Prices “Down Much More” Than Reports Suggest: CEO
Some housing bubble reports from Washington and Wall Street. “The Federal Reserve Bank held overnight interest rates steady at 5.25% for the fourth straight meeting on Tuesday and kept the door open for further rate increases, saying inflation risks remain elevated despite a substantial cooling in the housing market.”
“In one of two subtle changes, the committee said growth had slowed, ‘partly reflecting a substantial cooling of the housing market.’ The word ’substantial’ is new to the statement.”
“Fannie Mae, the biggest U.S. mortgage finance company, sued former auditor KPMG LLP for $2 billion today, saying the accounting firm failed to serve its role as an independent watchdog and prevent $6.3 billion in accounting errors.”
“Fannie Mae was repeatedly a victim of KPMG’s conflicting role as consultant and auditor, Fannie Mae said. ‘Replacing KPMG’s ‘consulting engagement’ hat with its ‘auditor’ hat, KPMG approved Fannie Mae’s’ bookkeeping each year, Fannie Mae said. ‘KPMG often did nothing more than rubber-stamp Fannie Mae’s internal accounting decisions.’”
“‘KPMG engaged in a ‘check the box’ approach to its audits, failing to exercise professional judgment and independent scrutiny,’ the suit alleges. KPMG spokesman Tom Fitzgerald said the company plans to pursue its own claims against Fannie Mae as part of pending litigation in federal court.”
“James Cox, a professor of corporate and securities law at Duke University Law School, said the company will have a difficult time proving that it was harmed more than investors who bought Fannie Mae shares at inflated prices when it was overstating its earnings.”
“Cynthia Williams, a professor at the University of Illinois College of Law in Champaign, agreed and said Fannie Mae blaming its own misstatements on KPMG is unusual and ‘you have to ask: ‘Where were they?’”
“Median house prices will decline by 8% to 10% over the next nine months and could create a serious drag on the economy, according to Allen Sinai, president of Decision Economics. Even if the downturn in sales and construction is over early next year, there will be a huge inventory of unsold homes overhanging the housing market, Mr. Sinai told a housing symposium hosted by the Office of Thrift Supervision.”
“‘[M]edian prices of new and existing homes likely will continue to decline, particularly prices in those parts of the United States that have been bid up to unsustainable levels,’ the economist said.”
“Some mortgage companies continue to see weaker housing. The real estate market hasn’t yet bottomed out, Wells Fargo CEO Richard Kovacevich said in an interview. About a fifth of the 375 metropolitan statistical areas in the country have had home price decreases of 20 percent, he said.”
“‘It’s pretty ugly at the moment,’ Kovacevich said. Home prices are ‘really down much more’ than recent economic reports suggest, he said, citing the company’s internal data.”
The Wall Street Journal. “The share of first-time home buyers dropped earlier this year to its lowest level since 1987, according to the National Association of Realtors. First-time home buyers now account for 36% of home purchases, according to a study by the Realtors group, down from 40% in the three previous years.”
“In a sign of just how hard it is for first-time buyers to come up with the cash needed to buy a home, 45% of first-time buyers bought their home with no money down, according to the recent NAR survey, up from 43% a year earlier.”
“Jason Colon bought a new three-bedroom, 2½-bath townhouse in Apollo Beach, Fla., last month. Mr. Colon paid $163,000 for the property, which was originally priced at $242,000. The builder also picked up $5,000 of his closing costs.”
“Yet affordability remains a problem for many would-be buyers. In the second quarter, buyers had to stretch more than ever before in 25 of the top 50 markets, according to Bank of America analyst Daniel Oppenheim. Even with the recent price declines, he estimates that it would take a further 7% fall in home prices, combined with a 4% annual increase in nominal incomes, to bring affordability back in line with average levels over the past decade by 2008, if interest rates remain stable.”
“Many would-be buyers are taking a wait-and-see approach. When home prices were soaring, many first-time buyers jumped to buy houses they could barely afford, believing they would be shut out of the market if they didn’t act quickly. Now, with prices falling in many areas, ‘there’s no immediate need to buy, and so they kick the tires more,’ says Frank Borges LLosa, owner of a brokerage in Arlington, Va.”
“Arthur Orkisz, a speechwriter in the Washington, D.C., area, says he expects to hold off until at least next summer before buying his first home. Giveaways such as flat-screen TVs are ‘all nice and dandy, but at the end of the day anyone capable of doing the arithmetic realizes that’s a gimmick to get me in the door,’ he says. ‘That’s not enough of an incentive’ to buy.”
“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.”
“‘Renting is only marginally less of a bargain’ even with the latest decreases in home prices, says Torto Wheaton senior economist Gleb Nechayev.”
‘Replacing KPMG’s ‘consulting engagement’ hat with its ‘auditor’ hat, KPMG approved Fannie Mae’s’ bookkeeping each year, Fannie Mae said. ‘KPMG often did nothing more than rubber-stamp Fannie Mae’s internal accounting decisions.’
If only Enron had thought of this.
And then there were three.
That is what I thought. Another one of the big guys bites the dust? KPMG has had a few missteps in the past few years. Do you think this news made people’s day at PWC? And, if these types of actions were/are so prevalent at KPMG, and the former Arthur Andersen, can’t we pretty much assume it is par for the course in all the big firms???
Take your business to Ernts & Young if you want it done right!
EY Alum
Or Deloitte if you don’t want to pay an arm and a leg
Or a smaller firm if you don’t want to pay big fees to train the auditor’s rotating staff every year.
Take basic accounting and learn to real company financial reports. It is rather obvious when they are cooking the books on a large scale.
Enron-nobody could define what they actually did or what there assetts really were.
.coms-all revenues and sales were for advertising commitments, these companies made no money and had no hope to.
Fannie Mae-Shit, they straight up told the public “we still have no clue and it is much worse than we thought six months ago.”
This has been the story for how many years? Do not believe their new numbers, they have in no relevant way accounted for the coming tsunami they will sustain under all of their guarantees.
The murkiest of “Investments” out there are without a dout these hedge funds. They have thrown trillions of dollars and debt into computers, sliced and diced it beyond any resemblance of an investment and propelled these to leverage level impossible before the advent of the PC!
They have bet the farm on the premise that their supreme intellects and machines have “Effectively eliminated risk from the system!”.
Kind of like the French eliminating their risk by surrendering to the Nazis.
Rich — nice post.
My first job out of college was with them when it was just Peat Marwick Mitchell. They sucked then.
All firms suck, they work their employees until they die and then wonder why they quit. Firms are constantly hiring and losing people and it is the clients that suffer the most. Most employees only last a couple of years. I have seen senior’s in charge of the audit of a billion dollar bank that had only been out of school for a year and a half, and the manager on the job will not even show up to the client. Plus the manager is so over worked they will just rubber stamp the seniors work. Then the partner may look at something that may be a new accounting pronouncement, but thats it.
So true. I am so glad I got out of that slave business. I spent 50% of my life for 7 years living out of a suitcase - great experience, but horrible on your personal life…
I bailed after a year of counting widgets at oil drilling companies where my secretary made more than I did.
I bailed after a year of counting widgets at oil drilling companies where my secretary made more than I did.
_______________________________
LMAO!! So true.
I can remember being out of town for weeks on end and then back in the office and trying to get out one weekend to go to a Laker game and one of the Sr. Managers got in my a$$ for not working all weekend.
I said “F you a hole, I have already generated 70 chargeable hours this week, have not been home for several weeks and you are going to break my balls for going to a game. Kiss my a$$ and I threw all the files for the job I was working on his in office and told him to finish the job!”
Three years of pure hell!
Wow, I had no idea the audit world was so terrible! I have always suspected they add little to no value, and bill ridiculous amounts for it. I have a relative that seems to love it. Been with one of the big four ever since leaving college several years ago.
You think that’s bad, try being a first or second year associate at a large law firm.
Is the entire accounting world this bad or just auditing? Vaguely toying with a career change towards accounting but no interest in auditing.
It’s up or out at the Big 4. One generally works there to get the required hours for their CPA, then gets hired by a client as accounting manager, controller, or the like. If you want to make partner, you need the ability to SELL, or be a technical expert. Accounting is OK, not well paid unless you’re at the very top.
tax is where it’s at.
i would never never never never never never never never never never never to auditing ever again.
auditors are suppose to be independent. it is impossible to be independent from someone paying you millions of dollars in fees.
Try being a mortgage broker for a week. Talk about losing you dignity…..
I hated one partner so much that I made sure I found prior period adjustments with any financial statements he signed the year before. He sucked at his job and did not deserve to be partner. I always found restatements, but on his jobs I did my best to make him look like an idiot. He threatened to fire me because I criticized him so much. I said go ahead, I told him I could go eat lunch and then that afternoon go walk into another firm and start working like nothing ever happened. He knew it to.
“You think that’s bad, try being a first or second year associate at a large law firm.”
So true. I have plenty of friends in that boat. And there’s no longer a clear path to partner anytime in this lifetime. That’s why I chose government work. Max 40 hrs/week, every other Friday off, great benefits and retirement. For the hours (1/2 of what a private lawyer bills) I make the same hourly rate. I’d rather make 120k for 40 hours and have time for my kids than 240k for a heart attck by age 40.
After only 6 months in one of the big 4 I left. The partner came to talk me out of it (to me! an insignificant junior tax advisor). I told him my conditions (fire my boss) and he wouldn’t, so I left. It was too expensive to fire my boss (senior tax advisor in The Netherlands, no way the court would have allowed the company to fire him). A pity it was not in the US I would have taken him to court for sexual harrasment (and presenting my reports as his). Anyway I knew I did not have a future there. I didn’t like taxes, for some unknown reason they didn’t want to transfer me to finance and being a woman I couldn’t have taken the clients to the Banana Bar in Amsterdam.
Capitalism at its best! How do you think they pay for those fancy houses, cars and women?
They suck the life and capital out of the average Joe.
‘KPMG often did nothing more than rubber-stamp Fannie Mae’s internal accounting decisions.’
Isn’t that exactly what they were paid to do? And if this was such a big problem, why didn’t FNM’s top management either ask them to change course or else fire them a long time ago?
Bernie Ebber’s demise pretty much shot the “Aw Shucks” defense for accounting improprieties down the tube…
http://en.wikipedia.org/wiki/Bernie_Ebbers
“Isn’t that exactly what they were paid to do? And if this was such a big problem, why didn’t FNM’s top management either ask them to change course or else fire them a long time ago?”
Makes you sick, doesn’t it Stucco? What a pathetic excuse for their problems. Why keep a firm around for decades if you know they aren’t even doing their job? Answer: because you don’t want them to do their job. I sincerely hope these two firms go down.
“I sincerely hope these two firms go down”
You mean FNM?
You know what that would do the the housing market (the rest of the economy too)?
Be careful you may get what you wish fo!
Don’t worry — even though the Fed constantly worries out loud about Fannie, in reality FNM is “too big to fail,” and like LTCM before it, they are entitled to special bailout protection against collapse, which explains ever-resilient share prices despite a murky financial picture. I can’t help but speculate that some kind of behind-the-scenes special treatment is already in force (including exemption from the NYSE requirement that companies which do not produce financials will be delisted). I further suspect that part of the post-LTCM risk management strategy is to avoid financial contagion through a news blackout when a company is getting bailed out, which unfortunately increases systemic risk due to heightened moral hazard behind the curtain.
My worst fear is that Fannie Mae could already have become a US version of Japan’s zombie companies which were a prevalent feature of the early 1990s Japanese economy. But it is hard to say given the veil of secrecy which enshrouds their financial situation…
“Fannie Mae was repeatedly a victim of KPMG’s conflicting role”
Yes, FNMA was a VICTIM in all of this.
The world has officially gone mad.
Yep. That’s pretty much what I thought when I read that. A victim of the conflict of interest FNMA created themselves.
Both victims of greed and Wall Street expectations. Say the CFO wants to push the envelope on something (believe me, accounting at that level is NOT debits and credits - it’s about taking and defending a position). The partner in charge of the audit has to weigh the risk of something blowing up, versus the risk of losing the client. All he or she has to fall back on is “an audit is not designed to uncover fraud.”
Didn’t the discredited CEO of FM take a huge bonus (based on the inflated numbers) with him when he left?
Yep — Raines. I really want to see that money retrieved. Wonder how much chance there is of that happening.
FM stands for FED MAFIA ?
Or FU–EN MORONS ?
I’d love to see that engagement letter between KPMG and Fannie Mae. I’m assuming that’s public? Or not?
To my understanding, they typically make the company acknowledge certain responsibilities…like being responsible to put systems in place to detect fraud…
Why can’t anyone accept responsibility anymore???
Not true, dude…First off, the engagement letters are not public. Don’t know where you’re getting that from. The OPINIONS are public for publicly-traded firms. Also, no year-end audit engagement guarantees detecting fraud. Nope, no siree. It’s not even in the engagement letter. All it says is that the auditors will analyze internal controls to see if they can be relied upon. If they can, it’s rubber-stamp away! Woo-hoo! We don’t have to do any real work! If they’re not reliable, they do sampling, pray they don’t come across anything fraudulent and rubber-stamp again! What a crooked business. I oughta know.
I think you misunderstood my comment.
I was questioning whether anyone could get our hands on the engagement letter, and noted that typically such engagement letters make the Company (not accounting firm) accept responsibility for putting systems in place for preventing and detecting fraud.
Clearly meant to avoid such blame-games from occurring.
Well, at the White House, they “accept responsibility” all the time. Whatever that means. And you know the tone starts at the top.
Yep. Our CEO’s take their marching orders right from the top.
Here is a story about a hapless victim of accounting fraud…
http://tinyurl.com/ybagb7
Enron’s Skilling enters Minnesota prison
By Jasmina Kelemen, MarketWatch
Last Update: 1:46 PM ET Dec 13, 2006
HOUSTON (MarketWatch) — Jeffrey Skilling reported Wednesday to a low-security prison in Minnesota, where he could be spending the first of many Christmases for his crimes as a top executive of Enron Corp.
A spokeswoman for the Federal Bureau of Prisons in Washington confirmed that Skilling surrendered to guards at the Waseca Federal Correctional Institution, an all-male facility about 75 miles south of Minneapolis, at 12:07 p.m. Central time — just a day after a Houston appeals court denied his request to remain at home pending an appeal of his case.
“That was just instinct. Kind of like running from the cops.”
Marquis Weeks after running Kickoff return for a touchdown -
This is probably a prison with an indoor tennis court and maybe even a golf course.
White collar crimes get soft punishment.
There was a person in Texas before Bush was govener that had a history of writing bad checks (three time loser). They wanted to give him/her life for a $25 bad check.
That’s what they should do with all these scoundrels that cheat the taxpayers and the workers. Strip them of all thier assets and throw them in the real jails
Can you sue the police if they don’t stop yourself from committing a crime?
10% off most places w 15% off CA & MA
AZ and FL pusin 20………..
“Jason Colon bought a new three-bedroom, 2½-bath townhouse in Apollo Beach, Fla., last month. Mr. Colon paid $163,000 for the property, which was originally priced at $242,000. The builder also picked up $5,000 of his closing costs.”
Mr. Banker paid about $63,000 too much…..wish I could find the address and see how many trailer parks are within a 1 mile radius.
OK, which one of you comics can come up with a witticism about “Mr Colon and his new POS”?
I was working on that myself.
He’s drinking the Kool-aid now, and he’ll be drinking the prune juice later.
Waaaay to easy.
Poor Bartolo…
Nothing like good “low hanging fruit” from the joke world.
who bought w 0 down in the 90’s ?
Who bought with I/O Option ARMs in the 90’s?
My hunch: Nobody.
It was interesting, I spoke with my parents about this very topic, to see what their experience had been purchasing homes. The down payments that they made from the 70’s onward ranged from a couple percent to 10%. I didn’t expect this, I thought they would have been higher…
“The down payments that they made from the 70’s onward ranged from a couple percent to 10%.”
2% down is infinitely higher than 0% down.
“The down payments that they made from the 70’s onward ranged from a couple percent to 10%. I didn’t expect this, I thought they would have been higher…”
3% down for FHA and 0% down for VA. Rarely did anyone put down less than 10% otherwise unless you were assuming an existing loan which most loans were assumable prior to the ’90’s. Almost no loans are assumable now and and the limits for FHA are almost too low for most of California/East Coast for people to use. Why would anyone bother with these anyway when you can piggyback a 2nd and avoid mortgage insurance.
Angela
“Why would anyone bother with these anyway when you can piggyback a 2nd and avoid mortgage insurance.”
When did piggybacking become the norm? Was it a factor in the 1990s?
I saw a lot of 80/10/10’s back in ‘93-’96 (80% primary, 10% secondary, 10% down). The secondary was usualy .75% to 1.25% higher.
Ben Jones, I hope you can shed some light into my thought on housing and economy based on the latest weekly survey data from Mortgage Banker of Association.
Hm.. I have been following the Mortgage Banker Association weekly mortgege application survey data for over 1 year. I saw the decline in the housing more than 1 year ago when the weekly mortgage survey showed a consistent decline in Purchase application, which I think is a measure the home buying activities. I no longer track the re-finance index because I think it skew the data with all those previous ARM re-adjusting.
The worst time occur in the summer this year, when the Purchase index shows consistent decline of 25% year-over-year for the same week. However in the past 2 months, it has been trending up, with decline of about 15% y-o-y, which matches up the government stats of home sales down 12% nationwide.
This week, it is only down 3% y-o-y. Gosh, the housing is recovering after the $40 million realtor’s campaign of “Now the best time to buy expensive homes!” ?! I really do not wish to see this happen, but unless mortgage banker is making up the data, I see that the housing bubble is recovering, especially with stock market making new highs injecting optimism to the mass!
Given that “New homeowners spend more on home-related products and services the first six months than established homeowners spend in five years”, this re-bounding in home purchases is going to stimulate the economy again. Think this is why the stock market is not caving in the past 2 months given all the bad manufacturing economic news.
Should we bear concede ?????? Oh … my ….
http://www.mortgagebankers.org/N…enter/ 47025.htm
The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending December 8. The Market Composite Index, a measure of mortgage loan application volume, was 721.2, an increase of 11.4 percent on a seasonally adjusted basis from 647.6 one week earlier. On an unadjusted basis, the Index increased 10.2 percent compared with the previous week and was up 22.2 percent compared with the same week one year earlier. The Market Index is at its highest level since October 2005.
“The substantial decline in mortgage rates over the past six months, greater than 80 basis points in total, has led to a significant increase in refinance activity. Additionally, we are seeing a steady increase in purchase applications,” said Mike Fratantoni, Senior Economist at the Mortgage Bankers Association.
The seasonally adjusted Refinance Index increased by 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. The Refinance Index is at its highest level since September 2005 while the Purchase Index is at its highest since January 2006. The seasonally adjusted Conventional Index increased by 11.9 percent to 1079.4 from 964.7 the previous week, and the seasonally adjusted Government Index increased 4.3 percent to 124.1 from 119 the previous week.
Sorry for double post, the link is
http://www.mortgagebankers.org/NewsandMedia/PressCenter/47025.htm
“This week, it is only down 3% y-o-y.”
Let us know how the numbers are come The Spring Buying Season ‘07. Include the inventory and ‘months of supply’ numbers as well. And the foreclosure rate (and trend).
Yeah, I wouldn’t draw any conclusions from activity right now. Folks oblivious to what is happening (ie. not trying to game the selling season as a seller or trying to time their purchase as a buyer) represent a significant portion of those buying and selling today. The other sellers are desperate, and the other buyers, are, well, I guess they’re trying to fill a housing need.
I agree that Spring will bring some different perspectives.
This assumes that you believe anything published by any of these statistical producing agencies. I reached the opinion long ago that a lot of the ‘feel good’ numbers generated by these places are exactly that. I really don’t think the numbers generated by the NAR are valid. New house sales? Come on now, they don’t show cancellations (which are wide spread) and they are valid? All these incentives for existing home sales don’t even enter the picture.
Take a look at the BLS unemployment rates. Nothing could be further from the truth than these outright lies. The UE rate could just as well be 2.3% or 3.7% and not be anymore misleading compared to what actual UE rates are.
So what is your point again?
I would expect mortgage applications to be up. After all, they are just applications. Over half of them are for refinancing, people trying to get out of their ARM’s and Neg-Am I/O loans. How is this a sign that housing is getting healthy, I see it as just the opposite.
NPR had a report on this morning about how badly minorities are getting screwed on their loans. They are being funneled into poor credit risk loans that have high fees, lousy rates and terms and of course pay big bucks to the originator. Yay for free enterprise !
refi to what ?
big time negative equity
that’s all folks
I agree, that’s why I said “trying”. I’ve never seen a statistic showing how many of these loan refinancing applications are actually funded. I think that would be interesting to find out.
Good read about FB’s who are into Major negative equity! http://www.ocregister.com/ocregister/money/housing/article_1381194.php
Stupid A*holes!!
Good read about FB’s who are into Major negative equity! http://www.ocregister.com/ocregister/money/housing/article_1381194.php
Stupid A**holes!!
They break out new applications from refinancings.
“Take a look at the BLS unemployment rates. Nothing could be further from the truth than these outright lies.”
BULLSEYE….. And these are GOVT numbers my friend. We are paying for this $hit. And these fraudulent numbers are quoted, headlined and SOLD to the public and then quoted by the public, some with an agenda, others unknowingly. Most of all, the most criminal of all the quoting boosters are the current group of liars occupying congress and the white house. I’ll concede that this has been going on since 1980 and all parties are guilty. Nevertheless, we’ve bought the Brooklyn Bridge some years ago when the trickle down theory, proven wrong time and time again, was embraced by an innocent public.
“when the trickle down theory, proven wrong time and time again”
What’s been proven wrong and when?
Ahhh… A believer in the trickledown lunacy huh? The fact is, the basic premise of trickledown (trickle on) is one where tax reduction supposedly increases revenues, hence, paying for themselves.
then there’s old David Stockman apparently being charged with fraud…. No, nothing trickled anywhere but up… the great Friedman boondoggle..
Trickle down isn’t proven wrong just because you say so (or because you call it lunacy). But I did like the personal attack to a legit question, well done *claps*
Unfortunately for the trickledown robots, Greenspan, Bernanke (during confirmation hearings) and Hank Paulson (confirmation hearings) unequivocally stated “there is no evidence of that” when asked if tax cuts pay for themselves. All in front of congress, under oath and filmed.
But is sure is sad to see that you and the rest of the minority can’t see it for yourselves without the need for the establishment to point it out for you.
Shawn — pay attention to the quality of the loans not the quantity. What good is an uptick in borrowing if a large percentage of borrowers are quickly heading into foreclosure? From Mike_in_FL, “the latest RealtyTrac foreclosure numbers for November came out today and they aren’t good. Foreclosures climbed 4.1% month-over-month between Oct. and Nov. and 68.1% YOY.”
Yep, I am talking about the Purchase application, not the aggregated application index which includes the re-financing. As I mentioned in the earlier post, I am tracking the Purchase index only, because the Re-finance index is now being skewed by the ARMS re-adjustment.
One week prolly mountain outta mole hill.
The only interesting thing to me now is how fast and far do the builders cut prices? I figure they can cut prices ($/ft) by half and still break even. Land prices will fall all on their own due to lack of demand. Point being that the used home sales could cease to exist for the next 3+ years. If the builders move fast enough (don’t they have to) you may see the bulk of the FB pass through the system, like an egg through a snake, in a realatively short time (18 months). Within a year from then they will be reowned or renals.
Dollar will tank hard 10-15%/yr for this period and this will effectively manage our gov. debt problems (debt, not deficeit). Interest and inflation will rise much and US products (especially AG and technical services (oil, energy, etc.) will be desired overseas because of its cheap cost due to currancies.
Kind of ironic that the dollar halfing will make our workers cheaper to overseas firms.
We may see a sort of reverse outsourcing, to US workers rather than away.
The only sure thing is the wal-mart $10 toaster oven and $19 dvd players will soon be distant memories.
Over the next 5-10 years anything in the US economy that is leveraged will fall in value. Either through default or balance sheet scrubbing the bulk of crap debt issued by the US will be dealt with the dollar will stabilize and the US$ will be dramatically weakened from its global use.
The link is http://www.mortgagebankers.org/NewsandMedia/PressCenter/47025.htm
http://tinyurl.com/ is your freind
“the monthly cost of renting the average apartment is roughly half what it would cost to own the median-price home”
Ummm, more like the monthly cost of renting the average HOUSE is half what it would cost to own the median-price home (factoring in PITI, maintenance, etc., even with mortgage interest deduction).
I agree. I saw the table in the WSJ. San Diego was worst; you can rent for just 38% of the monthly cost of owning.
I’d believe the WSJ table numbers. I rent for nearly 38% of what it would cost to own something almost identical.
38% holy cow. Anyone have a link to that article?
I remember for years in the 90’s people stuck upside down with the big mortgage had about the same issue. Why continue paying double when updside down when rent=50% of that.
The BIG BIG issue with this discrepancy is that even after prices decline the owners stuck with the big payment dont get a break. Unless the mail in keys which is the only solution for many.
So once housing becomes ‘more affordable’ it can only become more and more affordable due to this low spread causing upside down FB’s to enter foreclosure and rent. Seen it all b4.
90-97 was trainwreck in CA… all aboard!!
I can’t find the exact article, but here’s one along the same lines that ran at about the same time.
http://www.realestatejournal.com/buysell/markettrends/20050324-simon.html
Sorry, I meant to say that the WSJ first reported the difference between rents and owning back in ‘05. I remember reading it back then and being even more resolutely determined not to buy. Nice to see some fresh numbers.
It doesn’t necessarily have to be an SFH if it’s a bubble area. If my one-bedroom just outside DC went condo, it would probably go for $260K. Factoring 80/20 fixed $1600 PI + ~$250TI + $250 condo fees that’s ~$2100/month or so. Those are some very rough guesses, but taking that $2100 figure, my rent is very close to 0.53 cited in the graph (not including the mortgage deduct).
I have no understanding of this condo craze. They are so clearly overpriced it boggles my mind.
Oxide - I bought a condo in NW DC is the mid ’90’s - three percent down, 15-year fixed mortgage. Monthly PITI (not including mortgage deduct) plus condo fee was about 15% LESS than neigbors were paying to rent identical units. Oh, and I opted for a 1/4 point extra mortgage interest in lieu of mortgage insurance.
Will the rent/buy ratio get that far out of whack again this time? I dunno, but we have a long, long way to go before it’s even close to parity.
I’m renting a house in Silverlake (Los Angeles) for $2K and the house right next to me just sold for $960K. My calculations show his after tax cost to be $5K per month. Thus, I’m paying 40% of what it would cost to own.
Another house 2 doors down, sold for $1350 after having been purchased last year for $1395. Ouch! After commissions, net sale would be $1296 or a loss of $100K plus the mortgage expenses ($7K per month x 12 months) = Total Loss of $184K in one year!!
(They literally sold it one year after buying it.)
Bet they were wishing they had rented instead…
Actually the cost of renting is half of the cost of paying the mortgage, and with renting you won’t own an asset that is worth far less than you paid for it. The rental advantage includes the ability not to get your ass handed to you.
Oh yeah, and renting doesn’t include paying someone else’s retirement.
“Some mortgage companies continue to see weaker housing. The real estate market hasn’t yet bottomed out, Wells Fargo CEO Richard Kovacevich said in an interview. About a fifth of the 375 metropolitan statistical areas in the country have had home price decreases of 20 percent, he said.”
“‘It’s pretty ugly at the moment,’ Kovacevich said. Home prices are ‘really down much more’ than recent economic reports suggest, he said, citing the company’s internal data.”
Wells Fargo is the last AAA rated bank in the USA. If their CEO is saying this, it means the bank is getting ready to hunker down and take their medicine. Will they lose money? Yes. But until Wells Fargo is in the hole over $10 billion… yawn. They are that well capitalized of a bank. Not to mention they make incredible profits off of their other businesses, so they’ll hold on. (Hence, the AAA rating.) But many others will join Ownit.
Neil
10 Billion doesn’t seem too high a threshold given the amount of mtgs outstanding.
That $10 Billion of losses to Wells Fargo, not to the MBS holders. If Wells Fargo does lose $10 Billion on mortgages… ouch! Note: I have a source that is fairly certain they will lose a few billion on construction loans.
oops… But again, nothing Wells Fargo cannot take.
Some of the other banks… ouch.
Neil
Wells Fargo is a huge vendor of mortgages to “Guest Workers” and their “Clown Houses”. (Clown house is a residential version of the cars at the circus with an impossible number of clowns in it). This group of borrowers are most at risk during an economic downturn, so Wells Fargo’s exposure is going to include this risk as well.
Clown House…hilarious.
Wells’ CEO, after spouting off stuff like “no national real estate market” and “we’re diversified” is finally starting to see the writing on the wall. Of all the major US banks, Wells is by far the most exposed to real estate from all sides - builder finance, commercial, residential mortgages, etc. May be a good stock to short in ‘07. I’d wager that AAA rating gets dinged as well.
The article says WF is the largest lender to homebuilders.
Yep. I know people doing internal WF “emergency audits” of those loans right now. They aren’t predicting great payback rates… WF will survive, but they will also lose money.
Now, as to the mortgages, enough will slip to be the MBS holder’s problem. Good for WF, bad for the financial system.
Neil
I have a good friend who is mtg broker, he was at a few sub prime places but recently he got hired at wells fargo, i spoke to him this week and he was all smiles, i said what is going on with the subprime market? he said who cares i’m with wf and they are aaa rated
I’m not sure if this was posted elsewhere. If so, I apologize. But the latest RealtyTrac foreclosure numbers for November came out today and they aren’t good. Foreclosures climbed 4.1% month-over-month between Oct. and Nov. and 68.1% YOY. I put a full post and a chart up at my blog…
http://interestrateroundup.blogspot.com
Also, “official” Mortgage Bankers Association Q3 delinquency and foreclosure figures were just released. Here’s a synopsis…
* The overall 1-4 unit delinquency rate hit 4.67%, up from 4.44% a year earlier. Outside of the 4.7% rate in Q4 2005, which was likely due to hurricane-related DQs, this is the highest reading since Q2 2003 (4.97%). DQs hit a high of 5.35% in Q3 2001, when the U.S. economy was in recession
* Subprime DQs are rising fast — to 12.56% in Q3 from 10.76% a in Q3 2005
* ARM DQs are, not surprisingly, rising faster than fixed rate DQs. More than 3% of prime credit ARMs were delinquent. Subprime ARM delinquencies are above 13%.
* The foreclosure rate popped up to 1.05%, the highest since Q1 2005.
http://interestrateroundup.blogspot.com
>
I should sue the cops for not preventing me from robbing that bank.
Oops. SHould have had the quote:
Fannie Mae, the biggest U.S. mortgage finance company, sued former auditor KPMG LLP for $2 billion today, saying the accounting firm failed to serve its role as an independent watchdog and prevent $6.3 billion in accounting errors.
Aw crap. bold off
Try again sorry
You should sue the bank for putting a door on it.
???
Exhibit Z in the case for an overflated asset. The least qualified, least intelligent buyers propping up the market at its apex. “Oh to reach to the sky and give the housing bubble baloon just one more teeny push, and then fall flat on my face.”
“In a sign of just how hard it is for first-time buyers to come up with the cash needed to buy a home, 45% of first-time buyers bought their home with no money down, according to the recent NAR survey, up from 43% a year earlier.”
Correction: overinflated asset.
That is the funniest lawsuit ever! The cheaters are suing their auditors for not catching them in the act. FNM argues: We know we were cheating but you did’nt catch us; therefore, it’s your fault KPMG.
Accounting firms go out of business, executives get bent over in the big house.
NEW TOPIC
report by zip or county- observed by bloggers
22151 off 10%
how about you
People still having problems pricing their houses — there can be huge variability among similar houses (i.e. holdouts). If I look at the min of the range and compare to the top price in the past year:
20152: Townhouses off 20%. News outlets report 10% off, but their data is lagging. Peak sold in my neighborhood at $450k — identical model now lists for $350k.
22030: 4br SFH off at least 15% from peak. Post only reports 10%, but a quick search through ZipRealty will show $750k houses with prices reduced to $650k. And, yes, similar places were selling for $750k one year ago.
Overall, prices in NoVA are falling faster than I thought. If we can get another 15-20% off by next Christmas, most of the overvaluation will be wiped out and we’ll be left with inflation adjusted prices.
Arggh, wish I could edit!
1) When I say that there is huge variability, the same townhouse might list for $350k, a couple more at $385k, and one dumbass holdout at $425k.
2) “Post” = “Washington Post”
friend sold in Lake Barcroft for 550k
97229 (Portland,OR environs) off about 10% from the peak.
Been tracking my sisters house on Zillow since she bought it in ‘05. It’s easier since I can compare the same system over time. By this measure the 01970 has lost 20% off her peak price.
KPMG and fannie mae - nice - sounds like Enron and Anderson all over again.
Will be nice to see this thing implode, however Its going to be an explosion in some areas. take cover guys, its going to get messy. Man the tears alone will flood the rivers. Wonder if there was someone who lost it all in the enron or worldcon collapse, only to save what little he had, put it in RE and now is losing it … twice unlucky.
Cool.
Cow_tipping.
The big losers were the Japaneese Insurance Companies in the case of Enron . It will be the same thing in the case of that biiitch called Fannie Mae.
test
test2
Skilling reported to prison today. What a farce; does anyone who lost money in the stock benefit? Do Californians who suffered through blackouts benefit? Meet the new boss, same as the old boss. For the record, I am not defending Skilling, merely pointing out that people come and go, but the system is entrenched.
ENRON was connected to Geoge W. Bush and Senator Lieberman. These peolple are still in politics and were elected by the morons called electors. You have only you to blame for the coming mess. “We the people, are morons and dumbells.”
Umm..Enron was “connected” to just about everyone in politics but aside from that, how exactly did George and Joe convince Skilling to doctor the numbers? How did George and Joe get most of Wall Street to play along?
And why? To make Skilling more rich? Skilling came from a very poor background (as did the chairman of Enron).
And how is it Clinton gets a pass with the implosion of Enron and Worldcom on HIS watch (not that I believe Clinton had anything to do with either)? How is it the one guy IN power for eight years (with a well demonstrated problem with “ethics”) is utterly blameless while Bush, a mere figure head under Texas state structure is THE MAN behind Enron?
Making idiotic, baseless and illogical assertions doesn’t make them true no matter how often you repeat them.
Yeah, you must repeat them louder and faster. Just like fox news!
is utterly blameless while Bush, a mere figure head under Texas state structure is THE MAN behind Enron?
not that I want to waste space in the comments section on stupid political points, but Bush did happen to be flown around on the Enron corporate jet during the 2000 campaign.
http://www.opensecrets.org/alerts/v5/alertv5_38a.asp
Ah, yes, the old “if you know a criminal, you are a criminal” theory. Right… I don’t doubt that most, if not all, of our politicians are bought out in some fashion, but to say that Bush specifically is responsible for Enron and everything else related to it is absurd. He’s not, and I seriously doubt Clinton (for all his flaws) was either. In fact, I am quite sure that the corporate crooks that run most things in this nation can get along just fine without any of the specific politicians in question.
but to say that Bush specifically is responsible for Enron and everything else related to it is absurd
You do recognize that this is a fallacious example, right?
I recommend revisiting your thinking to avoid wasting the board’s time & space, in the future.