Bits Bucket And Craigslist Finds For December 13, 2006
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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reit mania / what are buyers thinking…?
once more scary stats and numbers about reit´s.
looks liks another bubble, feels like a bubble……
http://www.immobilienblasen.blogspot.com/
mic to wind down in 07 ?
after war spending there’s usually low growth….
add arm resets and stir
Flat posts ” after war spending there’s usually low growth….
add arm resets and stir ”
Yep! I might add the fact it slipped GWBush’s mind to fund or pay for the war, we are in the hole big time!
Do you recall “The Guns and Butter War?” Recall the 10 year mess to “unwind” it…..
I think you have your eyes on the big picture here.
One more thing here Dec14 I predict GWBush will doubble down in Iraq in his up comming speech…. 2 Division plus surge to take down Bagdad before his term is up.
This guy is an idiot, but I figured I would give you a chance to rip his arguments apart before I go at them. Any stupidity you discover will be included in the final response. He is trying to explain to me how you can rent a 500K home for 2K a month and still make money at it. Enjoy:
Mikey - you are now changing your numbers to try and present a greater challenge. You are all over this blog saying the house was worth 500K, and if you deny it I will cut and paste excerpts of your posts.
You also vary from time to time, sometimes saying you pay 2000/month, sometimes 2500. But since 2K is plenty my cat gave you the benefit of the doubt.
My cat made the normal assumptions of 100K down and 400K note. He gets canky when he is sleepy and does not want to re-do the figures tonight.
My cat tells me, first of all, 1.5% of market value is closer to reality in PBC. If we were in Broward, 2%.
The reality is a brand new house pays almost zero taxes the first year, because the tax appraiser still considers the lot as unimproved — but my cat can even let you get away with the fiction that the landlord is paying significant taxes the first year.
You are definitely making it sound like your landlord is an investor, so there is a good chance he took a 7 year balloon, interest only.
In other words: Assuming 5.5% mtg (a bit high for the time your home was built, but again, there is so much room) Mortgage = 1,833 HOA = 300 (quite high) Taxes = 625 Insurance = 200 (this will vary,wind yes flood no )
2958 a month. Now: This all gets filtered through a Schedule E, where your landlord can claim an imaginary “depreciation expense” on the improvements to the land. Figuring accelerated depreciation with a 50K lot, my cat believes $1350 a month is a reasonable guess.
My cat says chop off his supposed losses at the 25K passive loss limit. If hubby and wife both work, my cat says you can assume around a 33% tax bracket, or around $687 a month savings in real cash dollars.
2958 - 687 = 2271
In other words, my cat says it would cost the landlord of that 500K house just over $250 a month to own it — an absolute nit for a working couple with semi-decent jobs, or for one worker with a professional salary.
No appreciation this year? OK. Next year? No? OK. How about in 20 years, Mike, will the house double in 20 years? In 20 years, all other things being equal, he will have spent 65K to make 500K, and have favorable captial gains treatment.
I’ll take that deal, Mikey — I would have to be crazy not to. And what if, instead of 20 years, it’s just 5 years?
You can argue there is an “opportunity cost” to the down payment, but this depends on what you do with it otherwise. Stick it in the bank for 2%? Risk it in the stock market? Very nebulous.
Well here’s the first error:
———————
Assuming 5.5% mtg (a bit high for the time your home was built, but again, there is so much room) Mortgage = 1,833
———————
Even with 20% down (principle = 400,000), a 5.5% mortgage is $2,271 per month, not 1,833.
Just start with that. If they guy flunks that simple math (or use of a simple website like mortgage-calc.com), there’s no need to go on. Just shake your head and walk away.
BTW, with 0% down, which is what you’d need in the rental market to “make money” up front, the mortgage is $2,839 per month. Otherwise, any down payment is a direct expense - a huge subtraction from “earnings”.
Otherwise, if you don’t factor in the down payment, you might as well claim 100% down, which means $0 per month mortgage. That’s making all kinds of money!
assuming 5% money market, putting down 100K is about 400$/month of lost income. i believe that is called an opportunity cost? though you may need to tax-adjust.
He is using interest only so 1833 is the correct payment. The first error i saw was 5.5 rate for a non owner-occupied prop. A more likely rate with good credit is at best 6.75 wth two points.
he’s using an IO with baloon.
$1833 is correct for interest only. The proper way to value an investment decision should be the present value of the expected cash flows including any capital gain on sale.
Negative cash flow in the above example is neglecting a number of important elements that will make negative cash flow much more severe.
1) Vacancy- Assume you aren’t going to get a tenant immediately and they aren’t going to be perfect angels and pay rent on time and stay for 20 years. There will be inbetween times when you have no tenant and you must have reserves to pay the full mortgage for awhile.
2) Maintenance and Repairs- Try renting a house for 20 years without ever calling a plummer or replacing carpets. Good luck! This is a significant expense that has been excluded.
3) Inflation- taxes go up, maintenance costs go up, insurance rates go up, Rent sometimes goes up but often not enough to cover the increased expenses
4) Interest Rate Risk- with a balloon mortgage the full payment is due after year 7. If the house isn’t worth as much as the mortgage he will be in real trouble and not be able to refinance. He also has significant interest rate risk. 5.5% IO ARMs may not exist in 7 years. He may be forced to get a conforming mortgage at rates of 8 or 10%.
5) Realistic opportunity costs- you can get a 7-year CD from a credit union that pays 6%.
The biggest problem with your friend’s analysis is some faulty assumptions and a shortsighted plan that is only concerned with making the first year pencil out.
In my opinion, amateur investors always leave out the replacement reserves and dont add in management fees (whether self-managed or not there is still time involved).
No appreciation this year? OK. Next year? No? OK. How about in 20 years, Mike, will the house double in 20 years? In 20 years, all other things being equal, he will have spent 65K to make 500K, and have favorable captial gains treatment.
I’ll take that deal, Mikey — I would have to be crazy not to. And what if, instead of 20 years, it’s just 5 years?
You can argue there is an “opportunity cost” to the down payment, but this depends on what you do with it otherwise. Stick it in the bank for 2%? Risk it in the stock market? Very nebulous.
Funny how he calls the stock market “nebulous” yet he’s willing to tolerate waiting at least 20 years for his house to double.
Also, he mentions “favorable captial gains treatment” but the longer you go out, the less certain this gets too. He uses a 20-yr time horizon… well, in the last 20 years there have been at least THREE major changes to the capital-gains tax.
Ain’t that the truth! I have had option positions double and triple intraday.
If a landlord depreciates the rental property for taxes, isn’t the entire sales price a capital gain? That’s how it worked for a relative of mine who owned rentals.
Also, the next 20 years won’t be anything like the last 20.
Im no accountant but, if you claim this huge paper depreciation on your taxes every year, wont there be some repocussions once you sell the home?
Whole thing is too complicated and with too many assumptions. People forget that being a landlord is a *job*, not an investment. And for a job, I expect a better return than that.
A landlord can deduct the total value of the house over a period of 27 years, as the law stands now, and this person mentioned this as a benefit of renting the house. But he never mentioned that, assuming the landlord ends up selling the house for more than he bought it for, under the current tax laws he would have to pay the 25% unrecapture depreciation tax on the total amount he deducted when he sells the house, which will amount to $75,000 if the value of the house was 300k (with the land being worth 200k). Undoubtedly the 500k profit on the house would put him at or above the 25 percent tax bracket, putting him in the 25 percent unrecapture rate.
Good call Kim. A lot of folks find this out only after the sale of their investment property. That depreciation write-off will come back and bite you.
And he can only take a full rental loss if he makes under $100k/year. Between 100k and 125k he gets it partially phased out. And if his AGI is over $125k then he get no passive loss.
And he can only take a full rental loss if he makes under $100k/year. Between 100k and 125k he gets it partially phased out. And if his AGI is over $125k then he get no passive loss.
An investment should not cost you money. It should make you money. Period. If the rent/own numbers are out of whack that is not the time to buy a rental property. But I agree with bgates below.
He can take the full loss if he is considered a “real estate professional”. He would have to meet the criteria set forth for qualifying as one, but it does allow for taking the full loss.
Don’t argue with the guy. Encourage him. Tell him he’s a genius. He should carry this plan out twice.
If he does, and he’s still trying to make it work in three years, offer to buy the house for a third of what he paid for it.
Exactly what I told my ex!!!
rose,
you have made some interesting comments in the past about the federal reserve bank (u.s.) being privately owned. Who owns it and is there any other info you have that might surprise me/us?
This ought to get you started
http://www.financialsense.com/transcriptions/2006/1018griffin.html
And if you are still looking for material to chew on
http://www.safehaven.com/article-6234.htm
“Figuring accelerated depreciation with a 50K lot, my cat believes $1350 a month is a reasonable guess.”
Wrong. IRS allows only straigt-line depreciation for improvements to real estate, over 37.5 years. Big difference.
“In 20 years, all other things being equal, he will have spent 65K to make 500K, and have favorable captial gains treatment.”
Also wrong. The only way to make a valid comparison is to do present value analysis. Determine the present value of 500K which is not to be received until 20 years from now (using a reasonable rate of interest), and compare that result to the present value cost of a stream of payments (the 65K). Assuming that the 500K payment is a valid assumption, this WILL offset a stream of payments over the same period totalling 65K, but the benefit is nowhere near his implied benefit of $435K.
A question directed at Robert Toll in an article in today’s WSJ:
“How long will it take for this housing slowdown to work itself out?
Mr. Toll: We are bouncing along the bottom. I would expect the inventory overhang, which is what is killing the confidence level, to be absorbed during the first several months of the next buying season. If that inventory is eaten up, and I expect it will be, then I think you will see an alarming rate of change in the supply-demand equation in house pricing. I think what we are in right now is an artificial inversion. To a large extent, it all depends on our perception of ourselves. It has a lot to do with politics.”
He was also going to kill the shorts with his stock right before it got cut in half.
Recall the discussion of whether new urban condos, aging suburbran subdivisions, or new exurban McMansions would tank more. Toll says the first and last (what he’s building) will do great.
Another point — in the 1960s and 1970s people didn’t like to flaunt wealth, but now they want huge homes to show it off.
I agree that absent crime and other ills the city is a great place to live, and cities with a tolerable level of such things will prosper, but not at his price points. The McManasion is a fad that will go the way of the SUV; they’ll be sold cheap or group homes. Established suburbs with good schools should do the best.
“He was also going to kill the shorts with his stock right before it got cut in half.”
He cashed in his personal horde of company stock right before it got cut in half, too.
All sorts of bubbleriffic stuff in the WSJ today.
In addition to the Tokk interview, there’s an article about how first-time buyers are starting to sniff around RE again, and a nifty chart of mortgage-to-rent ratios in most major US cities.
The comparison is 2006 vs. 2001. NO city currently has a ratio above 1, and the “mortgage” costs don’t include taxes/insurance/maintenance. Heck, I’ll post the numbers myself.
I always ask folks ready to jump back in what the rent ratio was when they bought before
120 to 130 times rent MAX
150 w lower interest rates maybe
after that it’s pure speculation
The cap gains exemption bumps this a bit as would California property tax rates. Likewise ‘cane insurance on the Gulf or SE coast and their generally high property taxes subtract.
Very good point Mr.Cote . I have always felt that the capital gains exclusion pushed up the value of real estate as it would a tax free bond .i have been trying to figure what the bump would be .
“[T]here’s an article about how first-time buyers are starting to sniff around RE again…”
IMO that’s due to a woeful lack of education amongst first time buyers. They listen to the realtors and the lenders, but they don’t listen to common sense. Whatever happened to, “If it sounds too good to be true, it is too good to be true?”
Hmm, I’ve posted this question before. Here we go again! Houses are not Cokes, SUV’s, or TV’s. How exactly is the excess to be absorbed? Houses are not comsumable goods. Or course, the stapled sheetrock, poor construction, etc, could reder this question moot.
Roidy
Those who get the dead-tree version of the WSJ may have noticed something interesting about that “First-Time Buyer” piece’s format. If you were in a hurry, and only read the portion on the first page of the section, you might have taken the impression that you had better buy now or get priced out forever. Only by taking the trouble of opening up the paper and reading the inside portion could you learn that the cost of renting is less than half the cost of owning in most of the markets formerly known as frothy.
Get Stucco said:
Only by taking the trouble of opening up the paper and reading the inside portion could you learn that the cost of renting is less than half the cost of owning in most of the markets formerly known as frothy.
I noticed the same thing this morning. I used to work in news (as an editor, not a reporter), and that to me is always a signal of turmoil in the newsroom. It tells you right away that there must have been strong disagreements as to how to frame the story, what to bury deep down, what to write in the headline (which is what most people read). The headline suggests that first time home buyers are beginning to test the waters, while all the second part of the story tells you how first time home buyers may be in trouble. When a story tap dances so much and gives so much contradictory information, you know that there have been fights…
I hear from a friend who knows a girl whose brother’s doctor has a friend who knows a scientist who said that right now in a secret lab in Nevada the gov’t has produced a giant housing sponge that when launched into the sky will absorb all excess housing, and, then, the sponge will take these houses to the moon where a new colony will be created for the overpopulated Asian countries. Excess inventory problem erased. Buy homebuilder stocks now.
The really neat thing is those Asian countries will be using all their US dollars to buy those houses, thus knocking out our trade deficit as well.
Get some sleep Jimmy……..oh, I don’t care what they tell you, acid is not a brain expander.
jimmyB
You are the smartest person I have read. I hope Prez GWBush makes you Fed Chairman.
JimmyB do you and imploder share the same bong?
What is “artificial” about the “inversion” of prices? Is there something unusual going on in the economy that’s taking place?
Or is the “inversion” a product of fundamental economics? Me, I think the use of the words “artificial” and “inversion” are very “artful” and meant to obfuscate reality as best as possible.
Good try though, should impress a lot of (economically) illiterate people.
“Artificial” might inadvertently but appropriately refer to the effect of various government interventions which offered Toll and other builders cash in on a once-in-a-century opportunity to personally enrich themselves at the expense of FBs thanks to mania pricing. These measures would include lax lending oversight, $500K home equity gain exclusion, conundrumish absense of risk premiums in MBS yields and a negative real FFR for a protracted period of time in the early 2000s.
The only thing artifically inverted is Toll’s head up his ass.
That’s not artifical…in his case…it’s natural!
Toll: “I would expect the inventory overhang … to be absorbed during the first several months of the next buying season.”
OK, I give. When is the next buying season?
According to this historic housing price chart, the year 2010:
http://graphics10.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
Why, the Soft and sweet, wise and wonderful, mystical, magical Spring Buying Season ‘07. I’ve heard that 1/2 of all yearly sales happen between March and June, so the REIC is betting (yet again) that the Spring Buying Season will be their salvation.
“next buying season.” I’m thinking the next buying season is Spring 2014. So you see Bob is right.
” I would expect the inventory overhang, which is what is killing the confidence level, to be absorbed during the first several months of the next buying season.”
He just neglects to mention that the next buying season will be in 2010.
Uk employment up- and housing prices- go figure
Just means the bubble is even more inflated on the other side of the pond. Have 100 mortgages made their way to the UK yet? I hear they’re available in Spain now. Last place we saw 100 year mortgages was in Japan about 18 years ago.
100% mortgages have long been available in the UK. When I was living there a few years bakc,there were 105% mortgages, though generally not for the average bloke. Seems that it’s become more accepted now, though, and that’s one of the things that’s kept their housing bubble going. Another thing is the difficulty of building new houses. “Not making land anymore” can almost be used as an argument, but that really only can go so far before you hit the limits of affordability.
The Brits have astounded me with their ability to pay more and more for housing. Ouch. The big worry there is if interest rates head upwards significantly. Their idea of a fixed rate mortgage is fixed for TWO or THREE years, not 30! So when rates go up, pain is felt all round, unlike the more resilient US mortgage market with a relatively high proportion of stable, long-term-fixed-rate mortgages.
All it takes there is a bout of inflation and a Bank of England that slam rates up to fight it, and you’ll have instant housing market crisis.
i think Lou was asking about 100 YEAR mortgages
Oops, sorry about that; I did misunderstand. No, in the UK, unless you’ve got a buy-to-let mortgage for interest only, as a homeowner you are in general limited to a mortgage term that doesn’t even go past your retirement age.
Seriously. If you are 50 years old and want a mortgage, most banks (at the time anyway, 5 years ago) would make you take no more than a 15-year mortgage! Given the meagre British pension, it was understandable, and the bank doesn’t want to be seen throwing pensioners out on the street in the event they can’t pay.
That’s conventional lenders. I’d not rule out smaller, more “nimble” and aggressive lenders offering the same poison that our mortgage brokers here do, the difference being that (as far as I know) there is no quasi-government-supported organisation in the UK to buy up all these packaged mortgages, and UK banks are notoriously stingy and won’t be a good market for packages of tricky loans.
MBA mortgage application index is up again. Mostly by refinancing (which is hardly surprising) but purchase index is up too and is significantly higher than a month ago and is at the highest level since January 2006.
I’m puzzled. Does it mean that more GF decided to jump on the bandwagon because of slightly lower home prices and rates? Or is it a statistical fluke? The MBA index tracks only applications (not the final mortgages) and tracks only 50% of the mortgage market. Maybe the share of the tracked market increases in expense to some shady subprime companies?
Well, if this increase is confirmed by higher sales then it is going to be another round of “the worst is behind us” calls.
A couple of us wondered last week if this might reflect multiple subprime applications by individuals who now are getting turned down by the first lender approached, or more.
Why should first timers buy when renting is so much cheaper? From another article in today’s WSJ titled First-Timers Begin Looking At Houses Again:
“In much of the country, renting remains a bargain compared with owning, according to an analysis prepared for The Wall Street Journal by Torto Wheaton Research, a unit of CB Richard Ellis Group Inc. In markets such as Las Vegas, San Diego and Washington, the monthly cost of renting the average apartment is roughly half what it would cost to own the median-price home in the third quarter…”
Here’s the table. Rent vs. Own Ratio
City 2001 2006
Atlanta 1.01 0.82
Boston 0.87 0.63
Charlotte 0.85 0.66
Chicago 0.84 0.68
Dallas 0.94 0.89
Denver 0.65 0.57
Houston 0.90 0.83
Indy 0.93 0.93
Vegas 0.83 0.49
LA 0.82 0.46
Miami 0.89 0.52
Minny 0.84 0.72
Orlando 1.03 0.58
Philly 1.07 0.81
Phoenix 0.86 0.54
SD 0.61 0.38 (!!!)
SF 0.67 0.42
Seattle 0.60 0.45
Tampa 0.98 0.66
DC 0.82 0.51
US Average 1.02 0.79
Comparison is 2001 average vs. 3Q 06. Mortgage costs do not contemplate taxes/ insurance/ assessments/ maintenance nor account for interest deduction.
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so what does this mean?
US Average 1.02 0.79
Does this ratio mean a scenario of $1,020 to Own vs. $790 to Rent per month? And the taxes/ insurance/ assessments/ maintenance are not included in the $1,020?
I would like to see a city by city ratio of rent vs. own which included all costs and the rent is a constant 1.00 number.
For example:
San Diego: Rent = 1.00, Own = 1.30 (or whatever)
Gekko - take another look at the table header. The first column applies to 2001, the second to 2006. The table suggests that in 2006, cost to rent is 79% of cost to own.
Sorry, I wasn’t clear. In 2001, the national average was that rents were 1.02 times mortgage payment for similar properties. A property with a $1000 mortgage payment would have a $1020 rent.
In 3Q 06, rents were 0.79 times mortgage payment. That same $1000 mortgage payment now only fetches $790 in rent.
The table only mentions a “30-year mortgage”, which I presume means a 30-year fix with 20% down. This assumption makes the number for Chicago and a few other cities I’m familiar with sound about right.
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ah ha! thanks! either my ADD is kicking in or it’s just too early in the morning!
Maybe five years of inflation (~4% per year) may bring rent and mortgage ratios normalized. What are the chances of that?
Althuogh I’m impressed by SD’s 0.38, I’d like to divert your attention to Seatle’s impressive 0.45 .
First hand experience: The value / rent multiple for my current residence is ~350. Yet people still tell me I’m paying my landlord’s mortgage. *yawn*
It’s even higher than 350 if it’s a condo building and you factor in assessments! For my condo it’s about 250 raw but well over 300 when assessments are factored in.
The value / rent multiple for my current residence is ~350. Yet people still tell me I’m paying my landlord’s mortgage.
But you are! Uh, more precisely, you’re paying maybe a THIRD of your landlord’s mortgage. Hee hee hee.
Good on ya!
It is funny to see a WSJ article posting a rent-to-ownership cost ratio of 38% for SD only one day after the SD Union Tribune’s article about how the 5.8% rent increase is a boon for SD-area landlords…
Wow, that terrifying raise will possibly up the ratio to 40.2%, presuming prices hold steady!
Considering it should be abot 10% - 15% more expensive to rent than own, means even in Philly, houses are about 42 - 47% over priced.
I just came back from a three day business trip to Detroit. Talked to several people about the economy and housing. Very bad. Parking lot of the local Walmart on Monday night at 6:00 PM was half empty however, the Applebees I had dinner at was busy. Ford is laying of workers by the 10’s of thousands. Most think Ford is done - out of business - just a matter of time. Can’t sell a house for any price. It was overcast and rainy the whole time. Depressing.
But specu-vestors see gold in them hills of D-Troit.
I was there over the summer, and I agree. As we drove around town, the person I was with kept pointing out factories that were going to close. It seemed like everybody had a boat, car, snow mobile, or jet ski they were trying to sell.
Not a good time for Motown.
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The damn unions killed the American auto industry. You can’t pay unskilled labor $30+ per hour and survive very long in a global economy.
They’re not finished, either.
I’m trying to figure out how unionizing the TSA is going to make my travel experience better…
Damn unions!
I’m in a union and I hate unions!
Why don’t I believe you.
Somehow, I knew that would bring out Kenny.
In any case, I have leftist teacher friends here in the SF Bay who can’t stand their union at all.
The nurses, on the other hand, however….
Jack…. how many damn usernames do you have?
unions and pensions costs were a huge part of the US automakers problem
but in the end, they just made inferior products
$30/hour is squat in this country. Qualifies you for a 90k house. Maybe in Detroit you can get one for that, but I can’t think of any other place.
$30/hr is ~ $60,000/year. That is significantly higher than the average.
FYI…..The average annual pay for a unionized hourly worker in the old big 3 automakers (GM, Ford,Delphi, Visteon, etc.) is approx 130K, which includes benefits.
$30/hr is over double the average wage in this country. If you had a 2 wage earner family each with those jobs, it would be huge compared to the norm. It would qualify you to my knowledge for about 240K in housing presuming a normal down payment and about 3k a year in prop tax plus insurance. And with TWO earners?
The Unions provided a valuable service for raising the standard of living in the US. Most union workers are not unskilled and certainly automobile workers are skilled. I am not nor have I ever been in a union, but I would rather have unions than global wage exploitation that is lowering the US standard of living.
I love how the loonies yammer on about the evil trade unions……. that is until you tell them to they have to work weekends again, no more vacation, no more overtime/bonus/comp time, etc etc. They get real quiet after that.
uhhh yea…the unions decided which crappy cars to build.
Noticibly missing from your rant is management…you know the people ACTUALLY making decisions. Cant blame the people in charge that would hit a little too close to home, maybe?
If you break down the $$ problem in financing pensions and health care, much of it is due to companies’ exploding executive pay and exec pensions -not its rank and file workers. It ain’t that much to pay a worker a decent salary plus benefits, and thus prop up the local economy, and insure your consumers have a salary to afford to buy your cars– it’s called thinking long term. But now of course, corporations are run by crackheads who can only think past the next quarter (and how they can best bleed the most money from their employers).
The ability of the american consumer to buy things has been running on the fumes of easy credit. So now we are facing the trade deficits and highest personal debt levels this country has had for years. We have nothing to trade out except our debt and foolish consumption habits.
And yet wall st bonuses grow fatter and more jobs go overseas, and the credit bubble worsens, and the gap between rich and poor has become enormous. Shh- What’s that I hear? Peals of laughther all the way to the bank from money-drunk execs while you all blame unions.
Well said housegeek.
Thanks Cap’n -and just in case you all were wondering, my pension info comes from that commie rag, the wall street journal - which has run an excellent series on pensions (here’s a freebie version in post-gazette):
http://www.post-gazette.com/pg/06177/701286-28.stm
I second what Cap’n Credit said. Well done, housegeek!!!
Ford requires 25hrs of labor to build a car. It’s not their lineworker’s $30/hr or whatever that is causing them to fail.
I would gladly pay the labor differential for any big-ticket domestic product, assuming the quality was first rate.
Agree. I’d rather pay $3.00 for a head of lettuce instead of $1.00…as long as it meant all the workers from the farm to the supermarket were making decent wages and had decent benefits.
I have yet to hear a logical argument from the “supply-siders”. Why do they seem totally unable to wrap their heads around the “demand” side of the equation???
Can’t sell a house for any price….Depressing.
Reminds me when I was taking some RE classes (CCIM) in New Orleans in 1981 +- (Oil Bust ?)…Very depressing inviorment…Could not wait to leave….
$10,000 retirement homes for all in Detroit by 2010!
Here’s some real pain:
Falling prices trap new homebuyers
Too f***ing bad. All you could see when you signed on was the $$$$ appreciation. Your arguments re reliance on appraisers, etc. will not fly to get you off the hook via the courts. If you can afford an 800K house, you can read a contract.
(If you can afford an 800K house, you can read a contract.)
Or, to put in another way, if you aren’t the one hiring people to write the contracts and dictating the terms, you can’t afford an $800,000 house.
Great comment.
“Too f***ing bad”
My sentiments exactly. I am already sick of hearing the whining from “highly educated” idiots whose greed overrode their intellect, and I’m afraid it has just only just begun. There will probably be a flood of FB’s suing everyone from the realtor to the chimney sweep for severe psychological and emotional damage before it’s over.
It’s like the woman who backed over and killed her toddler with a riding lawn mower and wants the lawn mower manufacturer to pay her millions and fix the “defect” in the mower that allowed her to back up over her kid. It couldn’t possibly be HER fault she didn’t look before she hit reverse, right?
Don’t you love the self-righteousness? Dunn blames everybody but himself for his mistakes. What was he going to do with an option ARM anyway? If he could afford the 30 year fixed, he would have done that in the beginning.
This guy’s plan was to flip, and he got caught when the music stopped. My prediction: every house in this subdivision will be foreclosed on.
Those poor owners need a bail out. Don’t you agree?
Too bad you suckers. OC real estate is just like everywhere else!
Seems to be a typo in that URL (link) to the OC Register.
If you get article not found, just change ‘ousing’ to ‘housing’,
and it works.
What if you change ‘ousing’ to ‘hosing’?
What about “arousing”? Will I get porn?
Max — all I get at the link is “The page you have requested was not found.”
just put “falling prices” in the search box at that url, and you’ll get it as first result (that’s what I did). good article.
Try this:
http://www.ocregister.com/ocregister/money/housing/article_1381194.php
I think Ben accidentally screwed up the link when he shortened my post…
Funny — I don’t recall reading anything about the risk of getting trapped in today’s WSJ shill piece, which was clearly targeted to getting prospective first-time buyers off the sidelines…
That article reminds me of why many warriors prefer to be in artillery or on an airplane than in the infantry. They don’t have to look at the faces of the dead. That will be the saddest part of this crash, seeing photos of belly-up families like this one.
The article was too funny. Everybody tossing the ball to someone else. Their best argument faulty appraisal, the builder has already killed it. Yea, let’s go after the schmuck we paid 500 bucks for the appraisal to get our 100 grand back. LOL. Their attorney should be shot for presenting his faulty logic. The builder should have known the appraisals were shoddy. Bwwaaaahhhhaaaa. Between this blog and real life this has been a damn hilliarious week and it’s only Wed. I am convinced people are stupid. Irregardless of educational level.
MR I,
Until I started making the assumption that the person across the table from me was stupid and would act accordingly, plans I made usually ended up with the unforseen wrench in them.
Dunn said he’s in a financial bind because he’s using an exotic mortgage called an Option ARM, an adjustable-rate loan in which the homeowner can pick his monthly payment from a variety of options.
Eventually, he’ll be responsible for making full payments of $6,000 a month, he said, adding, “I don’t know how we’ll be able to pay that.”
“It’s not just the financial aspect. It’s the emotional,” Dunn said. “We can’t eat, can’t sleep. I can’t concentrate on work. This is all I think about.”
___________________________________
Go cry somewhere else you big baby! If this house doubled you would not be trying to give money to the builder!
$870K for THOSE sh!tboxes? My head just exploded.
$800,000… he’s 33, she’s 27… they are spending this 8$$,$$$.00 in Garbage Grove… America, this is an example of how you buy a house but are unable to call it a HOME!
To think that Warren Buffett lives (somethimes)in a house he paid $33,000 in Omaha NE
“It’s not just the financial aspect. It’s the emotional,” Dunn said. “We can’t eat, can’t sleep. I can’t concentrate on work. This is all I think about.”
There are those who live like they have wealth…and then there are those who have wealth and live like they don’t.
Homeownership = security
Bye, Bye Miss American Pie
Garbage Grove is right. I used to go to school there. Not much in the way of livable, safe areas. And a very serious Asian gang problem to boot. What were these people thinking
They weren’t thinking, TechG.
They were in the throes of House Lust.
The builder has been running $100K off in ads in the real estate section of the OC Register for at least a month. No gimmicks, no incentives, here is $100K off. I thought previous home buyers woulnd’t be pleased and this piece shows how screwed they are.
We’ve already seen $200K reducitons in Sacramento and San Diego. It’s just a matter of time before this hits Orange County.
“There are those who live like they have wealth…and then there are those who have wealth and live like they don’t.”
Exactly!
Retail sales up much more than expected both headline and ex-auto.
Guess the credit cards are getting a last workout.
This is killing 2007 the rate cut(s) once implied by the Eurodollar futures market. Spreads today are flattening much greater than even on Friday’s unemployment number.
The Eurodollars are pricing in NO rate cuts before Mar ‘07 expiration, and only 1½ rate cuts between Mar and Dec.
I didn’t want to start a shitstorm yesterday but I could make an argument for the dollar to rally next year and interest rates to go up, not down.
If we are all counting on house prices going down with house materials and labor costs following it would make sense to me that our dollars will be buying more next year.
Thats the way I would bet Tchick…..
Yeah, that’s the only way I could explain it to myself. We’ll see what happens in 1Q07.
The dollar did not sink below 1.36 versus the euro and it has, for the moment, found a new range, 1.3050-1.3350 on the wide, 1.3150-1.3250 more narrowly.
The exchange rate is still very much interest rate expectation and growth dependent: the ECB raised last week, already discount, now we’ll see what the Fed does next quarter.
One governor voted in favor of a rate hike at the last meeting.
It seems they want to create the impression that the next move could be up or down, in part to keep the markets at bay and prevent a disorderly run against the dollar. They may well succeed, at least for another several months.
Does any one believe some of the hawkish rhetoric?
They are worried about inflation as in “you will find the effects of a run on the dollar very inflationary.”
I do.
Me too….
Does any one believe some of the hawkish rhetoric?
I do as well. They will not fear deflation until it is too late. Remember this is a government agency… they cannot act… only react.
Some of this buying may be explained by small businesses buying things after meeting with the accountant.. I know I will be making purchase for my business rather than paying taxes.
Great tax system, buy stuff you really don’t need or pay taxes. Pick the worst of two evils.
Not logical. It is never better to spend a dollar to save 40 cents. However, if you had a good year and earned more than usual it is not a bad idea to pre-buy supplies needed for next year. Also, if you have equipment on the fritz it is a good time to replace.
You can also save tax dollars by opening/increasing contributions to your retirement plan or IRA. (Not too late to open a Fidelity Solo 401(k) or you have until 4/15 to open a SEP IRA but the contributions allowances are much less.) Contributing to a retirement account will still cost you the 15.3% in Social Security/Medicare taxes, whereas buying supplies will save you that 15.3% but at least you’ll have the money for the future.
Scottsdale: Resale Home Price Tag Jumps 15% …from October to November to a median price of $630,000. Prices were up 6% from a year earlier…However sales and prices are still dwon from their record levels of the past year.
This from Arizona Republic’s “Scottsdale Republic” section today.
Also in the headlines - prices in metro Phoenix edged up less than 1% to $259,000 over the month of November.
I wonder if wages in metro Phoenix went up commensurately - in that one month!
Bill, you know those numbers are totally bogus.
Txchick, they are either bogus or “spun.”
In the area I am looking at (near Anasazi Elementary School) the average AGI is $133,000 and the average home is somewhere between $700,000 & $800,000 (these are $275,000 homes masquerading as $700,000 homes).
Isn’t it time for Ben to post some Dave Liareah enragement? It’s been a few days.
Ben?
Mortgage applications rise, rates back up
December 13 2006: 8:11 AM EST
NEW YORK (CNNMoney.com) — “Mortgage applications rose as interest rates recovered slightly from last week’s 14-month low, an industry trade group reported Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended Dec. 8 rose 11.4 percent to 721.2, from 647.6 a week earlier.
The 30-year fixed-rate mortgage rose to 6.02 percent from 5.98 last week.
The group’s seasonally-adjusted refinance index rose 15.8 percent to 2304.4 from 1989.7 the previous week and the purchase index increased by 8.7 percent to 463.8 from 426.6 one week earlier.”
http://money.cnn.com/2006/12/13/real_estate/mortgage_apps/index.htm?postversion=2006121308
mostly REFI
who would be refing now ?
=desparate arm holders
This looks like an impressive spike on a long-term graph of new purchase applications. My question is, since the Mortgage Bankers are only a subset of the entire mortgage industry, are we seeing the first signs of a shift away from the non-bank mortgage brokers towards the presumably more reputable bankers? Is this spike in purchase applications a real spike, or an artifact of a changing mortgage climate?
Worth a look….
Posted at indexcalls.com:
reconstructed M3 money supply growing at 10% (time period not supplied, must be a subscriber),
http://www.shadowstats.com
QUOTE
M3 Growth Tops 10% / Inflation Signals Turn Higher Again / First Post-Election Jobs Data Show Slowing Economy / Economic releases of the last week or so continued showing a rapidly deepening recession, along with early confirmation of inflation resuming its upward trend. Beyond ongoing softness in the dollar and some upside movement in oil prices threatening inflation, broad money supply growth is accelerating to the upside
Also, I hate to quote WND but here goes anyway,
http://www.worldnetdaily.com/news/article….RTICLE_ID=53311
QUOTE
The Bush administration wants to get China’s cooperation in preventing a dollar collapse. That’s the conclusion of John Williams, an experienced professional econometrician, who writes the “Shadow Government Statistics” blog.
Williams has re-created M3, a money-supply measure whose data the Federal Reserve simply stopped publishing after issuing a technically worded March 2006 announcement.
Williams reports M3 is currently growing at close to a 9.6 percent rate and trending higher, compared with an 8 percent rate early this year, when the Fed quit reporting the measure.
“The Fed is pumping liquidity into the U.S. economy,” Williams told WND, “and the Fed evidently did not want the markets to follow too closely what the Fed was doing with the money supply.”
…
Are we experiencing a dollar collapse?
“Not yet,” Williams answered. “I believe we’re going to have a dollar collapse, but the Fed is going to do its best to slow play the dollar’s decline in value, so that it takes a year or two for the dollar value to reach its low point.”
Williams explained the risk of collapse the dollar faces:
“There will be a central bank, most probably in Asia, who will start the move away from the dollar and when it happens, you’re going to see other central bankers covertly trying to follow. The move will magnify very quickly and it could become a full-fledged panic and a dollar collapse.”
The Fed is struggling right now to contain inflation and stimulate economic growth. All the Fed is doing right now with all their grand policy shifts is using a lot of propaganda and market massaging to try to prevent a financial panic.”
Notice also the T-bill rates are falling now. 14 day T-bills are holding above 5% but the 3 month term T-bills are around 4.8 and falling. Good times ahead for gold, it appears!
Tony Crescenzi
10s Headed to 4.75%
12/13/2006 10:02 AM EST
As I mention in my blog, I feel the risks have grown for the 10-year to increase to 4.75%. The bond market still firmly believes that the economy will slow, so the move to 4.75% won’t happen fast, especially given the unreliability of the retail sales data.
The selling would speed up if new and existing home sales due out on the 27th and 28th of this month capture some of the recent pickup in home buying that appears to have occurred. If not, then the sell-off will be delayed as much as a month when the next batch of housing data is released.
Another major variable is the pace of holiday spending. Still, the bond market is more vulnerable than in a while
“The selling would speed up if new and existing home sales due out on the 27th and 28th of this month capture some of the recent pickup in home buying that appears to have occurred.”
I don’t understand this. If home buying picked up, then it would be reflected in the reports. If it’s not in the reports, it didn’t happen. Either way, it’s not optional.
Nobody seems to believe the Fed’s saber rattling with the possible exception of those who are rattling the sabers.
Saber rattling, schmaber rattling. If the Fed gave a damn it could just raise rates for crying out loud. Whose permission is it waiting for, Lereah’s?
*sigh* Lately I’ve slowly been starting to believe the Fed will allow the dollar to be destroyed rather than defending it successfully. So, perhaps its time to abandon my position of 1 mo TBills and go for gold. While I want to research the pricing of gold myself a bit more, anyone care to rattle off some good vehicles to do so with? I presume there’s probably some ETFs which simply directly hold gold and gain the rental fee which offsets the management fee? I’d rather hold it directly rather than simply gold producing companies as there’s more involved there in the analysis.
Check out IAU
Definitely seems an easy enough vehicle - 40 bps isn’t a horrid fee (i expected less but I have no clue what the current gold lease rate is, I guess stock lending rates are good and the lack of storage costs allows indexes to hit 18 bps for retail and 1.5 bps for institutional). Still not sure though if gold is fairly priced or overvalued itself right now… any takers on the subject?
m3 no longer exists !
Out of sight, out of mind…
“There will be a central bank, most probably in Asia, who will start the move away from the dollar and when it happens, you’re going to see other central bankers covertly trying to follow. The move will magnify very quickly and it could become a full-fledged panic and a dollar collapse.”
This sounds like the Central Banker’s version of KerPlunk! …
http://www.playthingspast.com/mt506.html
IMHO this is not likely to happen from the major asian markets of Japan, China and India. The last thing that these countries want is a collapse of the dollar and will spend their excess to support the currency as they have been doing so for this past year (with the exception of Japan which has not bought US bonds in 2 years). The more likely scenario will be a European country that is no longer exporting to the US as much wine and cheese as in the past.
“IMHO this is not likely to happen from the major asian markets of Japan, China and India.”
But suppose they manage to first diversify away from the dollar (e.g., CH gets their own “strategic petroleum reserve” set up). Once they hit a sufficient level of diversification, what would be the further motivation for lending Americans money to buy stuff we can’t afford?
China is in the unfortunate position of having to create 15 million jobs every year - if they can keep manufacturing increasing their growth at 6.5%+ they will turn into a consumer nation ~2015. There are already riots occuring on a daily basis in China because of lack of jobs. In a central economy, to maintain power, it is less expensive to support the dollar than to have cities go haywire. IMHO once the Olympics are over so is China.
Hoz — pretty interesting analysis.
At some point one of the smaller countries central banks will decide to bail and bring this on. Think of a smaller asian or European CB that’s always been getting the short end of the “big boys club” stick for years. That’ll be the one that pulls out.
This is basically what I maintain in a comment above.
When some observers speak of dollar collapse I really wish they would be a number on it, at least just for reference.
Against the euro, the important thresholds are 1.36 (Dec05-Jan05) and 1.46 (early 1995) its all-time low in euro equivalent vs the D-mark.
Where do they see it, pray tell, against the euro, or against the yuan for that matter, in two years time, even a ball-park projection?
I will put my numbers on the dollar collapse and the time sequence against the major currencies.
The Euro/USD will go 1.65
The USD/Yen will go to 95
The USD/Renminbi will go to 5.60
The GBP/USD will go to 2.25
These will occur over the next 2 years. The reasons are that the US government (both Paulson and the Federal reserve) has said the dollar is overvalued by 10 - 40%. In 30 years of trading on and off the floor - The US government has followed thru with currency devaluation when they said it was needed. The problem is that the government wishes an orderly decline. A 5% decline as structured in 1986 against the Japanese Yen will not be sufficient in todays market. So this decline will be precipitous and the cause will be a foreign country (IMHO France) that sells its US reserves. The next bubbles will be in the Euro and allied currencies (CHF, GBP, DM etc.) and possibly in the hard currencies Russia, Canada and Australia (these countries have enormous hard resources).
If these bubbles do occur then my projections will be very low and how high the currency bubble - Je ne sais.
That’s not a collapse…just a correction. A collapse would be something more like USD/Euro of 3 to 5! Gold at $2000.
BTW, without starting the debate again, could somone tell me which city won the Worst Place In California contest from yesterday? It was Trona, wasn’t it?
more auction results please- keep em coming
Christmas decorations started going up on Thanksgiving weekend here but after the first week things petered out. Even then, those who put decorations up left the lights on all night but starting this past weekend all that seamed to stop and now it’s rare to see the lights on. I guess the Christmas spirit is going the way of their disposable income.
Maybe Christmas will go back to its original holiday, Saturnalia. I won’t pray to Wodin though, like my ancestors did. I do have an decorated evergreen just like they did.
This is a post scriptum to an article by David Leonhardt in today’s NYT:
“Correction
I made two mistakes last week when describing a real estate auction in Naples, Fla. First, I used the word “bidders” to describe the roughly 500 people at the auction. Not all of them placed a bid, though, so “audience members” would have been a better description.
Second, I described the houses at the auction as having been sold. But the auction rules gave the homeowners the right to reject the winning bids and hold onto their properties. The owner and bank lenders haven’t made final decisions on the four properties mentioned in the column and the graphic, according to Paul Drake, who helped run the auction.
If the bids are rejected, it will make the auction an excellent microcosm of the real estate market right now. From California to the Northeast, many sellers are refusing to accept the offers they have received — which are, by definition, the current market values of the homes — and the number of home sales has plummeted. That’s the main reason the official statistics on house prices are so misleading.”
“From California to the Northeast, many sellers are refusing to accept the offers they have received — which are, by definition, the current market values of the homes — and the number of home sales has plummeted.”
Where is that definition of market value written? I must have been sleeping in class the day it was covered…
Splitting hairs there Stucco?
Not at all. I just wanted to know whether this guy had learnt something that somehow evaded my notice in too many years of schooling, or if he was just blowing smoke. I suspect the latter.
“From California to the Northeast, many sellers are refusing to accept the offers they have received — which are, by definition, the current market values of the homes — and the number of home sales has plummeted. That’s the main reason the official statistics on house prices are so misleading.”
Well somebody gets it.
A Different Set of Worries
By Helene Meisler
RealMoney.com Contributor
12/13/2006 9:00 AM EST
URL: http://www.thestreet.com/p/rmoney/technicalanalysis/10327593.html
So now, instead of worrying about the word “measured,” we’ll worry about the word “substantial” — at least that’s what those Fed-watchers would have us believe.
But something struck me as I listened to the Fed commentary. The word “substantial” in regard to housing seemed to breathe some life into the bonds and, of course, got the Goldilocks folks back on board because it means the Fed might ease sometime soon. Yet a month ago, wouldn’t the market have been up 100 points on that sort of “good news?” Yesterday it tried, and while it rallied back from the depths, it didn’t do much more than that.
But here’s what’s really interesting. Let’s begin with the “substantial” slowdown in housing. The bears might tell us it’s finally coming to fruition, and the bulls will tell us that some of the homebuilders are seeing a possible bottom in the housing market. I don’t want to argue the pros and cons of whether housing has bottomed — just that the Fed has clearly elevated its concern about the housing market. Let’s face it: The Fed tends to wait for a lot of government statistics before it makes a comment, so this is not “just beginning to happen.”
Then there’s the recent Wal-Mart (WMT) news. Some say it’s Wal-Mart’s fashion sense, but I’d note that Dollar General (DG) just recently gave us a cautious outlook for holiday sales, so there might be more to it. Clearly, the consumer who frequents these stores does not know that Goldilocks is alive and well.
Then last week, we saw a whole news item, largely ignored by the bulls, on subprime lenders in trouble. The bulls say it’s isolated; we can’t worry about those “risky” folks.
I would say the Fed is concerned about a “substantial” slowdown in housing. Customers at Wal-Mart and Dollar General are clearly in slowdown mode. And I can only assume that the same folks who frequent Wal-Mart and Dollar General are the subprime folks who are now having issues. Is it only a low-end consumer problem?
If that’s the case, then why is Best Buy (BBY) having problems? Why is Circuit City (CC) back at its summer lows? If folks are buying electronics, then they’re not buying them at Wal-Mart, Best Buy or Circuit City.
So maybe we should ask ourselves if it’s just the low-end consumer who has put the brakes on.
As for the market in general, the put/call ratio rose Tuesday and we’re still in choppy mode. If the market is down again today and rallies in the final days of the week, the two-step pattern will remain intact. Remember, it’s expiration week. We’ve had our down day already, and typically by Thursday of an expiration week, we tend to give the upside a try
Customers at Wal-Mart and Dollar General are clearly in slowdown mode.
Shop there much? That’s the only mode their customers come in.
I shop at Big Lots a lot. Why pay $5 for something one place that you can buy there for $1. I also shop at Vietnamese grocery stores, where I can buy a pineapple for $.99 that would cost me $2.99 at Costco, $3.99 at Albertsons and $5.99 at Whole Foods.
Make no mistake, I’m the biggest fan of WMT there is. It’s just that it can be such a chore maneuvering around their clientele when I’m shopping there.
lol
I hate that place and refuse to shop there.
Same here…I always end up staring longingly at the guns and ammo, yearning to practice some eugenic culling.
They have great prices on ammo.
There is a “substantial” risk the Fed may try to use monetary policy to reflate the bubble.
txchick, Big Lots is one solution but limited sometimes in selection and very marginal in terms of quality. Walmart Supercenters offer a resonsable alternative to the lack of Vietnamese grocery’s in North-Central Collin County.
Just head south on Jupiter or Plano Road. You’ll find a million of them. The one I like is at Jupiter and Walnut next to Arc-en-ciel. Great prices.
Yes, Plano has them but I live farther north…..by 18 miles. Walmart food prices in DFW are 35% less then the prices back in San Diego, I can’t complain with shopping at Walley World.
I shop at Walmart for basic crap - toasters, socks, underwear, etc. I find their grocery prices are not at all competitive with Safeway, Kroger stores et al.
(There is a “substantial” risk the Fed may try to use monetary policy to reflate the bubble. )
Agreed. Every level of government, many voters, lots of hedge funds, and companies bought by private equity are under a mountain of debt that cannot be serviced even at today’s low rates — even with today’s good economy. Debts will be devalued by inflation, or will not be repaid — that is the Fed’s rock and a hard place. Hard to know what is the right move here.
Don’t forget that inflation is also the only politically viable means of closing the gap between borrowing and repaying debt. Tax increases have been demonized by 25+ years of Republican rhetoric, and cuts in government spending might tip the economy into recession.
Don’t let the Republicans ‘demonize’ the idea of the government having more of your money, GS! If you think the government deserves more from you, you go right ahead and mail them a check.
No thanks — I will be perfectly happy to save my money in the bank and let the stealth inflation tax eat away its value instead…
He won’t do that; he wants the gov’t to have more of YOUR money, not his. What a guy.
Another good one. It’s an audio story, but there’s a transcript:
http://marketplace.publicradio.org/shows/2006/12/12/PM200612125.html
LAURA BELOUS: In a lot of ways, Ruben Sanchez and his wife are the picture of the American dream. They came to the U.S. seven years ago from Mexico and he began working two jobs as a janitor. He and his wife saved up for a down payment on a home, and in 2003 they bought a small adobe house outside Mexico City — with three bedrooms, two bathrooms and a patio outback.
But like a growing number of first-time Mexican home buyers living in the U.S., Ruben and his wife bought the house from thousands of miles away — sight unseen.
RUBEN SANCHEZ [translator]: It was easy to get a mortgage, I just had to prove that I had been paying my monthly bills. Like the utilities.
…
Some Mexican lenders, like Su Casita, even have offices in the U.S. Marketing director Eduardo Uranga says they basically ask applicants just one question — “Do you have a job? — either in Mexico or in the U.S. He says they’re also not too fussy about whether the applicant is in the U.S. legally.
EDUARDO URANGA [translator]: The truth is that this information we collect won’t tell us whether this client is a good borrower. “What we’re interested in is whether he’s employed, not how he got to the U.S. His immigration status doesn’t influence his ability to pay his bills.
This lender is confusing ability with willingness. Good luck with that.
Also best podcast yet on the drivers of Bubble liquidity:
Credit Card Switcheroos:
http://wallstreetexaminer.com/blogs/winter/?p=183#more-183
Ben
Here is another great one, underwater OC subdivision owners trying to blame the builder, hiring attorneys. The article include default sob story photo of worried mother holding child infront of crappy overpriced subdivion house. Will the buyers storm the homebuilders offices with pitchforks!?:
http://www.ocregister.com/ocregister/money/housing/article_1381194.php
Not all is well on Cape Cod in Mass:
By CHRISTIE SMYTHE
Staff Writer
Record numbers of mortgage holders on Cape Cod and the rest of the state are in jeopardy of losing their homes, according to a report by the information service ForeclosuresMass.com.
http://www.capecodonline.com/cctimes/foreclosurefilings13.htm
The long end of the T-bond yield curve is lurching up again today, similarly to last Friday’s move. That should be great for home and stock market valuations — NOT!
http://www.bloomberg.com/markets/rates/index.html
One in 8 sub prime borrowers are delinquent !
“Subprime borrowers had a delinquency rate of 12.56 percent in the third quarter, the highest in more than three years. The delinquency rate for these borrowers holding adjustable-rate mortgages was even higher — at 13.22 percent in the third quarter, also the worst reading in more than three years.”
http://biz.yahoo.com/ap/061213/late_mortgages.html?.v=4
Just out. The barn-door is now safely closed (in case there’s a horse left int here).
“OFHEO DIRECTS FANNIE MAE AND FREDDIE MAC TO FOLLOW NONTRADITIONAL MORTGAGE RISK GUIDANCE
Washington, DC – Office of Federal Housing Enterprise Oversight (OFHEO) Director James B. Lockhart has directed Fannie Mae and Freddie Mac to immediately take action to support practices outlined in an interagency guidance on nontraditional mortgage product risks issued in October 2006. The guidance discusses how financial institutions can offer nontraditional mortgage products in a safe and sound manner and in a way that clearly discloses the benefits and risks to borrowers.
“OFHEO supports what the banking regulators have issued, and we have taken steps to ensure that Fannie Mae and Freddie Mac incorporate the principles of that guidance into their risk management and business practices,” Director Lockhart said. “This will enhance the overall level of underwriting standards, risk management practices and consumer protection in the mortgage market.”
The Interagency Guidance on Nontraditional Mortgage Product Risks was issued by the Office of the Comptroller of the Currency (OCC), Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS) and National Credit Union Administration (NCUA). The guidance informs financial institutions of steps that should be taken to assure that the risk of these new mortgages is adequately addressed in their loan terms and underwriting rules as well as in internal risk systems and that consumers are provided full information on risks attendant to such mortgages.
Director Lockhart asked the GSEs to report back to OFHEO on progress in developing policies, consumer credit quality standards and capital provisions in line with the guidance by Feb. 28, 2007.”
According to today’s WSJ, about $1.5B of AMT tax relief has been put into the latest tax bill. This is to bail out the holders of dot.com options.
Maybe the FB will get saved by government afterall … but perhaps too late. They will get foreclosed on first before any relief passes.
Interesting “Forum” this morning (should be available for online listening later today or early tomorrow):
http://www.kqed.org/programs/program-landing.jsp?progID=RD19
Interest Rate Update — Forum discusses the impact of the Federal Reserve’s decision to leave interest rates unchanged. Guests include: Brad De Long, professor of economics at UC Berkeley and research assistant at the National Bureau of Economic Research; John Karevoll, analyst at Data Quick Information Systems, a nationwide real estate information service; and Adam Posen, senior fellow at the Peterson Institute for International Economics, member of the Council on Foreign Relations, and former economist at the Federal Reserve Bank of New York.
Breaking news that Senator Johnson of South Dakota (D) has had a stroke. Speculation is that the Republican governor logically would appoint a Republican replacement, tying the Senate.
To be accurate, “possible stroke.”
http://tinyurl.com/ygsrlr
Sorry if this was previously posted; if not, enjoy!
An Economic Pillar on the Verge of Collapse
By Steven Pearlstein
Wednesday, December 6, 2006; Page D01
It’s been more than a year since we’ve heard from those who denied there was a housing bubble.
Since then, the industry boosters, along with the “soft-landing” crowd over at the Federal Reserve, have coalesced around the idea that maybe the market got a bit frothy after all, but now the correction is almost complete, the unsold inventory’s been worked off and the worst is behind us.
But just when you’re feeling hopeful again, you get reports like yesterday’s Wall Street Journal piece reporting that delinquency rates are suddenly soaring on all those loosey-goosey subprime mortgages. They are starting to cause real heartburn for pension funds and other investors who bought securities backed by those mortgages on the theory that they were no more risky than a Treasury bond.
“We are a bit surprised by how fast this has unraveled,” Thomas Zimmerman, head of asset-backed securities research at UBS, told the Journal, removing his head from the sand. Trust me, Tom, you ain’t seen nothin’ yet. After the subprime loans come the 100 percent, interest-only loans, followed by the meltdown in the overbuilt multi-family housing sector.
http://www.washingtonpost.com/wp-dyn/content/article/2006/12/05/AR2006120501453.html