fails, and play the opposite side. Personally, I’ll be ready with a list of homebuilders and mortgage lenders with strong balance sheets. Though prospects are not bright today, the best will prosper once the crisis is past.

——————————————————————————–
David J. Merkel, CFA, FSA, is a senior investment analyst at Hovde Capital responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. Previously, he managed corporate bonds for Dwight Asset Management.

Comment by LipnAZ
2006-11-27 05:28:11

TXC,
Thanks for that post, Now I have to save it and read it about a dozen times.

Meanwhile in Phoenix -Building Slowdown Spurs Incentives

“Valley builders put up enough homes last year to house all of Tempe’s 161,000 residents in a framing frenzy that peaked last summer.

Hammers are still swinging but the pace of building is off nearly 25 percent through the first eight months of 2006.

Builders have slashed prices as much as $125,000 in some developments and offered appliances and tens of thousands of dollars in incentives to lure buyers.”

“”(Builders) were offering some pretty crazy incentives here,” he said.

The Strands sold their three-bedroom, 21-year-old home for $535,000. They were able to get a new four-bedroom, 3,700-square-foot home in Surprise for $381,000, discounted from $506,000, he said.

In Florence, buyers Jim and Tara Walter plan to move in early next month to a single-story, three-bedroom, two-bath home at Anthem at Merrill Ranch.

They paid about $169,000 in April for the 1,674-square-foot home. As incentives, Pulte Homes, the builder, threw in a refrigerator, dishwasher, washer, dryer, soft-water system and window coverings.”

I thought the builders were slowing down much more than this, but apparently not. These towns are far away from downtown Phoenix, but if a teacher and a firefighter can find a home for less than $170K, this area will continue to draw thousands from the So Cal area. In So Cal you might be able to get a mobile home or a 1 bedroom condo for $170K.

Comment by LipnAZ
2006-11-27 05:31:35

But not everyone is so gloomy about the local market.

D. Sydney Potter of Pasadena, Calif., is still investing in Arizona. Potter has purchased three homes in the Valley and two in Tucson, moving to the lower end of the market to reduce his financial risk in hopes of quickly turning a profit.

Builders are less resistant to sell to investors now, he said.

“But you have to more careful now,” Potter said.

http://www.azcentral.com/class/marketplace/homevaluesfall06/articles/1012vhvnewhomes1022.html

Nothing like replying to your own post :-)

Comment by Neil
2006-11-27 06:57:27

There have been previous booms where all of the wealth of the initial successess was destroyed at the end (except for that of a very few smart individuals).

This boom will be no exception.
Neil

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Comment by Big Bob Slob
2006-11-27 09:39:16

But the homes are built. How can the wealth be destroyed without destroying the homes?

 
Comment by Seattle Renter
2006-11-27 10:42:19

Easy: Home worth 425k circa 2005, buyers only willing to pay 125k for it by end of 2008.

Poof.

That’s the free market for you. The only real question is(IMO), will the government get involved and artificially keep prices up, or do the right thing and leave the market alone to do its thing.

 
Comment by walt526
2006-11-27 12:34:34

Hey Asian bankers. We screwed up. I know that I promised Milton at his birthday party a few years ago that the 1930s had taught us our lesson, but to paraphrase that Britney song, “Oops we did again. We got lost in the game. Ooh baby, baby, bay.”

Anyway, there’s no point in assigning blame (Greenspan), but we have a situation here. Either we flood the market with lots of USD to spur inflation, or a bunch of homeowners will default on their mortgages, which you so generously bought up on the MBS markets.

So the way I see it, you guys are going to take it in the shorts one way or another. Just let us know how you’d like to be screwed and we’ll make it happen.

Sincerely,

BB

PS: At some point in the near future, we have to sit down and figure out the precise mechanism for how your billions of peasants are going to underwrite our baby boomers’ retirements. They’re just too important a voting block for us to neglect, and it turns out that they’re kids are even worse about working hard and saving than they were. So again, just give us a heads up on how you guys want to screw over your masses this time around.

 
Comment by Chip
2006-11-27 18:08:32

Walt526 — good one — clever and funny.

 
 
 
Comment by 85249 is Toast
2006-11-27 05:51:11

In Florence, buyers Jim and Tara Walter plan to move in early next month to a single-story, three-bedroom, two-bath home at Anthem at Merrill Ranch.

Florence?!? There’s nothing in Florence except the state
prison. Great place to put a “master-planned” community.

Comment by scdave
2006-11-27 07:47:22

Florence Where ???

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Comment by Arizona Slim
2006-11-27 08:28:06

Florence, Arizona, Dave. It’s home to several prisons.

 
Comment by fred hooper
2006-11-27 10:05:31

And a BIG Nuke, Palo Verde…

 
Comment by az_lender
2006-11-27 14:10:57

Fred, you are confused, the Palo Verde Nuclear Generating Station is in Tonopah, about 50 mi WEST of PHX. Florence of course is SE of PHX. I think it’s the county seat of Pinal County. I oughta know, but I always record my trust deeds at the AJ branch.

 
Comment by Benjaminc
2006-11-27 15:08:28

Ahh, Florence… got a ticket near there, many moons ago. Scenes from that old Richard Pryor / Gene Wilder movie … can’t recall the name…. were shot in The Federal Prison there. Pryor said in the weeks he was in Arizona, he never saw another black man until he got to Florence.
Just sayin’….

 
Comment by fred hooper
2006-11-27 15:53:32

Confused, yep, but there are prisons near PV. If you’ve seen one, you’ve seen ‘em all.

 
 
 
Comment by beebs
2006-11-27 21:48:15

The Strands sold their three-bedroom, 21-year-old home for $535,000. They were able to get a new four-bedroom, 3,700-square-foot home in Surprise for $381,000, discounted from $506,000, he said.

I spent two years in Surprise. I cannot believe that anything in that town is going for over $200K.

beebs

 
 
Comment by GetStucco
2006-11-27 06:05:15

‘A shift of just 10% up or down in residential housing prices might touch off just such another cataclysm, so it’s worth understanding just how this “arcane-sounding” market works.’

A 10% shift down in residential housing prices is in the bag in most markets formerly known as frothy.

Comment by Chip
2006-11-27 18:13:28

That’s what I’d think. After grade-school, I lost my cataclysm. Best get another one fast, and buckle up.

 
 
Comment by GetStucco
2006-11-27 06:12:38

“It’s difficult to short residential housing directly, so a market has grown up around the asset-backed securities market, in which bulls and bears can make bets on the performance of home equity loans.”

It was a piece of cake to short residential construction directly through buying puts on the homebuilders — at least up until about May 2006, when a mysterious and persistent disconnect developed between a steady uptrend in homebuilder stock prices and a steady and rapid slide of the residential construction sector into recession.

 
Comment by GetStucco
2006-11-27 06:18:47

“There’s a little more to it than this (the prospectuses are often a half-inch thick on thin paper), but this is basically how a securitization works.”

It sounds like we definitely won’t be able to figure out who is swimming naked until the tide goes out…

 
Comment by GetStucco
2006-11-27 06:25:59

“Unlike shorting stocks, where the amount of shorting is generally limited by the float of the common stock, there can be more credit default swaps than bonds and loans. What began as a market to allow for hedging has become a market to encourage speculation.

With CDS on corporate debt, it took eight years for the notional size (amount to pay if everyone defaulted) of the CDS market to become 4 times the size of the corporate bond market. With CDS on home equity asset-backed securities, it took less than 18 months to get to the same point. ”

Who is likely to lose when the music stops?

Comment by dawnal
2006-11-27 08:19:49

“Unlike shorting stocks, where the amount of shorting is generally limited by the float of the common stock…”
**************************************************************************
The author uses the word “generally” here. It is not so clear that shorting is generally limited by the float today. Naked shorting has become a major threat to the financial system.

“According to a November 2005 article in Time Magazine:
[N]aked short selling is illegal, barring certain exceptions for brokers trying to maintain an orderly market. In naked short selling, you execute the sale without borrowing the stock. The SEC noted in a report last year the “pervasiveness” of the practice. When not caught, this kind of selling has no limits and allows a seller to drive down a stock”

In essence, naked shorting is the practice of selling nothing and getting away with it. Everyone needs to understand how pervasive this practice is and how little the SEC is doing about it. Pour yourself a cup of coffee and get comfortable for about an hour and watch this powerpoint presentation about the problem:

http://www.businessjive.com/nss/darkside.html

You will be glad you did.

Comment by Chip
2006-11-27 18:16:01

Could this also be called, “Soros Selling?”

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Comment by david cee
2006-11-27 09:16:24

“. If housing prices drop severely and home equity loan defaults occur and you hear of hedge fund failures resulting, don’t act immediately. Wait. Watch for momentum to bottom out, or at least slow, and then buy the equities of financially strong homebuilders and mortgage lenders, those that will certainly survive the downturn”

Wait a waste of blog space. A lot of hot air with the conclusion
that “financially strong” will survive. I don’t know who is financially strong anymore, and how can you belive any of the reported numbers. Didn’t that New Jersey builder report a great year ending back in Sept. and by October, filed for BK.? I am not impressed with a lot of words, and no meaningful conclusion

 
Comment by flatffplan
2006-11-27 11:29:32

housing is already off 10%- where’s the blow up in markets?

Comment by GetStucco
2006-11-27 14:18:15

My question exactly…

 
 
Comment by Chip
2006-11-27 18:10:03

TxChick — thanks much for sifting the articles, to find the good ones like this.

Comment by Chip
2006-11-27 18:17:02

Aside from the 10% stuff…

 
 
 
Comment by Kevin Road
2006-11-27 05:24:09

http://www.wcbm.tv/podcasts/century21_i.mp3

If you want a real good laugh, this is a real estate radio show for the Baltimore area. It’s a weekly program and a little long, but if you listen to about 10 minutes you’ll have some fun - even though it should be illegal!

Comment by mina
2006-11-27 07:12:59

“buy now! buy now! the deals are great, if you don’t hurry by Jan / Feb everyone will be buying and the prices will go up and you will miss out. ”

“I agree John, everyone should buy now, buy as soon as you can.”

Makes me want to puke.

Mina

 
Comment by scdave
2006-11-27 07:58:23

but if you listen to about 10 minutes……

I could only stomach about 3 minutes worth….The Munster music made me nauseous, and the twilight zone turned it over…I think I need one of those washable keyboards….

It’s this kinda crap that makes the real estate profession appear so disgusting….Just a bunch of hucksters….

Comment by Chris
2006-11-27 11:00:30

“Just a bunch of hucksters…. ”

Absolutely! This is so damn funny. So, the host is “buying all the time.” I hope he takes it where it hurts. What a scum bag.

 
 
 
Comment by LipnAZ
2006-11-27 05:30:37

But not everyone is so gloomy about the local market.

D. Sydney Potter of Pasadena, Calif., is still investing in Arizona. Potter has purchased three homes in the Valley and two in Tucson, moving to the lower end of the market to reduce his financial risk in hopes of quickly turning a profit.

Builders are less resistant to sell to investors now, he said.

“But you have to more careful now,” Potter said.

http://www.azcentral.com/class/marketplace/homevaluesfall06/articles/1012vhvnewhomes1022.html

Comment by david cee
2006-11-27 09:24:38

“Net new orders for Meritage declined 38 percent in July and August this year from the same months in 2005.”

Hey, Mr Potter, the president of Meritage Homes, is telling me that things aren’t looking so good for his company, and they are right there at “ground zero”. But, from 400 miles away in Los Angeles, you are going to outsmart the builders and sell to their prospective buyers. I’ll bet the salesmen who sold you these 5 houses thought of 1 word as you signed the dotted line. “SUCKER”

 
 
Comment by Michael
2006-11-27 06:04:45

In upcoming years, many homeowners will sink With rising rates and dropping values,

some will owe more than the homes are worth.

Orlando Sentinal, 11/26/2006 — In the next couple of years, a combination of rising mortgage interest rates and falling home values could plunge thousands of homeowners underwater.

Being underwater means owing more than the house is worth. It’s an especially risky situation for borrowers with interest-only mortgages and pay-option adjustable-rate mortgages. Some might be able to refinance or get through hard times by living frugally. Others will have to sell, possibly at a loss. Still others will lose their houses to foreclosure.

Two groups of borrowers should look ahead to see if they’re heading toward a reef that could sink them.

Homeowners most at risk are those who are making minimum payments on interest-only mortgages. Not all of these folks are at risk. The ones who should especially watch out are those who bought homes in the past year or two in markets where house values are falling, and who made no down payment or a minuscule one.

The other group consists of borrowers who are making minimum payments on pay-option ARMs on homes purchased within the past two years with a down payment of 10 percent or less. Pay-option ARMs are adjustable-rate mortgages that allow borrowers to decide how much to pay each month. Under some conditions, the minimum payment doesn’t even cover that month’s interest, so the loan balance rises.

According to an analysis by Comstock Partners, a Yardley, Pa.-based asset-management company, 70 percent of borrowers who took out pay-option ARMs in the past year owe more now than they did when they got the loans.

How much more? Comstock estimates that 15.2 percent of 2005 home buyers owe at least 10 percent more than their houses are worth. Those buyers made minimum payments on pay-option ARMs, or their home values dropped or both.

A lot of people are understanding their predicament only now.

“The market has changed in the last three, four, five months — dramatically — and they’re not getting from their houses what their neighbors were getting 12 or six months ago,” says John Hayes, president and CEO of HomeVestors.

As short-term interest rates have risen in the past two years, the underlying rates of interest-only and option ARMs have gone up, too. Sooner or later, the minimum monthly payments could rise abruptly, past the point of comfort. It’s time to refinance, if possible. (It might be impossible to refinance if you are underwater, and you don’t have cash to spare.)

There are plenty of loans from which to choose — from plain-vanilla 30-year, fixed-rate mortgages to 40-year loans to hybrid ARMs that give you a three- or five-year fixed-rate period before the annual adjustments begin, to more esoteric programs.

Jim Svinth, chief economist for Lendingtree.com, suggests cutting back spending to stay current on the loan. If that’s not enough, talk to the loan servicer as soon as you can.

If you aren’t yet 30 days late in making a house payment, but you’re worried that you soon will be, don’t let the customer-service representative brush you off by telling you that no help is available until your payment is a month overdue. Once your payment is 30 or 60 days past due, your options shrink.

Depending on your situation and whether the originating lender sold the loan, the servicer might give you a break on the mortgage payments in exchange for putting the home on the market immediately.

Hayes advises hiring a real estate agent, discounting the price and selling quickly. He suggests talking to a trusted adviser such as a lawyer or an accountant — someone who has a legal duty to provide advice in your best interests. A mortgage lender doesn’t have such a fiduciary duty.

A short sale could be an option. The house is sold for less than the mortgage balance, and the difference is either forgiven or paid off over time. You can’t do a short sale without the cooperation of the lender, but you should hire an attorney to negotiate the details.

Comment by tj & the bear
2006-11-27 15:32:20

In the next couple of years, a combination of rising mortgage interest rates and falling home values could plunge thousands of homeowners underwater.

Thousands? Try millions.

 
 
Comment by P'cola Popper
2006-11-27 06:10:21

Market Upswing in Pensacola, Florida?

This is the first RE article published by the PNJ in over a month. A bit NARish in my opinion. Local realtors quoted even manage to parrot NAR’s $40 million campaign slogan verbatim:

“In my 25 years in the real estate market, I’ve never seen a better time to buy or sell,” Ingram said. “Inventory is high, but interest rates continue to be low.”

http://tinyurl.com/y7tpmk

Comment by hd74man
2006-11-27 08:57:05

“In my 25 years in the real estate market, I’ve never seen

“A WORSE TIME TO BUY WITH ASKING PRICES TOTALLY DISPROPORTIONATE TO AVERAGE INCOME LEVELS.”

These lying SOS RE husksters outta be in jail.

 
 
Comment by Bill in Phoenix
2006-11-27 06:12:44

Headline in today’s AZ Republic. Ranchers in Arizona are facing the 11th year of drought. 11 years and people keep moving here! Southern Arizona is a nice place to rent and to while away the winter, but eventually someone’s going to have to price water according to its scarcity (call it capitalism), which is the best way to ration things. I hear that Northern AZ is in a drought, yet I go up to Flagstaff now and then (including in the winter) and I see snow there in the winter. Lack of water is relative, I suppose. I love Arizona but i would not buy any real estate where it’s likely I’d run out of water.

Comment by finnman
2006-11-27 07:42:00

Water costs in Arizona could reach a level of burden similar to the pain tof hurricane insurance on Florida real estate.

 
Comment by SunsetBeachGuy
2006-11-27 07:55:49

Water is wildly under-priced in every market in the US. I see water rates across CA and it is so cheap investing in efficiency is a poor financial investment.

It is unbelievably subsidized in the Western US.

Comment by scdave
2006-11-27 08:05:46

Good point Sunset;…..I remember back in the late 80’s ??? …We had a terrible watershortage for several years and I considered putting in a undergound storage tank to collect rain gutter run off to use in the yard during the summer….The city said no…Said it was about contamination or something…..I think its about $$$$…..

Comment by moom
2006-11-27 20:43:41

This is standard in Australia, but the tanks are above ground. Metal roofs are traditional for collecting water.

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Comment by aladinsane
2006-11-27 08:51:50

For “the” read on water in the west, check out “Cadillac Desert”, by Marc Reisner, written about 20 years ago. Highly recommended~

Comment by LowTenant
2006-11-27 09:08:12

I second the “Cadillac Desert” recommendation. Reisner died young but wrote a masterpiece while we had him. It’s an absolute page-turner on a vital and under-reported subject. If you live in the Southwest beware — this book will make you want to move elsewhere.

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Comment by aladinsane
2006-11-27 09:21:13

My wife and I were on a southwest roadtrip, (circled the 4 Corners, beautiful~) the whole month of October and we are that vanishing breed that feels naked without a newspaper, @ breakfast, so we read most of the newspapers in the area and everyday it seemed, buried on page 7 or 13, was a story about the water shortage, hitting the southwest, Hard.

Vegas is ground zero for the drought, they are trying to hit up Arizona and Utah locales for water, with not much success so far, from what we read, and Lake Mead is drying up daily, so their prime source for water, is going away.

It will become an interesting ghost town, perhaps in our lifetime?

 
Comment by SunsetBeachGuy
2006-11-27 11:09:01

Marc Reisner recanted many of the anti-ag conclusiosn in Cadillac Desert before his death.

He preferred wasteful of water agriculture to the suburbs encroaching on ag land.

Oh yeah, and next time you are worried about water, in the historical record as captured by dendochronology there is recorded evidence of 40-50 year droughts in the American Southwest.

Nature bats last!

 
Comment by aladinsane
2006-11-27 11:16:17

If we were to lose all the agriculture biz in and around the Las Vegas area, it could be devastating…

 
Comment by scdave
2006-11-27 11:25:18

Nature bats last!

The Home Team Hammer…..Good one Sunset…

 
 
 
 
Comment by david cee
2006-11-27 13:41:49

Quote from Mayor Goodman of Las Vegas last year “Water Flows Toward Money” And Vegas has the most money.

Comment by aladinsane
2006-11-27 14:17:09

In the 19th century, when nv, ut and az used to be lovingly be called “The Great American Desert”, the saying was similar…

Their mantra was:

“The water follows the plow”

 
 
 
2006-11-27 06:15:57

Merced and Stanislaus Counties are in trouble.

“A higher percentage of Stanislaus County homeowners were in default on their mortgages last month”
“A new analysis predicts 4,866 homeowners in Stanislaus, 7,591 in San Joaquin and 2,309 in Merced likely will lose homes to foreclosure because adjustable-rate mortgages will push their payments too high during the next five years”
“He estimated lenders may lose $1.8 billion because of foreclosures in the Northern San Joaquin Valley during the next five years.”

Link to article http://tinyurl.com/y7eo6k

 
Comment by Bill in Phoenix
2006-11-27 06:19:35

Just checked in with Bank of America’s web site in the state of Arizona http://www.bankofamerica.com - CD rates up again at this bank. I know I can do better than this, especially in a tax free Vanguard fund, but 10 months, 10,000 minimum (no max) at 5.25% seems good for a bank this size.

Comment by Chip
2006-11-27 18:42:37

Bill — their rate is 5.0% here in Florida, with 4.4% for an anytime-withdrawal CD. That is MUCH better than B of A was offering just a couple of months ago — something like 2%. I read, somewhere, speculation that BoA was trying to keep deposits down to less than 10% of “something” so that they could acquire some other entity. Maybe they’ve accomplished that and are ready to get competitive. I’m currently earning 5.4-5.5% on 4-6 month jumbo CDs with other, smaller institutions, but would prefer to be with BoA because it is my “home” bank.

Comment by Bill in Phoenix
2006-11-28 06:14:37

Yeah Chip, I’ve been a customer mostly since 1977 (when I was 18) of B of A. I was considering buying BAC stock, but my decision was made when B of A bought MBNA. I have a modest 5.5% gain, but add the yield and it becomes close to 10%, which is even better than their high yield CDs!

 
 
 
Comment by winjr
2006-11-27 06:27:47

Spent Thanksgiving weekend in Atlanta, staying with my BIL, who lives in the Norcross section.

He bought a 3,500 sq/ft townhome in June, 2005, after divorcing his wife. As luck would have it, he’s fallen in love and now wants to sell. Original purchase price: $460K, now asking 509K. Took out a 7/23 I/O, 5.75%.

The property has been listed for almost 3 months – 5 lookers, no offers. 6 other townhomes in the complex of approx. 30 are also for sale. He’s thinking he might rent it out (until things turn around), hoping to get $3000/mo (which would actually cash flow him, since he put so much down).

I offered no advice; just asked questions.

We shopped on Black Friday (not my idea – I wanted to just sit outside in the sun and goof around on the computer), and went to a popular new shopping complex called “The Forum”. Very crowded on Friday, but shop lines didn’t appear backed up. We went back the next day to get a $20 sweater my son wanted, and the area was much less crowded, with plenty of parking spaces. My son and I played a game – how many parked cars can you count before seeing a luxury car (BMW, Mercedes, Porche, etc.)? The furthest we got was 4. The norm was 2.

Friday night ate at a Macaroni Grille that was half empty. My BIL surmised that everybody was home eating leftovers.

Comment by Arizona Slim
2006-11-27 07:01:45

Speaking of dead zones, I went to the post office on Friday. I kid you not, I was the only customer in the place. Likewise, the credit union on Saturday. I almost had that place to myself.

Where have all the spenders gone…

Comment by crash1
2006-11-27 10:33:52

I went to a Village Inn restaurant last night to get some late night eggs and bacon. There were only two tables occupied. The manager said she sent most of the help home. That was at 7 pm. I’ve never seen the place so empty.

 
 
 
Comment by GetStucco
2006-11-27 06:43:41

Is the shut down of the home equity ATM machine taking its toll on Big Box Mart’s sales results?
————————————————————————————————
Wal-Mart reports sales decline
By MarketWatch
Last Update: 12:13 PM ET Nov 25, 2006

SAN FRANCISCO (MarketWatch) — Wal-Mart Stores, Inc. on Saturday said that U.S. same-store sales in November fell 0.1% from a year ago — the retail giant’s first monthly same-store sales drop since 1996.

http://tinyurl.com/yd9xe3

Comment by Chip
2006-11-27 18:47:45

I think that Bill in NC might have it right — the illegals who are newly jobless have left the scene, at least the spending scene. While virtually everyone will agree that the term “bean-eater” is pejorative, it gives insight to the very low amount of money on which an unemployed or underemloyed person can live, while waiting out a storm.

 
 
Comment by Captain Credit
2006-11-27 06:45:46

Some nutjob Wachovia anal-yst yapped on Bloomberg this morning that “we can expect the feds to cut rates in Q1 2007 which will clear the inventory of homes”. I had to laugh as I keep hearing this repetitive drumbeat from the bought and paid for economists for weeks on end. Yet, we continually hear fedreserve mouthpieces saying that rates will likely stay where they’re at.

Comment by Kevin Road
2006-11-27 06:48:46

One of the Fed guys said last week that lower rates are not needed to clear inventory, time is what is needed - economist has wishful thinking

Comment by Captain Credit
2006-11-27 06:57:01

Agreed. The cheerleading seems to be far worse than anyone thought. We got some users here on this blog doing a whole lot of cheerleading for their own benefit. The RE boostering is pandemic.

 
 
Comment by GetStucco
2006-11-27 06:49:23

The Fed faces the prospect of a weakening dollar if it tries to execute the Greenspan-Bernanke Put next year. This is especially problematic when our economy is running a large trade deficit, as a weaker dollar results in higher import prices, which is inflationary.

Comment by Northern VA
2006-11-27 08:19:26

Dollar has already been doing very poorly. With the ECB and Japan raising rates and most economists predicting the next Fed move will be a rate cut I think the dollar is in for a rough ride. If central banks start ditching their dollar reserves for a wider basket of currencies as they have been hinting we may get an all out dollar crisis. I have been a happy foreign equities holder for the last 3 years. A dollar crisis would be bad for all equities though.

 
Comment by dawnal
2006-11-27 08:32:19

Interesting article from Europe on “…the prospect of a weakening dollar…” as mentioned in your post.

The U.S. Dollar is the Week’s Biggest Turkey

Excerpt:

“This week the U.S. dollar was carved up like a Thanksgiving turkey. Against the Swiss franc, euro, British pound, and Japanese yen, the dollar lost 3%, 2.2%, 2% and 1.8% of its value respectively. …. In fact, year to date the Dow is only up by about 3.5% when priced in euro’s, compared to its 14.5 % advance when measured in depreciating U.S. dollars. From its high in 2000, the euro price of the Dow is down by over 27%. In terms of gold, the world’s only legitimate money, the picture is even worse. Priced in gold the Dow is off better than 50% from its 2000 peak, and actually down over 7% thus far this year. So much for Wall Street’s phony rally! ”

http://www.europac.net/newspop.asp?id=6852&from=home

 
 
Comment by Arizona Slim
2006-11-27 07:03:05

If the fed could cut housing prices, then we’d REALLY clear some inventory!

Comment by Chip
2006-11-27 18:52:08

Slim — I wish — good one.

 
 
Comment by finnman
2006-11-27 07:33:31

“we can expect the feds to cut rates in Q1 2007 which will clear the inventory of homes”.
Maybe not…..

Beware: No rate cut until 2008
Minutes from latest Fed meeting show the central bank, still worried about inflation, might stand pat through 2007.

By Paul R. La Monica, CNNMoney.com editor at large
November 15 2006: 4:19 PM EST
NEW YORK (CNNMoney.com) — Economists think it’s looking more and more likely that the Federal Reserve will hold interest rates steady for quite a while, maybe through all of next year.

So investors hoping for a rate cut in 2007 may need to kiss that wish goodbye.

“I think the Fed being on hold through 2007 is an entirely plausible scenario,” said Chris Probyn, chief economist with State Street Global Advisors.

Members of the central bank’s policy making committee indicated in minutes from last month’s meeting, released Wednesday afternoon, that while they are still worried about inflation, they’re also aware that a weak housing market may keep economic growth in check.

The Fed voted in last month’s meeting to keep the fed funds rate, an overnight bank lending rate that influences rates on many types of loans, at 5.25 percent.

That was the third consecutive meeting that the Fed left rates unchanged after seventeen consecutive hikes from June 2004 through June of this year. But one of the central bank’s policy-makers, Jeffrey Lacker, voted in favor of a rate hike at each of the Fed’s past three meetings due to concerns about inflation.

Fed watchers said that as long as the economy continues to grow at a moderate pace, inflation will likely remain a threat. And that means that the Fed would not want to cut rates anytime soon. But with the housing market still showing signs of softness, a rate hike wouldn’t be prudent either.

“It feels like the Fed is quite comfortable with the way things are going. It seems now that rates are pretty much in the sweet spot,” said Oscar Gonzalez, an economist with John Hancock Financial Services.

Investors, however, still appear to be betting on a rate cut sometime in 2007. According to fed funds futures listed on the Chicago Board of Trade, contracts that expire in June 2007 have an implied fed funds target of 5.14 percent, lower than where rates currently stand.

But investors do seem to be aware that the chances of a rate cut are growing less likely. The June 2007 fed funds futures closed on Tuesday with an implied target of 5.075 percent - a sign that traders were betting more heavily on a rate cut before Wednesday’s minutes were released.

“There’s no reason to assume that inflation pressures will come down quickly so it’s very unlikely the Fed will ease anytime soon,” Probyn said.

On Wall Street, the Dow industrials rose to another record high, though stocks pared their gains after the Fed minutes came out as investors eyed the possibility that rate cuts may not materialize as soon as many had hoped.

Rate cuts tend to spur economic growth and corporate profits, thus lifting stock prices.

Still, one economist said it’s too soon to say the Fed will stay on pause for all of 2007.

“There are a lot of economic releases coming out between now and the end of the first quarter,” said John Norris, chief economist and senior fund manager with Morgan Asset Management.

The Fed’s next meeting is set for Dec. 12, and the central banks’ policy-makers have two meetings planned for the first quarter of 2007 - a two day session ending Jan. 31 and another that wraps up on March 21.

Norris said that if the pace of economic growth slows between now and early next year, the Fed should cut rates in the spring or summer.

“I would pound my table with a sledgehammer that the next move should be a down move. The Fed should have all the ammunition it will need by the end of the first quarter to cut rates,” he said.

 
Comment by motepug
2006-11-27 10:36:41

Did you happen to see what the dollar exchange rate has done, in just a few days? The dollar is tanking. The fed will come to the rescue, as always, buying dollars and selling euro’s/yen, to drive the dollar back up.

Drop short term interest rates, and the dollar will become even weaker, the bond holders will start dumping their (quickly depreciating) bonds. Long term interest rates will skyrocket as the price of the bonds drops.

The fun has just begun. Wait until all these FB’s start defaulting, and the AAA rated MBS bonds suddenly won’t look so sterling anymore.

Comment by Chip
2006-11-27 18:57:47

This evening I’ve been trying to think up a way to enliven the contributions to our butt-busting blog host, Ben Jones. One, which I haven’t yet cleared with my wife, is to challenge anyone to top me, up to a certain worthy amount. Another might be some sort of “bet,” where we go for a change in the Fed rate or something else that is indisputably determinable as to time and event. A Blogathon.

Comment by CA renter
2006-11-28 00:40:24

I like it, Chip! So, does the loser of the bet have to pay some particular amount of money or???

Keep us posted. :)

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Comment by GetStucco
2006-11-27 06:55:51

Bungey jumping, anyone?

http://tinyurl.com/yj57jl

 
Comment by Mike_in_Fl
2006-11-27 06:57:18

Just one interesting thing to note, if it hasn’t been commented on already and I missed it, the U.S. dollar has gotten whacked pretty hard the past couple of days. I discuss some of the reasons why at my blog. The question (for housing, anyway) is what, if any, impact will this have on interest rates? So far, the dollar’s general decline has NOT led to broad bond selling by overseas debt holders. But you have to wonder if our good fortune will last forever. Remember: More than half of our marketable Treasury debt is held by foreign/international creditors who lose money on those holdings when the dollar tanks.

http://interestrateroundup.blogspot.com/

Comment by GetStucco
2006-11-27 07:07:54

“The question (for housing, anyway) is what, if any, impact will this have on interest rates?”

- Lower rates create a risk of tanking the dollar.
- A tanking of the dollar is inflationary for an import-dependent economy.
- Overly-stimulative monetary policy got us where we are today — a record number of vacant new homes on the market. Does more of the same seem like a good idea?

Comment by scdave
2006-11-27 07:31:34

Its a tough call…Do you hold firm in the face of a slowing economy and Enormous leverage or cut to soften the downturn and have a run on the dollar…..??? My guess (Not Bet) would be, stay the course until the pain is much worse and the economy is clearly in recession…

 
Comment by Mike_in_Fl
2006-11-27 08:31:01

“Does more of the same seem like a good idea?”

No, it doesn’t. But my job is to figure out what’s going to happen, whether I think it’s a good idea or not. And right now, central bankers seem intent on talking tough and acting loose with monetary policy. I mean, look at the “facts” — Despite 17 increases in the federal funds rate, the stock market is surging to the upside (today being the exception, of course), private equity takeovers are surging, commercial property and REIT share values are going gaga despite some of the most stretched valuations/fundamentals ever, etc., etc. If anything, it looks like we ARE in for more of the same, sad as it is to say.

 
 
Comment by Hoz
2006-11-27 09:52:49

The immediate impact is an increase in the rate of inflation. Items purchased from China, India, and The euros’s will cost more dollars increasing inflation in the US. Sales will fall further as ARMs reset, Auto sales will drop even further. This is just the beginning. The government estimates the dollar is between 10% - 40% overvalued.
Housing will go with the economy - south.

Comment by Chip
2006-11-27 19:04:51

Gold certainly spoke up today.

 
 
 
Comment by diogenes (Tampa)
2006-11-27 07:07:39

Here is an exerpt from a story in Today’s Tampa Tribune.
I took out the points I found most interesting.

http://www.tboblogs.com/index.php/newswire/story/building-fire-in-ybor-city/

YBOR CITY -” Firefighters battled a five-alarm blaze that gutted one building and briefly threatened the historic Columbia Restaurant late Sunday.
The building houses an antique-furniture store called Le Chateau and a home decor store, Wade said. The home decor store did not appear to be seriously damaged by the flames.

Le Chateau has been open for about seven years. The business’s owner, who watched crews fight the flames and cried, declined to comment.
A company had been hired to take out old furniture and items from the second floor of the building within the next couple of weeks, LaColla said.
The value of the building is estimated at $664,000, according to the Hillsborough County Property Appraiser. It had been sold for $500,000 to Andre Callen of Tampa in 2004, records show. ”

I just find this all too convenient for a recent purchase of property in an “up and coming” district that isn’t.
I expect to see more “accidents” of recently purchased properties over the next couple of years.
And no, the story doesn’t say they suspect foul play.

 
Comment by GetStucco
2006-11-27 07:10:54

Gekko –

How is that portfolio holding up today, pal?

http://www.marketwatch.com/tools/marketsummary/default.asp

Comment by txchick57
2006-11-27 07:13:14

Don’t worry. If this thing implodes, he’ll say he sold last week.

My cycle service (expensive) said “Game Over” as of Friday’s close. They’re looking for down into December 19 + or - then a rally to a possible double top or lower high. Their take is that this high will be the bookend to the March ‘03 low. We can only hope. This has been the most annoying market in my memory. I loved the bear market. No liquidity so you actually had to have some skill to make money.

Comment by GetStucco
2006-11-27 07:16:35

Liquidity certainly turns a game of skill into a pure-luck version of casino gambling where the house always wins. I will concede this point to HFA…

 
Comment by Captain Credit
2006-11-27 09:23:25

“Don’t worry. If this thing implodes, he’ll say he sold last week.”

LMAO…. BINGO.

 
Comment by david cee
2006-11-27 09:39:48

“My cycle service (expensive)” Gee, I thought Jim Crammer, was all anyone needed to make money in the market. You mean, I should actually check out what he says before putting my money on his “hot tips” BOO! YAH!

 
 
Comment by GetStucco
2006-11-27 07:20:11

Akuna matata, folks — the Greenspan-Bernanke Put kicks in after around a 100 pt drop in the DJIA…

Comment by Hoz
2006-11-27 08:45:09

I think the PPT (if actively real) is too busy holding up the dollar to get involved in dinky markets like the stock exchanges.
As an aside a succinct article from the TimesonLine
What happens when house prices collapse?
“…When the housing market does turn down, the first consequence is that people cannot sell their houses. It is not that they cannot get the price they used to think their houses were worth. The problem is that no one will even come to view them. In the stock market there is usually some liquidity. In the residential market there can be a lot of houses for sale, a lot of debt on those houses, a lot of sleepless nights and no buyers. Apart from anything else, house prices have continued to rise into 2006 because of the expectation that they would go on rising in 2007 and 2008. That expectation may still prove correct, but at some point the music will stop….”
http://tinyurl.com/ye2hsa

Comment by txchick57
2006-11-27 08:53:20

Reamer on Minyanville described this process over a year ago. That is such a worthy site for anyone interested in the markets. Price discovery still has not happened. It should be fun watching it though when it does.

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Comment by GetStucco
2006-11-27 08:59:11

It seems like a choice is needed between defending the dollar and propping up the US stock market — that much I will give you…

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Comment by dawnal
2006-11-27 18:44:32

A great reminder of ancient wisdom…Real estate is inherently illiquid. This fact is often lost from view when a bubble market is underway. It will be painfully obvious soon, though.

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Comment by Gekko
2006-11-27 08:22:45

-
Sorry, kids, but I’ve stayed the course with my allocation since 1995. I’ve never sold a share of any of my equity funds. I’ve lived through booms (1995-1999) and busts (2000-2002) and I just tune out all the short-term noise. I buy and hold low cost US stock index funds - I’m not a trader nor a market-timer like some of you - I think it’s foolish to think that you can consistently time and beat the market. I simply dollar cost average every month despite market conditions. Since I’m still young and in the accumulation phase, I like market dips - I can buy more shares at a cheaper price. That’s how I got rich. I’m smart enough to know what I don’t know. I believe over the next 20 years the S&P 500 will return about 10.4% annual. That’s good enough for me.

CASH 18%
BONDS 15%
STOCKS 67%

Comment by txchick57
2006-11-27 09:38:19

Rich. That’s a joke. You’re hardly rich. Get over yourself.

Comment by scdave
2006-11-27 11:29:32

But he has a $5K watch & a lexus…Maybe he just FEELS rich…

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Comment by Captain Credit
2006-11-27 12:28:29

But TxChick, He knows if he works just a little harder, he too will be rich.

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Comment by GetStucco
2006-11-27 10:38:01

Smart money is on the sidelines; I guess it is dumb money that has been driving the DJIA’s recent bubblet?
—————————————————————————
HERB GREENBERG
Market warning from those in the know
Muzea sees steeper declines based on lack of insider buying
By Herb Greenberg, MarketWatch
Last Update: 1:09 PM ET Nov 27, 2006

SAN DIEGO (MarketWatch) — If George Muzea is right, Monday’s decline is just the start.

Muzea, who runs Reno-based Muzea Insider Consulting Services, has been negative on the market for just two weeks — the first time he has been bearish since July 24, when he turned positive.
Muzea makes market calls based on the activity of corporate insiders. He’s considered the grandfather of the insider-tracking industry, generally keeping a low profile to all but his high-paying hedge fund clients.

We speak every now and then. When we spoke last week he gave me an earful that I only wish now I had published then. (Such is life! The Thanksgiving break was calling.) But, according to Muzea, this is likely the beginning of a sharp and steep decline not unlike the one that hit the market last spring — and maybe worse.

http://tinyurl.com/yxdup3

Comment by P'cola Popper
2006-11-27 11:47:47

How about the VIX? What’s the old saying about low and high?

http://tinyurl.com/v4cyo

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Comment by CA renter
2006-11-28 00:47:11

About time. I’ve been long VIX for a couple of months (also expected the Sept/Oct bear market), and getting hammered. Nice to see it pick up, finally! :)

 
 
Comment by Hoz
2006-11-27 12:08:30

GS, IMHO the biggest purchasers of stocks over the last few months have been corporate buybacks. This is generally not good as it results in less money going into R & D as well as less money for future purchases. Stock buyback has meant the company had no current sales prospects for the next 9 - 18 months. If such is the current case, sayōnara . Also, I just started Chinese lessons. LOL

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Comment by GetStucco
2006-11-27 14:26:59

“Also, I just started Chinese lessons.”

Good thought. I took Russian many years ago when they were the only other superpower. I think I will wait until I see how the boom phase of this business cycle ends before I invest time in learning Chinese. Japanese seemed an all-important language to learn at this stage of the late-1980s boom; but then their economy went into a sixteen year deflation.

 
Comment by dude
2006-11-27 18:08:05

On the Chinese lessons, we may want to remember that a nation ruled by a dictator or central comitee when pushed into a corner will usually fight their way out.
US 300million them, 2billion.
This could really, really get ugly.

 
Comment by Chip
2006-11-27 19:24:16

Dude — ya got to have a lot — I mean a LOT — of ships to transport a meaningful portion of 2 billion invaders to our shores. I suspect we can build the torpedoes faster than they can build the ships.

Short shark meat.

 
 
 
Comment by tj & the bear
2006-11-27 15:45:00

I believe over the next 20 years the S&P 500 will return about 10.4% annual.

You forgot the minus sign.

 
Comment by skooch
2006-11-27 18:57:10

Now, I’m no expert … and I don’t claim to know where the stock market will be in 20 years, but do you realize that 10.4%/yr for 20yrs is almost an 800% return??? Are you seriously suggesting that the Dow (for instance) will be at 96,000 by the year 2026? This is the same Dow that first closed above 1000 in Oct 1982? It is dangerous to drive a car by only looking in the rear-view mirror.

Comment by moom
2006-11-27 21:06:50

10.4% is the historical average return on the S&P 500 including dividends. So the index itself won’t rise by that percent. I think the average return over the next 20 years likely will be a little lower too…

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Comment by Mike
2006-11-27 07:31:50

Had to go into Los Angeles yesterday to lunch with a friend. Took the long route back (as opposed to the 101 freeway) via Benedict Canyon which starts in Beverely Hills and ends in the Sherman Oaks.

For Sale signs EVERYWHERE. Just one sign showing “In Escrow” but no SOLD signs. On the way back, I started on Benedict Canyon from Santa Monica Blvd. Below Sunset Blvd, there seemed to be very few houses for sale in Beverely Hills itself but after crossing Sunset Blvd. and continuing up Benedict Canyon, the realtor signs really started to appear. Nothing in this area is below $1 or $2 million +. Many in the $3 million and above range.

The friend I had lunch with, lives in the Hollywood Hills above Sunset Blvd. He told me that a few months ago there were no For Sale signs in his area. Now they are everywhere. Looks like some of the ultra-rich are trying to get out of the way as the housing tsunami gathers strength… or at least cash in their property dollars and switch to Euro’s.

Comment by gadfly
2006-11-27 07:58:25

What’s the SoCal “Sushi Index” these days? Hard times for Hiro??

 
 
Comment by Chrisinpnw
2006-11-27 07:45:24

Jim Kunstler’s Monday morning comments are mostly on RE this morning. Pretty strong stuff, and no I don’t go along with all of what he sez! But, he makes some good point IMHO. Worth a look.

http://www.kunstler.com/mags_diary19.html

Comment by scdave
2006-11-27 08:39:35

Kind of apocalyptic ??

Comment by Chrisinpnw
2006-11-27 09:10:38

That’s Kunstler for sure. I just thought he had some good points today. He is heavy into peak oil.

 
 
Comment by tj & the bear
2006-11-27 17:44:58

You get a fire-sale of assets that behaves like a deflation while the dollar itself inflates.

Kunstler nails it with this statement.

Comment by CA renter
2006-11-28 01:23:26

Agree.

 
 
 
Comment by Subare
2006-11-27 07:47:08

How about importing some needy Dutch to fill up those empty houses?

http://www.bloomberg.com/apps/news?pid=20601100&sid=ad3ebG3zGotY&refer=germany

Nov. 27 (Bloomberg) — Rose Mandungu dreamed of renting a houseboat on an Amsterdam canal when she started university. The only place she could find was a converted shipping container.

“I’m looking for a better place,” said the criminology student, who last year moved into one of 380 steel boxes stacked around a shipyard crawling with rats and cockroaches.

Mandungu, 20, probably won’t be able to leave Amsterdam’s first container village anytime soon. Close to 150 home seekers chase every 100 houses offered for rent, according to the Dutch Housing Ministry.

Struggling to cope with demand for housing, Amsterdam is moving students and welfare recipients into shipping containers and turning cruise ships into dormitories. The city’s latest ploy — converting empty offices into apartments — may fail as developers balk at expensive remodeling amid rent controls that will limit their returns.

Comment by bostonian
2006-11-27 13:13:55

Key words here? “rent control” Causes shortages in any market that implements it.

 
Comment by Chip
2006-11-27 19:36:20

I thought the key words might be “welfare recipients” in “…Amsterdam is moving students and welfare recipients into…”

Their notorious inability to require immigrants to provide for themselves is biting them very badly, I think. Much of the rest of Old Europe watches, mesmerized and inactive, sort of like folks in a tourist African snake-arium watching the poor fool who tempts the super-poisonous krait or adder.

Fifth floor. Going down.

 
 
Comment by gadfly
2006-11-27 07:55:27

“The Coming Collapse In Housing” from fxstreet.com
“I am convinced that the housing bubble is gigantic and will burst before long with massive implications here and abroad. In fact, it’s the key to the global economic outlook.”
http://tinyurl.com/y5gh8p
Great overview of things as they are–not how peeps *wish* it were. Great charts, too. Worth a read IMHO.

Comment by scdave
2006-11-27 08:47:54

Mauldin is Cool …..

 
Comment by Chrisinpnw
2006-11-27 09:08:00

Good post. Gary Shilling is always a good read even when I don’t agree with him.

 
 
Comment by Housing Wizard
2006-11-27 08:04:35

It’s really a dead market right now in my area . A condo project,(690-980sq feet ), about 2 mile down the road from me just slashed the prices 30K ,(15%).I would rather see them slash the prices than this incentive BS .

 
Comment by ChrisO
2006-11-27 08:05:54

I was driving around the Washington DC area this weekend and saw my first sign twirler outside a new condo development in Rockville. I was really excited! Maybe I don’t get out enough, but up ’til then I hadn’t seen a single twirler here despite the very many new condos being built all over the area. A friend of mine says she has seen a number of twirlers around Baltimore, however.

Twirlers are so goofy–does anyone know of any evidence that they actually result in condo sales? I mean, I know anyone who would buy in the present climate is a bit dim, but to be influenced to make a major life purchase by some college kid/homeless guy twirling a sign around by the side of the road…

Comment by Arizona Slim
2006-11-27 08:31:28

Sign-twirling is an industry that’s just begging for automation.

 
Comment by Joe
2006-11-27 09:26:55

Yes, I’ve seen several in NoVA. To me its just a sign of desperation. I got burned, but I got out at the prelude to the fall. Last thing that I would do is go running into a condo developement just becaue of a sign twirler & some ballons.

 
 
Comment by finnman
2006-11-27 08:24:34

NY Brokers pimping and fear mongering to save their jobs. They actually use this line in the article “act sooner than later or pay more”.

All I know is yesterday I looked at the Times real estate section for the first time in months and it was FULL of condo ads and rental ads. I was most struck by the number of condo ads for Queens and Brooklyn. Maybe not as many rental ads as say in 2001-2002 when buildings were offering 1 month free rent, but still plenty of ads. There was another scary article in the Times of how people earning $100,000 a year and up cant get apartments. People who just sold apartments for millions of dollars in profit are being required to put down 6 months security deposit. another reason buisnesses will start leaving, their employees cant even get approved to live in NYC, let alone afford NYC. Only the Strongest Survive

New York’s Housing Scene Is Humming Again

BY DAN DORFMAN
November 27, 2006
URL: http://www.nysun.com/article/44153

A D V E R T I S E M E N T

A D V E R T I S E M E N T

The fourth quarter is invariably the slowest and weakest period of the year for the city’s housing market. Because of the holiday season, New Yorkers are more interested in shopping for gifts and taking the kids to see Santa than shopping for a new residence.

Not so this year, according to four real estate pros, all of whom tell me the New York housing scene is humming again, contrary to all the gloom and doom talk you hear and read about. They all say sales in the Big Apple are beginning to display considerably more zip despite the usual fourth quarter weakness.

One is veteran real estate broker Deanne Esses, who plies her trade as senior vice president of Bellmarc Realty. About two months ago, she was miserable, telling me at the time prices were down on practically everything, inventories were swelling, sales were slowing, and her firm was doing so poorly that a fair number of Bellmarc brokers were leaving to pursue other careers. It was as though, she told me, “the city’s real estate business had gone on a long vacation.”

Well, that vacation, according to Ms. Esses, is over — which is good news if you’re looking to sell your apartment and bad news if you’re looking to buy one.

“We had a great November, the market is getting much better, and I think housing in the city may finally be turning around,”Ms. Esses says. Part of this, she believes, might reflect sharply higher rental prices. “Rentals are getting so steep it may be cheaper to buy than to rent,” she says.

Coldwell Banker’s Elayne Riemer, who sold an East Side apartment once occupied by Mayor Giuliani, agrees. “The market is definitely healthier, and there are practically no bargains around,”she says. It’s not, she adds, that the market is going up dramatically, which it’s not, but importantly, that it has stopped going down. Ms. Riemer notes that just about everything is selling at higher prices than a year ago — from the $400,000 studio to the $5 million three-bedroom penthouses. Indicative of this, she tells me, the average sale price at Coldwell Banker is up 7.5% from last year.

One reason for the peppier housing picture, it’s widely believed, is the advent of Wall Street’s big year-end bonuses. Last year, they totaled about $21.5 billion. This year, they’re expected to run about 10% to 15% higher.

Some other positives are said to be the curtailment of new construction, limiting the available supply, the city’s improving economy and employment picture, and the weak dollar. Also, Ms. Riemer says, buyers are increasingly realizing all the housing bubble talk they’re reading about in the newspapers is hogwash.

Jonathan Miller, one of the city’s leading real estate appraisers, also confirms the housing pickup. “We’re seeing a decided increase in the number of transactions ” he says. It suggests to the president of Miller Samuel that next year’s first quarter could be a good one, especially when compared to the traditionally weak current quarter.

Mr. Miller, who conducts well-publicized quarterly surveys on the state of the city’s real estate business, also points to the upper end as one of the best performing sectors of the market, notably apartments at $3 million and up.

What about overall inventories? Including new construction, they’ve leveled off, he says, holding at about 7,600 units the last couple of months. Overall, though, that’s still higher than the average 4,000 to 5,000 units that have been on the market over the last five years.

Given his assessment, indications are prices could firm or head up a bit from the third quarter’s average prices.

“Things are definitely picking up,” Brown Harris Stevens broker Vicki Gershwin also says. She notes, for example, most of the apartments at 15 Central Park West, a luxury building under construction with views overlooking Central Park, whose prices run north of $10 million, are practically gone. She finds the upper end especially active; ditto studios and one bedrooms because of the substantial inventory of these apartments on the market.

The bottom line: With city housing humming again, if you’re a buyer, the message is clear — act sooner than later or pay more

 
Comment by BJ
2006-11-27 08:48:15

Twin Cities foreclosures
http://www.startribune.com/535/story/834704.html

Understated incomes?!?
http://www.startribune.com/417/story/827528.html

On the same day there was an article stating that housing is not overpriced here in MN (a few pages after the foreclosures article) but I cannot track that one done. I believe it was an AP aticle.

 
Comment by finnman
2006-11-27 08:48:23

The NY Sun is now pimping for brokers determined to scare Wall Street bonus babies into buying that granite kitchen condo in Billyburg.

New York’s Housing Scene Is Humming Again

All I know is I looked at the Times real estate section yesterday and the listings for condos were out of hand, especially in Brooklyn and Queens. The rental section was busy too, not as full as say in 2001-2002 when buildings were offering 1 month free rent, but lots of expensive ads.

BTW, now you can’t even get approved to get an apartment in NYC let alone afford it.
Only the Strongest Survive

Comment by housegeek
2006-11-27 11:22:46

Hahaha. That the piece was written by Dan Dorfman speaks volumes:
http://parsol1789.blogspot.com/2002_08_11_parsol1789_archive.html
Also where exactly are the hard sales data to back up these realtors’ views?

Comment by finnman
2006-11-27 11:30:39

that’s gonna leave a mark

 
 
 
Comment by Brad
2006-11-27 09:19:13

Credit Default Swaps are actually much more thinly traded than most of us realize:

http://www.risk.net/public/showPage.html?page=351397

Comment by fred hooper
2006-11-27 15:50:55

Geez. I got to here,

“Moneyness matching occurs where the bespoke and index equivalent tranches have the same ‘moneyness’, defined as the ratio between the attachment point and the expected loss of the portfolio. So, a 0-6% bespoke tranche is equal to a 0-3% index tranche if the bespoke portfolio expected loss is twice as wide as the index expected loss. Probability matching involves the bespoke tranche and the index tranche equivalent having the same probability of getting wiped out.”

and “wiped out” is all I understand. Been there done that.

 
 
Comment by OB_Tom
2006-11-27 10:37:50

http://www.voiceofsandiego.org/articles/2006/11/27/news/01foreclosure.txt
Good to know that Real Estate keeps generating jobs:
“Leslie and James Alkire know what it’s like to have a business’s success hinge on the health of the housing market. But while the painting company they’ve owned and operated for a few years did better during the recent housing boom, their new business actually depends the cooling conditions in San Diego.

The Alkires have a foreclosure counseling agency, a venture they launched to satisfy a growing need — the rapidly accelerating number of people facing foreclosure who are wondering what to do.

The number of homeowners receiving notices of default, or NODs, is skyrocketing. The notices are sent to those who’ve missed at least one of their monthly mortgage payments. The County Records Service, which operates e-foreclosuresdata.com, reported the issuance of more than 1,100 notices in the county last month. That compares to about 400 in October 2005.

And more homes are reaching the next stage in the foreclosure process: lender repossession of the home. There were more than 400 trustee sales — homes up for bid in an auction — in October, more than four times as many as a year ago. And the real-estate-owned foreclosures, when a lender hires a real estate agent to sell the home, numbered almost 200, compared to 15 in the same month last year.”

http://realtytimes.com/rtcpages/20061127_fakeforec.htm
“Fake Foreclosure Fixers Smell Red Ink:
Like carrion crows circling carcasses, frauds faking foreclosure fixes can smell the red ink and are moving in for a feeding frenzy in markets where more and more home owners are defaulting on their mortgages.”

 
Comment by johnfromia
2006-11-27 10:51:11

From WSJ.com MarketBeat Blog: the Fed was warned by banks about the dangers of easy money and the housing bubble as early as 2002.

________________
November 27, 2006, 9:59 am
Distant Early Warning
Posted by David Gaffen

The Federal Reserve had some idea of the problems posed by inflated housing values back in 2002, according to summaries of meetings held by the Federal Advisory Council, a group comprised of the Fed governors and a dozen representatives from regional and national banks. The FAC meets quarterly to discuss monetary policy, financial regulation and other matters — summaries are released with a three-year lag — and in December 2002, during Alan Greenspan’s tenure, the council was already warning of problems related to housing. Although the signs were limited, the summary shows that the Fed was already discussing the possibility of a housing bubble as much as four years ago, not long after the technology-stock bubble burst.

“Whereas evidence of a ‘housing bubble’ is anecdotal and regionalized, the Council does express concern that housing prices will not be able to rise at this pace forever,” the summary says. “Levels of home equity have been supported by these increased housing values but should those values begin to fall, lenders will be faced with higher loan to value ratios and with little room for the problems created by a potential downturn in the economy.”

Tom Schlesinger of the Financial Markets Center, which publishes the summaries on its Web site, notes that “this tidbit suggests that lenders gave the central bank a clear warning about the consequences of a hard landing for housing quite early in what was destined to become a long boom.”

http://blogs.wsj.com/marketbeat/2006/11/27/distant-early-warning/

 
Comment by txchick57
2006-11-27 11:21:48

Whoa, going for -200 on the Dow.

Make it stop, Daddy!

LOL

Comment by scdave
2006-11-27 11:35:34

Get Shorty……

 
Comment by GetStucco
2006-11-27 14:16:33

At some point, PPT efforts to prop up the market will amount to pushing on a string.

 
 
Comment by finnman
2006-11-27 11:42:34

“Without the housing downturn, the economy would be overheating and there would be more inflation and tightening pressures,”
Now the slowdown is a good thing to keep inflation down.

CNN: 2007 outlook: Don’t sweat housing
Pair of experts think investors don’t need to worry about the housing slump and that the markets and economy will be OK.

Comment by txchick57
2006-11-27 12:03:52

Wonder if these two dudes are renters.

Comment by finnman
2006-11-27 12:30:09

probably they fall into this category
‘Times’ Still Concerned About Not-Yet-Obscenely Wealthy

 
 
 
Comment by P'cola Popper
2006-11-27 12:29:50

Yield Inversion, Tight Corporate Spreads

“In the past inverted yield curves have been harbingers of recession, but a number of economists, including Federal Reserve Chairman Ben Bernanke, do not think this is the case in the present instance.”

“Bernanke, and his predecessor Alan Greenspan, have attributed the inverted yield curve to a “global savings glut” that has sparked fervid demand for Treasurys and U.S. corporate bonds. Economists have noted that this buying spree is inconsistent with the possibility of a looming recession.”

There may be a savings glut but its not in the US. I am still sticking with the classics that the inversion of the yield curve predicts a recession and the tight yields are due to excess liquidity. Japan proved that it was possible to have a recession in the presence of high liquidity. Isn’t this what is referred to as pushing on the string?

http://tinyurl.com/y4699b

Comment by GetStucco
2006-11-27 14:15:05

“In the past inverted yield curves have been harbingers of recession, but a number of economists, including Federal Reserve Chairman Ben Bernanke, do not think this is the case in the present instance.”

To which I respond with some quotes from the late great Ludwig von Mises:

‘”This time, it’s different” are the four most expensive words in the English Language.’

‘Government is the only institution that can take a perfectly good piece of paper, print some noble words on it, and make it perfectly worthless.’

 
 
Comment by txchick57
2006-11-27 12:32:26

Gee, this is nice. Hertz IPO buyers holding the bag while . . .

The Park Ridge-based company went public Nov. 16, pricing its shares at $15, below the expected range of $16 to $18. In the first day of trading, investors pushed Hertz shares up 5 percent, and they reached a high of $16.22 on Nov. 20.

Hertz was acquired last December from Ford Motor Co. by the private equity firms Clayton, Dubilier & Rice Inc. and Carlyle Group, along with a unit of investment bank Merrill Lynch. They paid $2.3 billion in cash, borrowed more than $3 billion and assumed $10 billion in debt.

The owners used borrowed funds to pay themselves a $1 billion dividend, which helped push the company’s total debt load to nearly $13 billion by the end of September.

The owners said they would collect an additional $425.5 million in one-time dividends after the IPO, according to a Securities and Exchange Commission registration statement. At the time of the IPO, they owned about three-quarters of the company’s shares, worth about $3.9 billion.

 
Comment by Awaiting bubble rubble
2006-11-27 21:02:30

I’m waiting for Wall Street to get on board. I think about 15% of it is acknowledging a crash, but nobody is acknowledging the magnitude of the crash nor the impact. Housing reports out this week should reflect Sept-Oct data. It should be ugly. Maybe 20% will be on board by Friday. My housing puts got a nice shot today, but otherwise lately they’ve been killing me!

 
Comment by GetStucco
2006-11-27 21:14:39

The great real estate boom may have died, but not the conundrum — not yet, at least…
——————————————————————————————————-
FT.com
COMMENT & ANALYSIS
Analysis
Wall Street’s gains may be a case of irrational equanimity
By John Authers

Published: November 26 2006 19:02 | Last updated: November 26 2006 19:02

The US equity markets sailed with equanimity into last week’s Thanksgiving break. A strong rally has seen the Dow Jones Industrial Average index gain about 15 per cent since midyear, bringing with it similar rises in the developed and emerging worlds and a rash of acquisitions.

But the data used by market professionals to show the level of anxiety in the market are perplexing. On the face of it, despite great uncertainty over the direction of the US economy, nobody is worried about anything.

The Chicago Board Options Exchange’s Vix index, one popular measure of volatility, infers levels of anxiety from what investors are prepared to pay through the options market to hedge against future volatility in share prices. The Vix hit an all-time low last week. Volatility in the foreign exchange and credit markets is similarly at very low levels.

There is also little sign of risk being priced into securities. The extra yields, or “spreads”, that investors receive for buying relatively risky paper such as emerging market debt, “junk” corporate bonds or the stocks of smaller companies, are all at or near historically low levels. This is out of kilter with the US Treasury bond market, arguably the most sensitive to the economy. It is signalling a sharp slowdown next year.

Normally, investors require a higher yield on longer-term bonds. This is logical, as there is greater uncertainty further into the future. When long-term yields are lower than short-term yields (known as an inverted yield curve), it implies that the market expects an imminent worsening of conditions and lower interest rates.

The yield curve for US Treasury bonds has been inverted for a while – and the inversion has deepened over the past month as stocks have continued to rally. Ten-year Treasuries last week yielded 18 basis points less than two-year Treasuries – a strong signal that the market expects a recession.

http://www.ft.com/cms/s/7a0e36ea-7d74-11db-9fa2-0000779e2340.html

 
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