Bits Bucket And Craigslist Finds For December 30, 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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In what way the real estate bubble is connected to the 317 trillion dollars derivative instruments market and vice versa.
Derivatives = financial insurance w/o the insurance company. So for instance, if I buy a bunch of toxic mortgage debt and package it into a bundle of securities to sell them to investors as mortgage backed securities (MBS) , I also buy some insurance in the form of derivatives contracts whose value will go up if for some reason the value of the toxic mortgage debt falls.
Now one key position at insurance companies is that of the underwriter (not to be confused with undertaker), whose job it is to assess the risk of a particular contract and help the actuaries figure out how to price it (what premium to charge). Who underwrites the risk of the above-mentioned derivatives? Another key service provided by insurance companies is to invest vast sums of money into insurance funds which serve as a deep well into which the company may dip whenever claims need to be paid. Thus insurance companies at least in principle provide two valuable financial services, of pricing risk (a form of appraisal) and providing a fund to back the counterparty’s risk with bank.
One implication of the recently-popularized (and even more recently-discredited) Efficient Markets Theory is that markets can do a better job than individuals of pricing (underwriting) risk. So as long as Mr. Market keeps performing his underwriting job as well as he recently has, nothing bad can happen. But if it turns out that Mr. Market somehow made a mistake, and (as Mish has suggested) the counterparty to the derivatives turns out to be Madam Merriweather’s Malaysian Mudhut, then we will suddenly learn why the staid- and time-tested insurance industry developed underwriting as a job category and maintained an insurance fund in case claims ever needed to be paid.
Getstucco….
Your explanation of what a derivative is in is one I can finally grasp.
Thanks
Today a WSJ editorial spoke the truth, but it was totally accidental: “When it comes to the decline of risk premiums and financial stability, securitization and the use of derivatives have both played an unsung role.”
“The Risk Business: Policy errors are a lot scarier than financial innovation”, Opinion Journal - from The Wall Street Journal Editorial Page, December 30, 2006.
http://www.opinionjournal.com/weekend/hottopic/?id=110009463
I nominate this one for Eats, Shoots, and Leaves - Xtreme edition.
Ever check out the SD county assessor’s web site? There is some great price data available here online:
http://www.sdarcc.com/arcc/services/propsales_search.aspx
For instance, here are a bunch of recently-built condos in the same 92127 condo development (in other words, very similar in terms of the property description) which sold since May 2005:
ADDRESS PRICE PARCEL NUMBER SALES DATE
16908 ABUNDANTE ST $605,000 678 512 15 00 05-06-2005
16953 ABUNDANTE ST $650,000 678 512 01 00 06-01-2005
16863 ABUNDANTE ST $655,000 678 513 03 00 06-06-2005
16972 ABUNDANTE ST $618,000 678 512 43 00 06-15-2005
16964 ABUNDANTE ST $600,000 678 512 41 00 10-07-2005
16884 ABUNDANTE ST $590,000 678 512 13 00 11-28-2005
16806 ABUNDANTE ST $575,000 678 513 13 00 12-08-2005
16812 ABUNDANTE ST $550,000 678 513 14 00 02-23-2006
16809 ABUNDANTE ST $540,000 678 513 12 00 04-26-2006
16963 ABUNDANTE ST $558,000 678 512 59 00 08-28-2006
And now we see an identical unit show up on the market this week listed at $489,000, which is apparently $655K-$489K = $166,000 (25%) off the peak sale price in June 2005.
Here is the fire sale blurb:
“Motivated!!! Seller. This property is below the new market value.Bring all offers.”
Further examples:
$369,900 for 4/3 1,578 sq ft (listed on 10/24/06, REO sale, still sitting) = $234 / sq ft
$750K for 3200 sq ft (new!) McMansion = $234 / sq ft
(4 or 5 brs? — I forgot)
These are for homes that are priced to sell quickly, which means they will soon be the new comps. Thanks to a few guys (and banks) “screwing up the comps,” the new price in SD 92127 = $230-$235 / sq ft.
Of course if you require a snob premium, you can still find faux chateaus in the 3 br size over in nearby Santaluz listed at $1.5 million.
(Sorry — this was meant to be a separate post, but accidently ended up as a response to John M)
Just desserts. My post should have been a response to the day’s first by Marc Authier.
Fantastic post, John!
Reminds me of my kids’ favorite gift this year, whose message is captured in this passage:
Would you rather dine where the sign says “eat here, and get gas,” or at the place across the street, whose sign says “eat here and get gas?”
Think of derivatives being involved through 2 basic vehicles.
1. CDS allows institutions to insure against a debt default/credit event by a counterparty.
2. ABX allows institutions to insure against a debt default/credit event on specific Asset Backed (Mortgage Backed) Securities.
What both of these have done is keep the mortgage market much much more liquid than it would be otherwise. Buyers have continued to buy up mortgages with no worry about default feeling they are “insured”. The originators, realizing this, took advantage of “moral hazard” by originating everything under the sun regardless of LTV/FICO/Income realizing that Mortgage buyers would buy anything.
These derivatives have been a massive contributor to the bubble.
And of course with appraisal fraud and liar loans making the LTV and Income figures on the loans interesting fictions, the market is far worse than the models would show. I’m betting that the risk modeling takes these figures at face value. This may break in slow motion, but make no mistake it’s a dam breaking.
This is exactly where the Efficient Market Theory fails in the real world. Efficient markets require perfect information, but the real world (especially with red hot liquidity freely flowing across borders) is a Market for Lemons (and GFs).
Thank you, George Akerlof!
Berkeley kicked Chicago’s @$$ in the late twentieth century battle of economic ideas!
How right you are GS….. Thought if I read one more paean to Friedman I was gonna puke.
Wonder if this derivatives stuff explains why the vultures who send me postcards trying to buy my mortgages never seem to care at all about the borrower OR the property value. Of course if I wrote a note for 9%, these people want to buy it on a basis that yields 14%, so I never sell any of them. But I often wondered why the underlying facts seemed not to interest them. Can insurance-like derivatives be the answer?
I doubt it. They are probably selling loans to hedge funds or other investment pools.
I don’t know what you mean about “if I wrote a note for 9%, they want to buy it if it yields 14%”. What?
That means they pay less than the amount on the loan so that they get a 14% yield. For instance the loan amount is $100K but they only pay 90K for it so the person who sells loses 10K or whatever amount raises the yield enough.
True. Exactly. The systemic risk is not taken by them. They keep 100% of the profit and if everything goes wrong, the taxpayer eventually pays for their mess. How that for “private entreprise” ? Socialism, kind of, but reserved only to bankers and conmen in finance.
Derivatives were also a massive contributor to Enron and Orange County Ca’s BK.
LCTM, as well, no?
duh! meant LTCM, sorry.
All is done in the belief that when the “sh-taaaa” hits the fan, everybody will be insured and collect. It’s the same reasoning going on that with the crash of 1987 and the supposed portfolio insurance ? It will eventually take a mega protection team when all this happens. Fuzzy logic at its best.
Is there insurance to cover losses by default of the insurer?
For comparison, auto insurers are required to have X dollars in assets for every Y dollars in coverage that they write. (X,Y are regulated state-by-state.) Or are the insurers flying naked? which would be an incredible moral hazard.
whoops, meant as a question to BPLI above.
Yes. You are talking about reinsurance — the companies (like Munich RE) which buy the risk in the extreme tale of insurance companies. In principle, one could use derivatives contracts to serve the same function, buy purchasing deep-out-of-the-money derivatives instruments to insure against events which trigger extremely large claims.
buybythe insurers (derivative market makers and holders) hold capital against losses. They have certain models which predict liklihood of losses.
So just like an insurance company holds capital, banks hold capital. They also limit exposure to counterparties who may have to pay them, as those counterparties might go bankrupt. They hold collateral against trades, etc. Of course if enough hedge funds lose enough money, it will exceed collateral held. Requiring more collateral will cause those hedge funds to ‘blow up’ and be forced to liquidate, as best they can.
“the insurers (derivative market makers and holders) hold capital against losses.”
You hope.
And where exactly do they park that capital? Treasurys or REITs? THAT is the question. I just hope, as should we all that systemic risk isn’t the answer.
I would guess lots of capital gets parked in MBS these days. Of course, there is an issue of systemic risk when the capital investments are parked in an asset class which is likely to tank at the very same time the derivatives they are supposed to back go into the money. Sort of like Realtors who are heavily invested in Las Vegas condos — not exactly ideal diversification, but very lucrative so long as RE always goes up.
“be forced to liquidate as best they can” …
Yeah, I have seen that happen too: Good luck trying to sell those bonds or whatever the asset is… When both the S&L Crisis and the OC Bankruptcy crisis occurred, I saw prices on most decent bond issues at a deep discount. You think they can liquidate anywhere close to best?? It will be at a fraction on the dollar.
Good point. It just proves that the “insurance” in question is mostly a gimmick. And that when a “fat tail” event, or (love that metaphor) “a black swan” event, will eventually occur the insurance in question will cover no one. Especially if the insurer in question has the wrong mathematical model and is not capitalised sufficiently. If they can’t liquidate the MBS, don’t worry, they will liquidate the taxpayer instead.
Folks, I have been reading this blog for a while now, and have a few questions I would like to post. My brother’s wife owns what sounds like a very nice though much older house on the coast of North Carolina, in the Cape Fear/ Wilmington area. Within the past year or so it was willed to her by a terminally ill relative who she had taken care of while the rest of the family essentially ignored him. The deal is, my brother and SIL think that now that they own the place free and clear, all they have to do is sit on the property and sell it off for big cash when the market gets better. Apparently, they have been told that a large, commercial port development is going to happen in the Wilmington, NC area in the next year or so, that will really serve to crank up the housing prices in the area. Personally, I think they should sell, take the money and run, but they think if they just sit tight and wait, the market will bring them riches beyond avarice. The question I have is what is the housing market like in that area ( I think it’s a place called Southport, very close to Wilmington/ Cape Fear) and what are it’s prospects in the short term (3 to 5 years, say)? The house in question is not a McMansion but a much older house, and I think was originally owned my a rich local merchant or ship’s captain. My brother said that he and his wife were offered somewhere on the order of $1,000,000 for it last year, but they declined to sell it for reasons that remain unclear. The note is all paid off, and the only ongoing expenses on the place are taxes, insurance and maintenance. They have in the interim decided to rent this place out, and are now getting some cash flow to pay for the upkeep.
As it happens, I’ve been an avid reader of this blog and others like for some time now, and I think my bro and SIL are making a really big mistake. When I told him I didn’t think the housing market is going to be in good shape over the next few years and he should sell it off immediately, undercutting the competition with a big price reduction to make it sell, he said something along the lines of “What, and let someone else make all the money off it?” Apparently, in my family, the mantra of “Real Estate always goes UP” has been firmly etched their brains, and the last thing they want to hear from me is that perhaps, maybe, possibly, that is not quite true. Indeed, it’s rather disapointing that my folks have completely fallen for that, and I think it is going to cost my bro and SIL seriously. So, any info on that market would be greatly appreciated.
I have no specific info on the market. It is difficult to say “real estate will go up/down by this much in this market”. If it were so obvious, how could it be?
I don’t think NC has had the runup other places have, but I have heard the coasts are starting to fall.
How many sq. feet is this? How many acres? What part of town? What are neighboring places selling for.
Worst case he keeps it for a long time as the price falls and he can’t even get what he can now. But how is he the poorer for it? It’s found money, whether it’s 1M or 700K, it’s still a windfall.
You’ll never convince someone of your opinion…maybe he likes owning the house.
Over the years I have witnessed many legacy beneficiaries do this (Hold on for More)….I have concluded that since they did not “earn” the wealth, they are not as sensitive to the difficulty of recapturing any loss…..They inherited the property so they received a “stepped up” basis meaning that they have no federal or state income tax on any sale (They appear to be within the exemption)…Even if they took a 20% haircut on their 1-mil, they could re-invest 800K in a asset that would produce income, lets say, 6-8%….Along with that they eliminate the carry costs (Tx, maint. Etc.) which would add another percent or so (6-8% + elimination of carry)…..Whether they invested in securities or other income producing real estate its apparent they could earn between 50-60K/Yr on even their discounted equity….Kind of seems like a no brainier for me….
Don’t say anything. They won’t listen any way and you will just strain your relationship. You’ve made your feelings known, now move on.
Coastal North Carolina is going to get murdered. They have had a massive unjustified run-up. The Outer Banks are so out of whack it is not even funny. There is no economic base other than tourism. They are right in the path of hurricanes. I have a friend that rents a little beachhouse in Nagshead for $1,100 per month. The owner paid $380,000 for the house in 2005. You tell me how ugly that is going to get?
Let him find out for himself the realities of real estate. Tough love is tough!
If the house is in an area where county might end up changing the zoning on the property to a more profitable zoning then it might be worth waiting, but if it isn’t they would be better off selling now, but they won’t lose money in any case.
Your brother may be right about the potential commercial development. NC is actively marketing its ports in Florida as an an option for boat builders who are unable to afford South Florida anymore. Aside from its ports, NC has a lot of unemployed furniture makers who’s skills can easily transfer to boat building and maintenance. If it’s not costing them much to hold on to their Cape Fear house and they’re able to rent it out, why not wait and see what happens? They already missed the peak sales price.
JP, there is not directly insurance. There is a capital requirement that the counterapty may have if the originating counterparty is a bank, but that is a general capital requirement against all of the banks holdings and lendings. Hedge funds likely don’t have this reinsurance when they are originating, but they may have provided some margin to the counterparty, which usually equates to only 5 or 10% of the notional value of the CDS contract. There is nothing comparable to reinsurance though.
some %s were quoted as rediculously low in the MBS world
less than 1%
Casey Serin action figure available:
http://www.myebid.com/cgi-bin/auction/view?cmd=view&listingID=3096
surreal
Very funny. Makes me wonder why I work.
Wow…
The stock markets will be closed on Tuesday as well as on 1/1. The stated reason is the death of President Ford. But having hanged Saddam, the reaction in the middle east may be an unstabilizing factor in our stock markets. Makes one wonder if the real reason for closing the markets on Tuesday is to prevent a major down draft from a rise in violence in the middle east.
Way too conspiratorial. Let’s keep some perspective here. A former President died. That is why the market is closed. But I doubt they will close the market when Carter kicks it.
They will, however, close peanut stands nationwide…
I decided to sell the $35 April 2007 puts I had on NDE, CFC, and WFC on the last trading day in order to cut my losses and take advantage of the $3000 write-off for this tax season.
Last night I had a dream the Dow lost 392 points on the next trading day–the beginning of the downturn. Heh. I sold off all of my holdings in 2000 the day before the big 500 point jump in the dow (which was really like the last hurrah). I’ll laugh if my dream materializes.
That is something I’ve thought about over and over. That the markets will start dumping stocks with the first day of trading. When I first saw that you dropped your puts I thought “ouch.”
Most of the “ouch” happened within the first two weeks that I bought them. NDE rocketed up like 8 bucks. CFC quickly rose to 40. And WFC has stayed around $35 the whole time–very stable. I am betting that the madness stays in the market longer than my puts have time value, so I’ll just lick my wounds and exit the game with some of my money, and a tax write down for this coming season. Ah well.
You just never know. I liquidate 50% of my stocks in December…2005..thinking the market would tank in 06. I went to T-bills, but missed a nice run up. My biggest dilemna now is if I should sell the other stocks I still own.
I guess we should all follow Gekko’s sage advice and dollar-cost-average the S&P 500 for the rest of our lives, as stocks always go up…
I’ve been keeping a position using the QID etf as an insurance policy if things get real ugly. I’ve been trading in and out of it over the last 2 months but I have to say I feel really naked when I’m temporarily on the sidelines.
I don’t use options as it is hard enough to be right for me with out also being on time.
I think you’ve nailed it. I don’t think most people in this country understand the wave of violence this will unleash against US soldiers in Iraq. When news reaches these shores, the markets and political climate are going to change dramatically. I’m not sure the current administration fully understands the effect of the drama it initiates.
Sure, an uptick for a few days, but that’s it.
A cursory glance around my place: electric shaver from the Netherlands; titanium road bicycle with parts from Italy, Germany, Japan and the United States; kitchen knives from Germany; fedora hat from Ecuador; kids toys from China, Taiwan, Germany and Mexico; wool jacket from Canada. Notice that none of these finished products come from Egypt, Israel, Jordan, any of the *stans, etc. Any trouble in this part of the world won’t amount to much more than filler for the evening news, IMHO.
LOL.
I guess you never heard of petroleum.
Mexicans call the stuff “Orro del Diablo”, the devil’s gold. They are right.
“I guess you never heard of petroleum.”
Gee, I thought I said, “finished products.”
BTW, most of the places where masked men are goose stepping in the streets have little petroleum for export.
Any of these products contain plastics or synthetics? All petrolium based. Oil isn’t just gasoline for your car.
1. I listen to the former Krock i NYC and they have these adds for Duce Derolf and Mark Berman about people getting rich from realestate, and they play these adds alot at least 2 per hour.
Is this another buy forclosures and sell at a profit idea? At the bergen records office they say they get a flood of people every time a class like that ends.
2. What is with realtors putting their pictures on the signs, the business cards, ect? The only other market I see that many head shots is fashion and acting where what you look like matters.
In Latin American countries they put pictures of the politicians on the vote for so-and-so signs. The RE signs look just like them.
Pictures: Marketing 101. Your client is more familiar with you, having seen your photo, so when you actually meet, the client feels more comfortable and trusting.
Buyers RE Agents are a complete joke. They bring ZERO value to the transaction for a buyer. OTOH a listing agent markets the home for the owner and MAY earn their 3%.
With internet and public access to MLS, buyers agents should be a thing of the past.
Putting their photo on the card and the sign is more for the agents ego than for any other reason…
They bring ZERO value to the transaction..
I disagree….. unless the buyer is experienced in real estate acquisitions….
LOL Why argue with a Lawyer??. It’s pointless. Eradicating agents means more money for them. They would like nothing more then too control the whole process. I can see the shiny new manual on sale from the bar now, “How to maxamize your profits now that the Agents are gone” $1099.00
LOL maximize
Looks like Bob Blakely, Fannie Mae’s new CFO, is tightening things up with regard to the company’s financial partners.
“Fannie Overhauls Core Servicing Requirements”, by P. Jackson, HousingWire, December 29, 2006.
http://tinyurl.com/yxloh5
wow- that’s going to sink alot of mbs “pools”
any loan past due for 24 months must be repurchased from its MBS pool
Do you think that explains why MLN suddenly shuddered its operation?
Negative. Fannie just released the their new requirements document (link in the story) yesterday.
Stucco, I think MLN was looking in their rear view mirror at the 18 wheeler loaded with current buybacks. The fact that next June, the buy back rules extend buying defauts at 12 months to the new 24 months period did not even enter their minds. The were not looking out the front windshield as they were overun from the rear.
Stucco, the MSM also seems to be waking up to the risks of sub-prime loans generally.
“Lenders begin to tighten loan standards: Delinquencies often linked to second mortgages”, by Karen Richardson, The Wall Street Journal / Austin American-Statesman, December 31, 2006 edition.
http://preview.tinyurl.com/yf6do9
‘Second mortgages underwritten by the same bank that originated the first loan are termed “silent seconds” because the loan-to-value ratio lenders report includes only the first mortgage.’
Something tells me those “silent seconds” are going to get very loud in the foreseeable future.
lol
screaming seconds
Rumors and scuttlebutt about another major mortgage broker shut down.
http://forum.brokeroutpost.com/loans/forum/topic.asp?TOPIC_ID=81847&whichpage=2
Russ — which other one are you referring to? (It seems like many are mentioned in that chaotic forum you referrenced).
I liked this quote on one of the posts, which sounds like a good principle for all subprime lenders to bear in mind with 2007 right around the corner:
“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”
Charles Darwin (1809-1882)
British naturalist
(Continued success to all at MLN.)
They are talking about MLN ot Mortgage Lending Network.
Thanks — we had some discussion on this already yesterday afternoon (I believe C&C’s words were “stick a fork in it”).
Survival of the fittest is a bastardization of the actual quote.
Survival of the fittingest. Those species that fit and adapt to their niche.
Here is the other quote for the day, from an originator about MLN (Mortgage Lenders Network):
“I know a lot of people that went to MLN thinking it was the promised land. It doesn’t take enormous brain power to figure out that any lender that is undercutting their competition on rate by .75 to 1.50 bps, letting borrowers go 100% stated at 600 and using the first page of the bank statements as full doc is eventually going to get their ass handed to them. Subprime people are exactly that, subprime and their credit sucks for a reason: they don’t pay on time. I think the industry is finally figuring out that they need to go back to treating these borrowers with higher rates and more money down.”
And so it shall be…..sub prime lenders are falling like dinosaurs now….Darwin was right….
“Subprime people are exactly that, subprime and their credit sucks for a reason: they don’t pay on time.”
What can I say? It is so amazing to come across some logical thinking in a RE related industry. This guy deserves a prize.
The only problem is that what you call ‘logical thinking’ is wrong. Subprime status is based on a joint decision of the lender to make a particular loan and a borrower to take it. When lenders abandon time-tested underwriting guidelines and start letting borrowers take out loans they will likely never be able to repay, then the borrowers who are willing to accept a heightened risk of future bankruptcy will have the pleasure of being able to outbid anyone of similar means who exercises financial precaution, and will enjoy the pleasure of living in a very large house outside the realm of affordability as a near-term reward, while lenders and/or borrowers who say no to subprime lending are priced out of the market. Thus subprime borrower status is a manufactured quality rather than a birthright, and the subprime lending epidemic (like the appraisal fraud epidemic) is a direct consequence of regulatory negligence.
Thus subprime borrower status is a manufactured quality rather than a birthright, and the subprime lending epidemic (like the appraisal fraud epidemic) is a direct consequence of regulatory negligence.
How much regulation does it take to keep someone from lending money to people who aren’t likely to pay it back? If he’s lending someone else’s money, the answer is “a lot”. If he’s lending his own (or his institution’s own) money, the answer is “not very much”. Make the lenders keep the loans and the problem won’t happen.
No Merry Christmas For PS3 Speculators
Wow on O&A ( look I drive right now for a living ok ) this guy was talking abotu how he sold his for 3k on Ebay and I was like “I so stupid, I never take enough risk like on housing and this is why I always be poor, while everyone else have the Benz and the mad spending cash”
Ok maybe they not all making the 3K on the Ps3
You could always sell one that you didn’t have for $3,000 on the first day of delivery, get payment, and then stonewall your buyer with a bunch of BS excuses for a couple weeks until you managed to pick up a model for $1,000 or so.
Of course, you would have to endure repeated nasty phone calls, emails, and a hit to your ebay rating. And you would basically be a scumbag. But, you could probably pull it off before someone actually got the cops involved (maybe).
I certainly don’t condone this — but I’ll bet a handful of jerk-offs tried it.
The PS3 is a great market analogy to the current housing market.
They came on sale, speculators created a very tight artificial shortage, but not enough buyers were willing to bid to the moon. Or worse, they found an alternative that wasn’t as overpriced (the Wii).
And don’t get me wrong, my brother’s “bread and butter” is currently being paid by the PS3, so I want it to succeed. That doesn’t have me open my eyes and note that the Wii is what the kiddies want…
66% haircut on PS3’s… 50% haircut on homes, same concept. Because speculators created an artificial shortfall in housing, prices shot up. The side effect of this speculation is home building has been at an incredible pace for 3 years.
Just like the PS3, you have to watch out… for the “builder” can always underprice you! (Figure out a way to sell it for less.)
Neil
Moving for the Food
“My move to a one-bedroom co-op in Jackson Heights — at 35-36 79th Street, and at a cost of $284,000 — perplexed some of my friends, even those who realize Queens is not outside our solar system. They always ask: Why buy now, in this market?
“I look at them quizzically. Earth-stopping tacos for $2, a Thai place with a Gourmet Magazine article in the window and an entire menu for under $10, Peruvian chicken dinners for $4 — if Jackson Heights isn’t a bargain, then I don’t know what is.”
Queens has amazing food, true, arguably the best food in the city. But couldn’t he rent an apartment in JH? And have more money to eat out?
i see one bedrooms in jackson heights (also known as south america and the cocaine capital of nyc) going for 150k
that place is crappy for english speaking people unless you are of latin decent than it is just like home
some great eats for cheap but the key is to eat and go!
Does anyone notice listings that seem “frozen in time,” like that ice man who thawed out of a glacier in Europe a few years ago? Here is an example, which was listed before it was common knowledge that the bubble has popped:
2808 OCEAN FRONT AVE, Del Mar, CA 92014
6/10 10,700 41,881 Sq. Ft. 07/07/05
$50,000,000 - $50,000,000
Description
Spectacular ocean front estate. Situated on 120 feet of frontage, this home boasts over 10,000 square feet of luxury living. An enclave of five structures, it includes a family residence, a health spa, theater, pool, tennis court, greenhouse and two guest houses.
If I were a realtor, I would rather sell crack houses than those overpriced behemouths. At least I could eat every month. The pool of buyers for the “exclusive” homes is almost dry. In Reno, NV anything over $1 million is most certainly frozen in time. I hardly ever see any price reductions. Certain homes have been on the market so long, they rode the bubble up, and are riding it back down. If a home does not sell in a year and a half, isn’t that a red flag? The greedheads don’t get it.
No kidding. Contrary to myths promulgated by some on this blog (e.g., PV Tom), rich people really don’t like to lose money.
If the newspaper says it, then it must me so. Here’s to hoping for a respiking of the punch bowl in mid-2007…
————————————————————————————————–
Wall Street riding high
2007 expected to be even more robust, many analysts say
By Dean Calbreath
STAFF WRITER
December 30, 2006
After nearly seven years, Wall Street finally returned to a record-setting performance in 2006, fueled by low interest rates, a spate of mergers and solid corporate profits.
The blue-chip Dow Jones industrial average crashed through the record heights it achieved in 2000, and most of the broader indexes posted double-digit gains.
After a slight preholiday pullback, the Dow closed the year at 12,463.15, 16.6 percent above where it began. The broader Standard & Poor’s 500 Index closed at 1,418.30 for a 13.6 percent annual gain. And the tech-laden Nasdaq Composite Index closed at 2,415.29 for a 9.5 percent rise.
The cheery forecasts rest on the expectation that gasoline prices will not rise, housing prices will not drastically fall, inflation will stay in check, the economy will continue to grow slowly and the Federal Reserve will start cutting interest rates.
“The single most important event behind the stock market’s rise in 2006 was that the Federal Reserve stopped raising interest rates,” said David Joy, chief market strategist for RiverSource Investments in Minneapolis. Joy said he expects the Fed to lower rates in the middle of 2007.
http://www.signonsandiego.com/uniontrib/20061230/news_1b30stocks.html
“fueled by low interest rates,”
I’m so f$$$cking confused. I thought high interest rates killed housing. Now, they are telling me that interest rates are low. What? I guess it must be true since the MSM printed it. Interest rates are low for the stock market but high for the housing market. I’m glad that got cleared up.
I thought high interest rates killed stocks. At least up until October 19, 1987.
equity locust’s anthem:
——————————————–
“My Elusive Dreams”
You followed me to Texas, you followed me to Utah,
We didn’t find it there so we moved on.
Then you went with me to A-la-bam’,
Things looked good in Birmingham,
We didn’t find it there so we moved on.
I know you’re tired of fol-low-ing
My elusive dreams and schemes
For they’re only fleeting things,
My elusive dreams.
You had my child in Memphis then I heard of work in Nashville,
But we didn’t find it there so we moved on.
To a small farm in Nebraska, to a gold mine in Alaska,
We didn’t find it there so we moved on.
I know you’re tired of fol-low-ing
My elusive dreams and schemes
For they’re only fleeting things,
My elusive dreams.
Now we’ve left A-las-ka because thewas no gold mine,
But this time only two of us moved on.
And now all we have is each other and a little memory
To cling to and still you won’t let me go on alone.
I know you’re tired of following
My elusive dreams and schemes
For they’re only fleeting things,
My elusive dreams.
Gee what a happy song…..now where’s my gun?
Interesting stuff on housing and the economy
http://www.safehaven.com/article-6603.htm
Nice post…I like Mauldin….
Great post. Thanks for linking it, cactus. We were having a discussion around the dinner table last night, trying to quantify the effect of MEW (mortgage equity withdrawal). This article nailed it: MEW peaked at 10% of “disoposable income” in 2Q05. $2500 Billion (yes 1/4 Trillion) vs a more typical $25 billion in the 90’s. A 1,000% increase (now you see why I said $2500 Billion).
When that stops, as it is now, it will subtract 2% from the GDP growth rate. Look out below.
Ownit seeks bankruptcy protection
The sub-prime lender, a casualty of the changing mortgage market, owes more than $165 million.
http://www.latimes.com/business/la-fi-ownit30dec30,1,2686895.story?coll=la-headlines-business
The petition, filed late Thursday in federal bankruptcy court in Van Nuys, was made in response to lawsuits filed by two creditors, said William Dallas, Ownit’s chief executive and sole director.
He said if he had not filed the Chapter 11 petition, his 800 former employees would never receive the wages and commissions they are owed.
“Once you file Chapter 11 employee claims become the No. 1 priority,” Dallas said in an e-mail Friday. Assuming that the court approved his plans, he added, “once we file our 2006 tax return I will have enough money to pay them what they deserve.”
Paying people after he files his tax return? Is this guy getting one of those H&R Block Rapid refunds??
I wonder if these mortgage companies even have allownace for doubtful accounts. All they did was make the loan and sell it with not a care in the world. Then the buyer of the loans wants them to buy back the crappy ones. The scam artist sucked the company dry, declare BK, and move to who knows where.
Fly-by-night Mortgage, Inc. business plan: “Take the money and run.”
Take the money and run to Costa RIca or the Cayman Islands might you add. No extradition treaties with other countries. Really useful for conmen.
Too funny, Crispy. He will have to pay 57% APR, but then he is probably accustomed to making that calculation…
and BTW, thanks for all your post on the sub primes. Watching their demise provides some faith the system is working and not all MBS buyers are idiots with calculators relying on false underwriting and “ghost” derivative insurance.
I think that this is one of the keys - once credit tightens a bit the downside of this bubble will accelerate.
Absolutely.
Employee of the month at OwnIt Mortgage (from the affilate website Dallas Capital):http://www.dallascap.com/bios/biosfrm.html
Angel anticipates an exciting future with Dallas Capital and Ownit Mortgage Solutions.
Looks like they are still communicating with their former employees in a caring way - LMAO - via their website:
http://www.ownitmortgage.com/
FAQ’s
1) Is the company filing a bankruptcy?
Unknown.
2) Will we be reimbursed for outstanding expense?
Unknown.
3) Will AE’s be paid thru November??
Unknown.
Too bad you guys missed that earlier CL posting that offered a progressive discount (10ks) over a series of weeks until the house sold. That was a knee slapper, and how! This one isn’t quite as delicious, but it’s enjoyable nonetheless. How overpriced must this hole be for the seller to offer a scooter or a flat-screen TV with purchase? And how incredibly stupid must a buyer be to fall for such a transparent ruse?
Face it, pal, you are simply not walking away with a sack full of money on this, and you might just get stuck if you don’t lower the asking price–now. Your property is most definitely not in Graduate Hospital. It’s in one of those freaky, unattractive zones between neighborhoods that absolutely no one wants to buy into. http://philadelphia.craigslist.org/rfs/255014825.html
This show makes me want to bake some cupcakes:
http://www.kfnn.com/programs/landandrealestate.asp
Indirectly but intimately related to housing bubble topics: The most emailed story today from the new york times is how elder care is “depleting the savings of a generation”. I guess they are assuming boomers had savings to deplete in the first place. it’s a sad article, but at the same time, the government arranging things so that younger generations should pay for it (arguably the genesis of the housing bubble) is highly unfair. says volumes about why housing prices are going to be sticky going down.
http://www.nytimes.com/2006/12/30/us/30support.html?em&ex=1167627600&en=efd4f7af08316ba4&ei=5087%0A