The Housing Bubble

china is putting on the breaks / bank reserve requirements
(unlike the fed…..)

plus

UK/ Rate rises bite into buy-to-let rental yields
….net yields before tax have plummeted to 3.25%.

http://immobilienblasen.blogspot.com/

have a nice sunday

MRIS numbers are out.

The main statistic I watch as a leading indicator is “Avg Sale Price as a percentage of Avg List Price”. It’s currently running at 91.67% for Loudoun county, and still going down every month.

Prices falling 20% in Florida http://www.heraldtribune.com/apps/pbcs.dll/article?AID=/20061129/BUSINESS/611290461

That will happen to the northeast by the spring as inventory levels start climbing again.

As an aside.
In another thread, an over-abundance of possesions at too young an age was remarked on. It was speculated that this is one manifestation of the “entitlement mentality”
On a related note.
When the dreadful Columbine school shootings happened there was much media coverage of the boys involved. A listing was made about how ‘good’ the boys had it.
After reading the list, I realized that one of those boys, owned more, and better “stuff” than I did.
I was married and working as an auto mechanic. Driving a 12 yr old used car. He was driving as 3 yr old used BMW. He had more clothes,guns, TV’s, Stereo’s, and “toys” than I did, He was 17, and did not work. I was not jealous, so much as sad. No wonder they went crazy. Nothing to work for, nothing to acheieve. All given to them, by useless parents.

Sunday, December 10, 2006
“Masked mortgages

With the housing boom over, its dark side is coming to light, including fraud. Government data show more criminals – and more consumers – lied to sell or buy expensive homes.

Pam Houchen, the former mayor of Huntington Beach who helped dupe lenders and borrowers in a real estate scam, is a good example of a national phenomenon.”

http://ocregister.com/ocregister/money/homepage/article_1378235.php

I wonder how many other politicians will be included in scams like this? It is amazing how many come into politics as normal middle class citizens and then leave millionaires.

Did anyone attend this presentation or have any news about it?
——————
http://www.americanprogress.org/events/2006/12/moving_on.html

The Economic and Policy Implications of the Housing Bubble
December 8, 2006, 12:00pm – 1:30pm

Keynote Address:
Senator Paul Sarbanes (D-MD)

Featured Panelists:
Dean Baker, Co-director, Center for Economic and Policy Research
Kimberly D. Warden, Vice President of Federal Affairs, Center for Responsible Lending
Christian Weller, Senior Economist, Center for American Progress
Mark M. Zandi, Chief Economist and Cofounder, Moody’s Economy.com

Moderated by:
Derek Douglas, Associate Director for Economic Policy, Center for American Progress

Opening Remarks by:
Sarah Rosen Wartell, Executive Vice President for Management, Center for American Progress

Location
Center for American Progress
1333 H St. NW, 10th Floor
Washington, DC 20005

After a six-year boom in home prices, the housing bubble is finally deflating. Millions of families were able to take advantage of the boom, buying, selling, and then buying new homes again. During the same period, however, homeownership rates actually declined for a significant number of Americans. Recent economic data has also tarnished the legacy of the great American housing boom by revealing that many families are in a very vulnerable situation economically. The equity share of homeowners’ stakes in their own homes decreased as homeowners amassed new debt more rapidly than their homes appreciated. Rising home prices led families to have a greater concentration of wealth tied up in their homes even as they expanded their credit lines to fuel their consumption. A slowdown in the housing market could thus result in less consumption growth and less economic growth. In short, policymakers have a number of issues to address in the coming months and years as we face the fallout from the end of the housing boom.

Join the Center for American Progress and a distinguished group of panelists for a discussion on what the end of the housing bubble means for American families and for the economy. The panelists will discuss if preventing a similar boom is desirable and how that could be accomplished. The panelists will also highlight what policy makers must now undertake in order to address the effects of the end of the housing bubble. Particular attention will be given to what affordability measures are needed. The honorable Sen. Paul Sarbanes (D-MD) will provide opening remarks, followed by presentations from four experts.

Location
Center for American Progress
1333 H St. NW, 10th Floor
Washington, DC 20005

Fannie’s 10-K is on their website, http://www.fanniemae.com
No one has yet commented on the fact that they include ‘price declines in 2007′ as one of the risks to which the business is exposed. I’ve never seen that in a GSE 10-K before, but I admit I haven’t looked at all of them. Has anyone seen this sort of statement in earlier 10-Ks, or is this a first?

This was from iTulip.com the other day,and think explains everything….

as Keynes once pointed out, a banker’s job is not to avoid risk, but to make sure that if he’s making a mistake he’s making the same mistake as everyone else, so that he’s positioned to go down with everyone else and not stand out.
……..Reminds me of the Chinese saying, “No snowflake in an avalanche feels responsible.”

This article says pretty much everything we have been saying here, but adds some interesting contrasts with earlier real estate manias

Floridians wake up and find out that the average Florida home has dropped by 18% value and in some places, Ft Myers, by 44%. WOW! I bet everyone feels so good that they will just go out and buy stuff!

Sarcasm off now - I just cannot see how this does not affect the overall economy.

Another thing that I have not seen anyone talk about is the low number of jobs created in November only 132K. I say low because during the 90’s most months had job creation of over 200K. I seriously doubt that 132k new jobs are enough to keep this economy afloat.

Sunday, December 10, 2006

Trump opens condo sales on Mexico’s Baja coast

Developer’s name eases worries for some about violence in Tijuana and allegations of pollution.

The Associated Press

SAN DIEGO – Donald Trump’s new luxury hotel-condominiums on Mexico’s booming Baja California coast went on sale Friday, potentially heralding a resurgent development boom along the Pacific shoreline just south of the U.S. border.

The Donald did not show for the one-day sales event at a plush San Diego hotel, but his persona loomed large in the ballroom, where would-be buyers nibbled on biscotti and sipped espresso as they waited to make their bids and celebrated over sirloin tip and fish tacos after clinching the deal.

“Trump is my idol when it comes to real-estate investments,” said Med Sami, 42, of Irvine, after forking over $431,000 for a one-bedroom condo on the fifth floor of the oceanfront property.

Construction of the $200-million-plus Trump Ocean Resort Baja Mexico is expected to begin by the end of March, with the first of three towers to be completed by the end of 2008, according to Irongate, a Los Angeles real-estate investment firm and Trump’s partner on the project. Prices range from the mid-$200,000s to more than $1 million.

A giant screen in the ballroom showed that 70 of the first tower’s 232 units – worth about $46 million – were spoken for by noon, including four of six penthouses in the 27-story building. Names were called one by one, with each person given only a few minutes to decide. The screen displayed the names of four people next in line.

Trump’s daughter Ivanka was one of the first buyers, snagging a two-bedroom junior penthouse, said Roxanne Loughery of S&P Destination Properties, the sales agent.

Trump’s imprimatur was just what many needed to take the plunge, said Jason Grosfeld, a co-founder of Irongate.

“When The Donald is willing to put his name on the site, that means a lot,” he said.

Buyers in the predominantly Southern Californian crowd said Trump’s involvement eased concerns about owning land in a foreign country. They were undeterred by spiraling violence in the border city of Tijuana, and they paid no heed to protesters outside the hotel who said Trump’s property was on one of the most polluted beaches in North America, a charge the developer emphatically denied.

“Trump’s name didn’t hurt,” said Tom Pfleider of Beaumont, who dropped $550,000 for a one-bedroom on the 11th floor. “I’m sure he wouldn’t put his name on it if he hadn’t (investigated) northern Baja meticulously.”

Trump’s gambit in Mexico comes amid a construction boom on the Baja coast, just south of San Diego, fueled by Americans seeking second homes, affordable retirement spots – or a lucrative investment.

Gustavo Torres, a real estate broker from the Mexican town of Rosarito Beach, said Trump’s towers will be the tallest on the 50-mile oceanfront stretch from Tijuana to Ensenada and could catapult the region ahead of Cabo San Lucas, the peninsula’s other big resort area.

“This puts us into completely new territory,” Torres said. “We were like 20 years behind Cabo San Lucas and, with Trump, we are ahead.”

Marc Penso, a 46-year-old investor from Irvine, said he didn’t plan to keep his new two-bedroom unit. He is betting that Baja’s relatively low home prices – at least compared to Southern California – will continue to fuel the boom and give him a tidy profit.

“Everyone in this room is doing this as an investment,” he said. “There’s no one here who’s going to own these units in five years.”

I was in Best Buy Aventura , Miami yesterday to buy a vacuum cleaner. The sales manager told me that he had to send a good number of his employees home early due to it being very quiet. No lines at check out. It was cool cloudy day in Miami great for shopping but no shoppers.. Same at Target. Aventura Mall was packed but I know I go there for the nice X-Mas atmosphere and decorations, more than to buy. Will be interesting to see the sales report this season..

This is slightly OT. With foreclosures hitting record levels, Walmart and other discounters having a slow season, and debt-laden middle class and working class Americans increasingly squeezed, this report from the NYT on the “have-mores” who are having a blowout holiday season, with million dollar plus office parties, and general excess not seen since 1999.
“…Driven by higher salaries in the financial and technology industries and bigger Wall Street bonuses, corporate events are larger, more creative and often costlier than in the recent past, party planners, restaurant owners and banquet managers say…
…But at a time when the Dow has reached new highs and the haves are evolving into the have mores, these celebrations are more in line with the buoyant economic mood than with the discouraging situation in Iraq. This season, there is a greater willingness to throw more-elaborate parties, complete with themes, video displays and specialty cocktails…”
http://www.nytimes.com/2006/12/10/fashion/10hospitality.html?_r=1&oref=slogin

Lizard brains and bovine brains, beware the Ageing bull…

http://economist.com/finance/displaystory.cfm?story_id=8382415

Buttonwood
Ageing bull

Dec 7th 2006 | NEW YORK
From The Economist print edition
With few places left to turn, investors have pinned their hopes on the stockmarket

ROCKY is returning to American cinemas this Christmas. And the financial markets increasingly resemble Sylvester Stallone’s ageing pugilist: they may get knocked about a bit, but they always seem to bounce back.

In recent weeks disappointing economic data have pointed to the possibility of an American recession in 2007. The dollar has weakened sharply, raising the spectre of the complete collapse that bears have been predicting for years. And on December 4th Pfizer, the pharmaceuticals giant, saw its share price plunge after yet another drug failed the testing process (see article).

But the stockmarket has rolled with the punches. And other asset classes have been similarly buoyant. The spreads (extra yields) on corporate bonds and emerging-market debt are low by historical standards; commercial-property valuations in America and Britain are high.

The general explanation for this bullishness is that the world is flush with liquidity. But liquidity is one of those catchall phrases that is not as good as it sounds—a bit like saying “there are more buyers than sellers”, which is itself a cliché of dubious merit (for every buyer who makes a trade, there must be a seller).

What does appear to be clear is that investors are happy to take on risk and eager to buy any asset that offers a higher yield than government bonds. And even those investors who do worry about the American recovery, or about political risks in the Middle East, have to think twice before they sell. The corporate sector is still increasing profits and churning out cash in the form of dividends and share buy-backs. Every Monday seems to bring news of a mega-merger; on December 4th, it was the combination of Bank of New York and Mellon Financial (see article). Potential bid targets from the private-equity sector get larger and larger (the latest tittle-tattle is about Home Depot, worth over $100 billion if you throw in debt). Why sell your shares if someone might be willing to buy them tomorrow at a 20% premium?

As for the dollar, the reason to worry would be if a falling currency prompted foreign investors to demand higher yields on American Treasury bonds to compensate them for the risk. That might really push America into recession. But it is not happening so far; yields have been falling.

All this adds up to what Jim Cramer, the hyperactive pundit of American financial television, describes as “one of the best markets I’ve ever seen.” Bulls are talking about double-digit stockmarket returns in 2007, thanks to a combination of stockmarket rerating (higher price-earnings multiple) and growing profits.

So what might spoil the party? One problem, as the producers of the Rocky series know only too well, is that sequels are subject to the laws of diminishing returns. Once bond spreads and property yields are low, there is no longer much scope for further capital gains.

That is why investors’ hopes are pinned on the stockmarket in 2007; share valuations are only at historically average levels. But company profits are at a 40-year high as a share of American GDP. If profits were about to revert to the mean, share multiples should fall below average.

The bulls do not think that will happen soon. But whereas one more year of above-average profits growth is possible, three or four more are hard to imagine.

Clearly, the use of borrowed money to enhance returns (often referred to as the “carry trade”) means that the markets are vulnerable to a change in sentiment. When the trend changes, as it did in May, there will be a mad rush for the exits. As Bill Gross of Pimco, a bond giant, writes: “I have a strong sense that the ability to lever any or all asset returns via increasing leverage is reaching a climax.”

Timing, however, is notoriously difficult. Bears can point to low share volatility, as measured by the Chicago Board Options Exchange’s VIX gauge, as a sign of investor complacency. But it may merely be that investors have seen no need to incur the costs of insuring their portfolios against loss.

The markets will thus need some sort of shove to push them off today’s course. Higher unemployment would be one possibility: it might turn the housing-market correction into a rout. If the nuclear dispute with Iran were to escalate so that, say, the straits of Hormuz were blocked and crude jumped to $100 a barrel, investor confidence would take a hit.

But predicting such events is more in the realms of astrology than financial punditry. Sceptical fund managers have been forced into a position of being “fully invested and scared as hell.” The knockout blow will undoubtedly come (probably in the credit markets). But just like the Rocky franchise, bull runs on financial markets have a habit of going on much longer than most people expect.

House prices
Bubble and squeak

Dec 7th 2006
From The Economist print edition
While America’s housing market cools, property elsewhere is still hot

IN MANY countries, people are showing little sign of losing their appetite for residential property. Although the pace in several of the raciest markets around the world has eased a bit in the last quarter, prices have risen by more than 10% in the past year in eight of the countries in our table. The Economist has been collating these house-price indicators since 2002, allowing us to track the global residential-property boom (see chart).

However, in America the steam has come out of the housing market. In the year to the third quarter, the index of house prices compiled by the Office of Federal Housing Enterprise Oversight (OFHEO), a regulator, rose by 7.7%, the smallest year-on-year increase for three years. In the quarter itself, prices rose by only 0.9%, the weakest for more than eight years.

The National Association of Realtors reported that the median sale price of existing homes was the same in October as in September, 3.5% less than a year before; according to the Census Bureau, the median price of a new home bounced up in October. But both figures have been affected by a shift in the regional pattern of sales.

Only in the West, where homes tend to be among America’s biggest and dearest, did the number of existing or new houses sold increase in the month. In the North-East, sales of new homes dropped by 39%. Across America, existing-home sales were down by 11.5% in the year; those of new properties were down by a quarter.

A huge number of homes is awaiting sale: 7.4 months’ supply of both existing and new properties. David Rosenberg, an economist at Merrill Lynch, points out that inventories of new homes are 40% above their historical norm. The number of new properties completed but not yet sold has risen by 50% in the past year, to 166,000. America’s builders are cutting back hurriedly. In October alone private residential-construction spending fell by 1.9%; it was 9.4% lower than a year before.

Although America’s bubble is deflating, other markets are still looking decidedly frothy.

http://economist.com/finance/displaystory.cfm?story_id=8381960

Anyone interested in ponying up $379k for a shoebox cabin (700 square feet) in Tahoe? Didn’t think so. It should come as no surprise that this beauty has been on Craigslist nearly every day for months. These FB’s bought it 2 years ago for $295,000. Funny thing is, this little crapbox sold for $120,000 back in 2001. But everybody wants to live in Tahoe, real estate only goes up, no bubble here, great investment, blah, blah, blah. This little POS is going right back down to the sub $200k range and quick. Have a look for yourself.

http://reno.craigslist.org/rfs/246797649.html

Kinda off topic… but does anyone have any recommendations for a domestic savings account product that’s held in Euros? Or an overseas account from a reputable institution that provides a decent rate of return with minimal fees that is open to US residents? Maybe I’m just looking in the wrong places, but I’m having a hard time finding something that meets all this criteria–the only good ones seem to only be available to UK residents or whatever.

My wife and I own a 10,000 sq. feet lot that we want to build a 2000 sq. foot home on in mid 2007. The builder has quoted us a price of about $92 a sq. foot. The only luxury that includes is 3/4 inch hardwood floors. I think that this is too much to pay. If prices are still dropping in 2008 we will wind up with a 210k house worth maybe 160k. Please email me your thoughts at: thegraywizard2000@yahoo.com

At AJ’s (upscale grocery store) in Chandler, AZ this afternoon:

“Two weeks before Christmas and it’s dead in here. We should be a lot busier than this.” - sommelier talking to another customer in the wine department.

“…actually, It’s looking pretty haggard in here.” - checkout clerk.

Michigan Homebuilder Raids Employees’ 401k Plans

Jim Elliott, 55, spends his days clambering onto the tops of houses, taking measurements for the wooden trusses his company sells to support roofs through long, snowy winters.

Then Elliott learned that his former employer had looted the company’s 401(k) plan. The $230,000 he had saved over three decades was gone.