No Evidence Of Recovery: CEO
Some housing bubble reports from Wall Street and Washington. “In another sign the housing recovery may still be on hold, Lennar Corp. said Tuesday it anticipates posting a fourth-quarter loss on a tough market and land charges. It anticipates quarterly charges in the range of $400 million to $500 million as a result of real estate valuation adjustments and land options it’s walking away from.”
“‘Market conditions continued to weaken throughout the fourth quarter and we have not yet seen tangible evidence of a market recovery,’ said CEO Stuart Miller.”
“The company said although deliveries increased in 2006, it saw ‘materially lower’ gross margins on home sales ‘as a result of deteriorating market conditions in the home-building industry.’”
“‘We have continued to focus on strengthening our balance sheet by delivering our backlog, selling inventory aggressively and renegotiating our land positions,’ Miller added.”
The New York Times. “Five years ago, the United States economy went through a recession that did virtually no damage to the housing market. In 2007, the question is whether the economy can emerge unscathed from a housing recession.”
“In the bond market, however, the outlook was cloudy at best. Prices in the futures market showed that investors expected that the next move by the Federal Reserve would be to reduce the interest rate it has raised 17 times since mid-2004. That indicates worry about a slowing economy. And another traditional indicator, the yield curve, says the same thing.”
“So the stock market says a boom is here and is going to stay, housing notwithstanding. And the bond market expects a recession — but one that does not damage those who are financially stretched before it begins.”
“‘We think of markets as forecasters,’ said economist Robert J. Barbera. ‘But it is very hard to come up with a model’ that makes sense of the current forecasts.”
“With prices falling in some regions, home builders reported a surge of cancellations of purchase contracts. Housing starts plunged, and although starts showed a reassuring increase in November, newly issued permits to build new homes continued to decline.”
“Oddly enough, rising home sales could be a bad sign in 2007, particularly if prices continue to sag. A surge in sales of existing homes could be an indication that people were being forced to sell.”
From MarketWatch. “Brian Diez entered the mortgage business after a career as a stockbroker, figuring the field would offer him an altruistic benefit, helping families buy their first homes. He learned quickly, however, that not every one of his fellow brokers had their clients’ best interests at heart.”
“‘What became clear to me is every company was really interested in selling as many loans as they can, and not really helping clients,’ said Diez, sales manager in Oceanside, N.Y.’
“The ‘dirty tricks’ he has seen and heard of range from brokers steering clients into products clearly unsuited for them to shady switcheroos at the closing table.”
The Center for Economic and Policy Research. “The big question for the U.S. economy now is whether we will make it through 2007 without a recession. Most of the top economic forecasters are predicting a ’soft landing,’ which means the economy will slow but not so sharply as to cause a recession.”
“But almost all of these same experts failed to forecast the last recession, and they missed the stock market bubble, the largest financial asset bubble in history. And most of them also missed the housing bubble until it began to burst.”
“As this housing wealth disappears, people cut spending. We have already seen an enormous drop in the amount that people borrow on their homes, from $600 billion in 2005 to about $350 billion for 2006.”
“We could possibly get through the international imbalances for another year but the housing bubble collapse is already upon us, with November’s housing starts down 25 percent over the past year, home sales plummeting, and home prices falling.”
“This is something that our political leaders and policy-makers should have warned people about, rather than encouraging the same kind of speculative excess that dominated our economy during the late 1990s stock market bubble.”
‘Copper fell in London after inventories gained the most in 10 weeks, spurring speculation that demand growth will weaken, easing a shortage that began in 2003. ‘The bulk of the demand weakness is in North America,’ said Buxton, GFMS managing director.’
‘Can Goldilocks pilot the economic airplane to a soft landing? That ugly mixed metaphor includes two of Wall Street’s favorite clichés of 2006. ‘I am saying the economy is only going to slow, not fall off a cliff,’ said Hugh Johnson, the much-quoted market analyst in Albany, N.Y. ‘So I am saying the inversion of the yield curve is different this time.’
‘The terms Goldilocks and soft landing are so widely held now that I’m beginning to worry,’ said Mr. Luschini of Parker Hunter.’
‘In a fitting climax to 2006, 50,000 people descended on Miami last month for a five-day frenzy of art sales under the umbrella of the Art Basel fair. More jets were rented for the event than for the Super Bowl. Art prices in the US rose an average 27 per cent last year, the steepest ever, according to Artprice.com.’
‘Depending on which index you consult, overall prices are either close to or above the level they reached during the peak of the last art boom in 1990. ‘It certainly feels like a bubble to me,’ says one long-standing collector.’
‘Sotheby’s chief executive Bill Ruprecht says: ‘The reason people say this is different from the last boom is that in the 1980s the market was driven by Japanese real estate wealth. When that fell apart, the art market fell apart.’
‘Fannie Mae has announced that, effective Jan. 30, borrowers must be qualified at “a fully-indexed rate that assumes a fully-amortizing repayment schedule” in order to qualify a loan for purchase by the government-sponsored enterprise.’
The company said although deliveries increased in 2006, it —>>>>saw ‘materially lower’ gross margins,
The Fannie Mae announcement is yet another death blow to the market. Prices would never have gone as high as they did if Fannie had followed this guidance from the beginning. If people have to qualify at a fully indexed rate, that means the pool of able buyers in the bay area just shrank to effectively zero. So much for the spring bounce the NAR is praying for.
While this is a good thing, I don’t know that it would have stopped the stupidity. I think it would have helped a lot of lower income people outside the bubble areas, but GF would have looked to non-conforming loans from mortgage sharks.
After all, it’s only about the monthly payment, ain’t it?
Doesn’t kinda put the lie to the new NAR/CAR affordibility rates? I guess 3% becomes 3% again. All things old are new.
Wondering (scared that) if this Jan 30 deadline will cause a mad rush to “lock in” sketchy loans this month which will skew the ‘recovery’ data to the upside. Just one bubble watchers’ fear…
how can this thing help if liar loans are going to continue. come on, if my stated income of 150k is not enough, well, let me revise that figure to 250k.
No “spring bounce.” It will be a “spring back” towards sanity in prices.
“…effective Jan. 30, borrowers must be qualified at “a fully-indexed rate that assumes a fully-amortizing repayment schedule…”
That’s got to hurt. Then again — there are some crazy riskloves out there besides FNM that are willing to gobble up that kind of crap. Atleast, albeit after the fact, FNM is going to slow its contribution to the housing debacle.
Interesting.
That means the market will not be impacte until February and won’t really be aware of the change until April or May.
I’m sticking with my prediction that in May is when things really start to happen. (May 2007).
Neil
It is amazing how many bubbles are out there right now: housing, stocks, bonds, commodities, art, et al. Way too much money floating around out there. This can only come to a bad end.
The bond bubble is the BIGGEST of them all! This one is the monster of monsters and you thank the stupid japaneese for the mess.
Please explain your thoughts….The carry trade?
Yes, the carry trade. You borroy at nearly zero percent and you buy Kaszahkstan bonds etc….. or GM acceptance bonds, or Ford Motors paper. Anything that you can put your hands on and have a yield. The mega bubble is mostly a japaneese creation.
Currency Carry Trade: A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates - which can often be substantial, depending on the amount of leverage the investor chooses to use.
Investopedia Says… Here’s an example of a “yen carry trade”: let’s say a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let’s assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% (4.5% - 0%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.
The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless hedged appropriately.
http://www.investopedia.com/terms/c/currencycarrytrade.asp
Plus China pegs its money to the dollar and buys lots of US bonds. Yes you are right about the Yen carry Trade. Japan is fighting deflation by giving the US inflation. How will it end?
Badly.
I thought that the Japanese’s 0% rate has been in effect for years. Why would that be the cause of the bond bubble now?
“I’ve been smoking for years. Why would that be the cause of cancer now?”
Not trying to be as much of a smart ass as that sounds.
Great anaolgy, actually!
is it really zero? any number above that will always be positive so why worry?
Even at a Japanese rate of .25 or .5%, the spread between the borrowing costs in Japan and in the U.S. is still huge.
Colt handguns…way outta control.
Lookin’ at a used nickel plate/pearled handled Commander.45ACP…Asking price-$1485.00 Yikes!!!
However, some strapped owners are unloadin’ their Pythons. Scored a 6″ barrel stainless/steel for $725.00.
Saw reserves of $1600.00 on auctions.
Yeah, I figure that if I wait a year of two for the recession to hit there will be some sweet deals out there.
Only housing is a bubble other things have had bubbles in the past.
Gold 1980
Stocks 2000
etc…
“It is amazing how many bubbles are out there right now: housing, stocks, bonds, commodities, art, et al.”
Before you get too worried about all the financial bubbles out there, consider that financial markets are overvalued most of the time: this is their natural state. If a market falls to a price level where the good is not overvalued, what will happen? People will buy. This drives up prices until the good is overvalued again. Almost all financial markets are giant air bubbles that deflate every so often.
I read something in the Economist a few months back that described the feeble efforts of the central banks in western economies to spur their weakening economies by cutting prime rates in the face of eastern (Chinese, Indian) competition. It is not a good strategy to fix the fundamental competition problems, but it does stimulate asset bubble of all kinds. I am not economist, so I leave it there. But it made some sense to me.
400 pounds of copper per new home
I’m a collector of high end glass art and I have had no problem buying pieces below the market. I seem to be buying a lot of them from the West Palm Beach and Miami areas. Wonder if they’re being sold to pay property taxes or to live on.
One problem with this announcement re: California: With California home prices as high as they are (way higher than FNM’s maximum loan limits), isn’t it the case that FNM isn’t buying many California mortgages anyway, and therefore this new requirement of theirs won’t have much effect?
In other words, entities other than FNM are the ones buying the bulk of oversized California mortgages.
I think thats why CA uses a lot of 80/20 loans the split allows each loan to qualify.
I think the 80/20 is mostly to avoid PMI and to provide the 20% down payment which nobody in California has.
“In other words, entities other than FNM are the ones buying the bulk of oversized California mortgages.”
I expect within ten years, we will find out the unwitting buyers of many of those supersized California mortgages were pensioners (think “safe” MBS).
Technically MBS is a trademark of Fannie guaranteed notes. Freddie’s are called PCs (short for Participation Certificates). If the fund has MBS they are as safe as Fannie is (and unlikely to be holding the crap from California which has almost always been above the enterprises conforming limits). If they are just holding mortgage backed securities (as a general term-like Kleenex) from especially private label vendors then they might get to experience the reinflation of risk premiums.
See this excellent analysis on whether the housing market has stabilized or has further to fall.
http://contraryinvestor.com/mo.htm
That’s a must-read.
Yes, outstanding article.
If we assume the down cyle lasts an averages of 46 months, and the current luge run down started in October 2005, then we are looking at the bottom in about August 2009.
What do others think?
Agree that the down cycle is way too short. The fly in the ointment could be what the Fed does. The ‘92 - ‘02 burst did not crater as expected since Helicopter Alan G. blew in. This time the prices / income are wacko, suicide loans, sub-prime lenders / borrowers “brilliance” is showing, inventory is at unprecedented levels, Flippers (who ever heard of this outside of CA in previous booms ?) … Leads to the conclusion that we will get & need a strong correction. I hope & pray that this will not lead to a Japanese style meltdown.
I think 2009 is optimistic.
Many reasons to consider that prices may not reach these levels, inflation-adjusted, for many years (decades?) to come. Think about the Baby Boomers becoming net sellers instead of buyers, globalization, disappearance of DB pension plans & employer-sponsored healthcare, etc.
Lots of things to consider…what if we are entering (have been in, but it’s been masked) a long-term deflationary period. IMHO, capitalism and globalization are inherently **deflationary**.
You are right. That one’s a pip!
You know what I’m finding amazing?
All the people who bought two or three houses because they are “real investments” and people always need a place to live are suddenly convinced that a downturn will be isolated and not have any effect on the “real” economy.
What?
I think this guy who is trying to come clean on the broker biz is just trying to capitalize on the situation. Where were the voices of wisdom and the MSM articles during the runup? OHH I know - right here: nnvmtgbroker, boulderbo, socalmtg, etc….
{sniff} i tell ya, i get no respect {sniff}
Sorry, LOL.
Watch the stocks go up tomorrow.
More specifically, watch them go up on the opening bell like a 4th of July skyrocket. It’s in the bag.
Yes! in the Bag!
Fund inflows in the first part of January. It’s a GREAT time to get short.
WHAT !!! your kidding aren’t you ??? If greater funds inflow = increased buying = kited prices. End result KILLED SHORT.
(Oh, like the NAR’s campaign: its a great time to buy or sell … cue the music, cue the dancing bear …)
Easy there, Bob. Remember: measure twice, cut once.
I’ve been watching the January effect for nine years. Txchick is right. It’s all about timing, of course.
Didn’t 2005 start with a huge drop?
Sorry !!! not meant as trouble … I thought I saw a bit of sarcasm in the post by “It’s a GREAT time to get short” reflects the NARs campaign of A good time to buy …. , Also since the comment of the fund inflow in January interpreted as lots of $ coming into the market in January …. And observing her previous witty & intelligent posts. This sounded like a spoof… I also don’t want to get hit with her 20lb trout !!!!
Bob
Ben, thanks for the art world story. Also, friend of mine in the classic guitar business, has noticed prices soaring. Of course, he doesn’t think it is a bubble.
Of course your friend is right, because everyone wants to buy a collector’s classic guitar…
And a muscle car
my thoughts too, Chad. I am not a muscle car afficianado, but I have heard from my baby boomer dad that they have been selling for obscene amounts at auction. I can kind of understand the big $ people pay for the rare exotics (european), but a Dodge Charger? My dad also told me this has happened before with autos, where something is hot for a couple of years and then nobody wants the damn thing. Of course, we all know that housing is different.
Muscle car prices will collapse as the Boomer-Gen fades away into history.
No way, will today’s wusses, put up with aged car tech.
And chopper motorcycles/sport bikes, wish I owned a slice of S&S performance right now
“As this housing wealth disappears, people cut spending. We have already seen an enormous drop in the amount that people borrow on their homes, from $600 billion in 2005 to about $350 billion for 2006.”
This is correct — Mortgage equity withdrawal has fallen off dramatically.
But, spending has not followed suit. In the last 6 months of 2006, consumer spending has indeed slowed, relative to 2005, but it hasn’t gone negative YOY.
Why? Have we overestimated the spending impact of MEW? Are the pundits’ claims of wage gains supporting spending actually more than wishful thinking?
I can’t reconcile this. Somebody help me!
Credit Cards
Interesting you say this, I remember back in 2005 on this blog musing about how people were using home equity to pay off credit cards, and whether, once the housing atm dries up, people will simply go back to driving their credit card balances up again
Chase now charging 32% default rate if you have any payment problems. I don’t think other cards are far behind. If people are running up their cards again and can’t do the equity dip, things are gonna get ugly, ugly, ugly.
CarrieAnne: This reinforces the reasons why I HATE credit cards (pay mine off every month, no running balances for the last 10+ years!) Savings is the only way to go. If I ever got hit with a 32% penalty I would send the damm thing through the SHREDDER grrr.
“Chase now charging 32% default rate if you have any payment problems.”
I knew interest on credit cards was high, but this is crazy. I wonder how anybody with a 32% rate, and “payment problems” is ever going to get caught up, let alone paid off.
Is there some advantage in pushing their problem borrowers into bk?
Citibank also has a 32% penalty. I had a checkbook stolen, and in the confusion of getting a new account and everything else, I missed a payment with Citibank. They jacked it up to that rate, and it was six months before they graciously decided that I had a good enough history with them - 7 years with them, never missed a payment - that they could let me have my “low”18.8% interest rate back. And I paid off my balance every month.
It’s not just their problem customers - repeatedly late, never even covering interest - they’re trying to get. It’s the people like me who are fairly financially responsible, who they want to get.
Look at it from their point of view. It’s harder to get bankruptcy these days, and a lot of people can get money if they absolutely need to to pay off the cards - liqiudate assets even if it screws up retirement, borrow from friends/family. So if they push hard, probably 50 to 60% of people will come up with the money somehow, and the rest they’ll collect something. if the interest they charge on those 50 to 60 percent is high enough, they’ll recover the losses from the rest.
I hadn’t stopped to ponder the depth of the stupidity of credit addicted people until this post. A logical reaction to losing the equity gravy train would be to stop spending, but these people won’t do that. They will continue to spend until they exhaust all forms of credit. I guess if you need to file for bankruptcy anyway because you overextended your mortgage, you might as well go out in style.
Hey why not? It’s a “Lifestyle!” I was up in the sledding in the snow in S. Oregon with my boy yesterday and as I was putting the chains on our Taurus (yes, I know…) I noticed hoards of good ole boys driving $40k “super duty” truckswith trailers, snowmobiles, ATVs, etc. My wife was impressed by how rich every one of these ol’ boys seemed to be, but I could not help but wonder how much of it is/was bought on credit.
Exactly. FBs were getting used to going to the well every year or so to clear the CC slate. Gonna get sqeezed with ARM resets, 20% CC interest & negative equity with nowhere to turn. Second half of ‘07 should be scary…
Yep. Those I know who have already managed to get themselves in trouble are trying to keep their heads above water with help from maxed out credit cards and Bank of Mom & Dad.
I talked to a friend this weekend who thinks that their house will take off in value again after about a year of a slower housing market. Just need to hold on until then, fix up the house to increase its value, and refi those credit card balances to a manageable level…
People do not instantly spend what they borrow. My dad-in-law worked for Bank of America and he noted that people would borrow big on their HELOC and have huge checking account balances. So, people spend a portion of the money in the year in which they borrow. Then, the next year, although borrowing declines, the aggregate spending can still about equal the previous year because people have some of the prior year’s borrowed money banked. When the reserves run dry, watch out! There will be, at some point, a precipitous decline in spending.
I agree. I know a woman that took out several $100,000 and is living off of it - no job. I figure she can last 5 or 6 years at her spending rate - which is higher than my family’s and we have a decent income. She drives a very nice car, regularly get expensive hairdo’s, massages, etc. This is in LA’s westside.
BM,
Most likely wether people are buying “Hogs” or braces for their kid they are probably still working off the debt=wealth model so they take advantage of the “No Payments for 6 Months” programs which gives them the appearance of being more solvent than they really are. In ways, those that bought “toys” will be able to “divest” themselves to “simplify” their lives.
Translation? It was the house or the Harley/RV/whatever.
Factor in the psychological factor — even if they might have a large balance, if they’re concerned about the economy, housing, etc, they will not spend that money.
I think there is a nuance to the psycological factor. I hypothesize that people do as you say–restrict spending–when it is their own money they earned over time and saved. I hypothesize that people will overspend if they have “found” money–either a windfall or through debt instruments like MEW. Access to debt is too strong a force for most people. I know plenty of my own family who would rather borrow and spend than curb their lifestyle. One day the music could stop.
“As this housing wealth disappears, people cut spending. We have already seen an enormous drop in the amount that people borrow on their homes, from $600 billion in 2005 to about $350 billion for 2006.”
It should be noted in that story that spending is cut not because the consumers WANT to but because they HAVE to, being denied access to any further free money.
What??? No more free money!!! No fair! That’s just un-American if you ask me!
“That ain’t workin’ that’s the way you do it
Money for nothin’ and chicks for free”
Dire Straits
safehaven had a solid article recently on the relationship between mews and gdp. Here’s the link: http://www.2000wave.com/index.asp
Use jdoe @ nomail dot com as your email address.
What wealth? It’s just puffed up values like the internet and the “new e-con-omy” bubbles. You cannot call a thing wealth when you cannot get from it regular, steady and increasing cash flow.
We made a rare late payment last month on one of our charge cards, and Ka-Poom!, a $25 late payment fee showed up on our next bill. We tried unsuccessfully to find any warning information in the fine print of our credit card agreement. I think this is one small indication of where the credit markets are headed — very easy to get credit, until you make the slightest misstep…
Same thing here, Stucco. I was able to get mine reversed because I had a payment confirmation number (I actually submitted payment before the due date), and because B of A’s website was “being upgraded” at the time I submitted the payment. I’ll bet I wasn’t the only one this happened to. I wonder how much money they wound up making because people were too lazy to complain or just too frustrated with the phone system wait time? Whether or not it was late, if you have a great payment history with them then they will probably reverse it if you complain.
If you threaten to cancel the card, they’ll reverse it most likely. I’m surprised they didn’t increase all of GS’s rates to 29.9%. To me, maintaining credit card accounts is like military action. I am constantly checking up on them before they sneak something up on me. I just found out we were late on my husband’s work AMEX, because of plane flights paid for way in advance of the trip, after which he submitted his expense report. No charges were incurred, and hopefully it won’t affect our credit.
I have no credit cards. Am I alone?
Sounds like a lot of hassle, is it worth it? What is the benefit?
Arwen U:
You might check on the Amex. I know my work Amex isn’t on my credit report. Hence, it is the only credit card I use.
My employer is really bad on expense reports - most my coworkers, since the card isn’t on their credit report, just wait until they get the check, racking up fees, and then putting in an expense report for the fees. Heh.
Of course, this is the same company that once sent a check to the wrong address for me, then cancelled the check and sent another to the right address, then when the check got sent back to them, they just stuffed it in an envelope and sent it to the right address. The recieptient then cashed the original check, which bounced because it had been cancelled. So then they owed the bounced check fee.
I’m convinced the people in my employer’s finance group - who should be experts at this kind of thing - are probably examples of the average FB out there…scary.
“Five years ago, the United States economy went through a recession that did virtually no damage to the housing market. In 2007, the question is whether the economy can emerge unscathed from a housing recession.”
Since when is there a “housing market recession?” I thunk it was a soft landing?
“‘I am saying the economy is only going to slow, not fall off a cliff,’ said Hugh Johnson, the much-quoted market analyst in Albany, N.Y. ‘So I am saying the inversion of the yield curve is different this time.’”
YES!, This time is really different.
in the bag!
So Lennar says 4 months ago that they were going to make 160 - 190 million in the 4th quarter. Today they announce that they expect a loss of 139 - 202 million. Did housing sales just fall off a cliff?
Lets see how the Wall Street boys put that news into their models.
Hovnanian posted a loss, and now Lennar too.
The big boys are hurting.
Many here have hypothesized that the builders can sell at deep discounts and still make a huge profit.
This is clearly not the case. The builders clearly have overbuilt, and also paid extreme amounts of money to secure land. Now that overpriced land is decreasing in value, killing all profits. Not to mention the numbers of cancellations, which is creating a larger “spec” home amount than planned
At least their stock prices always go up (at least since May 2006…).
“Lets see how the Wall Street boys put that news into their models.”
Not necessary. All that has to happen is for some analyst to offer a BUY recommendation on the basis of the soft landing that “everyone” knows is in the works for later in 2007.
Dennis Quattrone anyone?
“Did housing sales just fall off a cliff?”
Yes, they did. The major homebuilders saw a 60%-70% decline in sales rates in late-spring. As for the losses, they are taking massive write-offs on land holdings to clear their books. They have also laid off a lot of people.
“Today they announce that they expect a loss of 139 - 202 million.”
This has been the usual method for homebuilders the past 12 months, and people still listen to their forecasts!
The “investors” are still in denial about prices. Our visit to Florida shows a microcosm of what will eventually be evident nationally.
See part II here:
http://www.viewfromsiliconvalley.com/id289.html
Part III coming tonight…
I checked out your article? May I suggest that you apply a little logic to the following:
“This works out to a range of 12x to 17x the local median family income of $66K. (By way of comparison, Santa Clara County’s median family income is $96K which is only 7x the county median price. Using our zip code’s median income and currently-ridiculous real estate median price, the ratio is “only” 9.6x!)”
How can you apply city-wide statistical averages to a single high end subdivision without using a normalizing factor, like $/sqft or something similar? I agree that FLA is in serious trouble but CA is in for a price flattening that a 9.0 quake couldn’t accomplish.
Those Santa Clara median homes for $900K you’re comparing to brand new 4000sqft McMansions are 75 yr old 920sqft dumps.
Back to the drawing board…
Outstanding Investor Digest interview with Arnold Van Den Berg (yes, he is the real deal) on why interest rates and inflation will stay low, with some excellent graphs:
pdf warning
http://www.oid.com/public/html/excerpts/CenturyMgmt082006/CenturyMgmtExcerpt2006.pdf
Brad,
Thanks for the link, it was an interesting read. There is tons of interest rate debate here on this blog, and I have no idea who is right. The contrarian argument made in this newsletter is quite applicable to housing, IMO. Therefore we have a long way to go since we aren’t even at apathy yet in most locales. The best stage to buy at, the anger stage, is still way out there, but things seem to be snowballing as of late….
Lots of interesting stuff there, and I’ll have to take time to read it thoroughly, but I just can’t see low rates & inflation going forward. The US has ceded control of interest rates and compromised it’s currency, therefore as a country we’ll soon be considered a sub-prime risk and our rates adjusted accordingly.
Political leaders ? Please! These guys are little puppets and clowns!
len
250 mill in goodwill ? =sht they overpaid for in 05= they really overpaid
8 bill in inventory ? lots being sold
wow, I’m bullish
You can say that again.
The book values of these companies are a fiction and a fantasy.
I suggested this was the case periodically throughout 2006, but the stocks nonetheless continually rallied from May through Dec. We have clearly entered a new paradigm where there is a near-complete disconnect between fundamentals and stock prices.
Its OFFICIAL:
Mortgage Lenders Network, USA is not currently funding loans or accepting new applications through the Prime and Non-Prime Operating units. We are currently exploring strategic alternatives for the Wholesale Business Lines.
If you have questions regarding loans that were in the pipeline, please contact your Regional Production Office or your Business Development Manager
They are falling like flies.
Another sub-prime lender getting cut off from the golden goose secondary market no doubt .
http://www.mlnusa.com/brokers/contactinfo.htm
Is that link still around to the blog from last week concerning the collapse of this joint? I loved reading the pleadings of the MB’s that MLN was still taking apps and quite well funded. Wish they would’ve been on a webcam when they typed their nonsense.
“The ‘dirty tricks’ he has seen and heard of range from brokers steering clients into products clearly unsuited for them to shady switcheroos at the closing table.”
Now where is mrincomestream when you need him. I wonder if he would defend these brokers?
Of course, it’s always the greedy borrowers fault. They should have known better. I don’t care if it’s a Fry Cook or a Janitor who signed the loan docs, there should be no excuse for them not understanding Time Value of Money concepts.
Sarcasm Off.
I think the realtors know that the sub-prime lending was a joke . Real estate agents were all betting that real estate would continue to go up . Advertising was supporting the mania ,the media and lenders were supporting the mania .
Still to this very day I wonder how all normal economic reasoning could of gone out the window like it did ,even common sense .
It is still out the window at this point, Wizard. Can’t you hear the chants
of “soft landing, soft landing, soft landing” from coming in from outside the realm of common sense?
I guess you right Get Stucco ,the madness really hasn’t stopped yet.
He’s an RE agent - An endangered species. According to his assessment, a valuable one that will weather this storm unscathed. He has clients that benefit from his expertise.
Ask former travel agents that thought the internet was a fad what his likely fate will include…
Our pal Leslie Appleton-Young’s Deep Thoughts…
Lansner blog: Realtor-economist eyeballs O.C. housing ‘07
http://tinyurl.com/lzgbg
she has the BIG BAILOUT’ excuse if there’s a recession- isn’t that the only question worth answering ?
CAR’s RE forecast:
Gee I don’t know.
I liked Auction Heaven’s comments, can I get paid for that kind of analysis?
Following Leslie A-Y’s comments are some even sillier (?) comments on condos by a Veronica Hicks, who describes one of the big risks for a serious decline in condo prices as “if buyers continue to sit on the sidelines and wait out the market” — well, DUH. Who would do anything else.
‘Fannie Mae has announced that, effective Jan. 30, borrowers must be qualified at “a fully-indexed rate that assumes a fully-amortizing repayment schedule” in order to qualify a loan for purchase by the government-sponsored enterprise.’
Why wasn’t this practice in place all along? Does Fannie buy loans that were made to subprime borrowers using stated income docs?
better late than never
once sub prime is completely out of the game it will speed things up a bit
in today’s ny post there are tons of ad’s for mortgage and refi’s
with stuff like
credit score below 500 ok no stated income bs crap as well
I’m pretty sure FNM has fairly decent lending standards. While they did contribute to the runup, my guess is that the “fly-by-night” lending operations (and those who sell their loans to buyers other than the GSEs) posed a much greater risk to the housing market & general economy.
It’s the “invisible” MBS buyers (and the credit insurers) who need to be ferreted out and stomped on, like the miserable worms that they are. In the end, we’ll find that they can take out the nation’s (and world?) economies. Regulation exists to protect society from idiots & thieves. It’s been severely lacking these past few years.
a 6 month slump ?
“In another sign the housing recovery may still be on hold,
anyone have a number on how many “soft landings ” there have been ?
“Copper fell in London after inventories gained the most in 10 weeks, spurring speculation that demand growth will weaken, easing a shortage that began in 2003. ‘The bulk of the demand weakness is in North America,’ said Buxton, GFMS managing director.’”
I’ve been watching copper very closely over the last few years. Six months ago everyone was shouting China, China, China. Can’t get enough copper. Not enough copper. Copper, copper, copper.
Now where does everyone think the China copper goes ? Are Chinese people hoarding copper metals ? Nope. It went into US houses, stupid !
I know a bunch of people that are going to get badly burned on their metals investments. This whole housing bubble has been stupid and it bread a lot of stupidity elsewhere too. I can’t wait for it all to come to an end.
“Five years ago, the United States economy went through a recession that did virtually no damage to the housing market.”
Was the policy response (free money to buy homes) a consequence of the recession? If so, the jury is still out on what damage was done to the housing market, IMO.
The very language in the article indicates that we are a long, long way from bottom. To state: “In another sign the housing recovery may still be on hold,”…is to implicitly acknowledge that the prior insanity was a normal market, and that the by default the market is to “recover” to its equilibrium of 20% per year increases.
When such articles begin “The housing slump is likely to persist, say experts…” or, indeed, when no such articles are being written…then will we know that the bottom has been reached.
when wsj has front page today essentially saying soft landing….i am losing respect for that rag….
You are too harsh. They promise to always tell you the truth when it is in their best interest. It’s the American Way.
That easy money from 5 years ago to buy houses is still around folks- and it is now in the stock market, driving that higher.
When the music stops and the kool aid stops flowing, the inflated asset classes of the stock market and housing and debt will implode in tandem. When this happens is anyones guess- but as history shows-nothing lasts or goes on forever.
Top subprime lenders as of 2Q06, per the Mortgage Bankers’ Association:
1. Wells Fargo
2. HSBC
3. New Century
4. Countrywide
5. Fremont
6. Option One
7. Ameriquest
8. WMC
9. Washington Mutual
10. CitiFinancial
11. First Franklin
12. GMAC
13. Accredited Home
14. BNC
15. ChaseHome Finance
16. Novastar
17. Ownit [gone]
18. Aegis [just closed two subprime operations centers]
19. MLN [stopped accepting new loans]
20. EMC
21. ResMae
22. FirstNLC
23. Decision One
24. Encore [being acquired by Bear, Stearns]
25. Fieldstone [closing 7 of 16 ops centers, debt covenants modified thru 1/31/2007]
Guess this means Countrywide, New Century, etc. will have less competition. Their stocks should skyrocket on the news. Along with everything else.
” When this happens is anyones guess- but as history shows-nothing lasts or goes on forever.”
No, it happens when the liquidity dries up. And that appears to be happening now, as the warehouse lenders shut the tap off to the mortgage companies. I wrote about this over in the Jan2 bitbucket article. See there for more details.
It will be really interesting to see how this all plays out.
BTW: GMAC was the warehouse lender to MLN. They shut off the tap.
“This is something that our political leaders and policy-makers should have warned people about, rather than encouraging the same kind of speculative excess that dominated our economy during the late 1990s stock market bubble.”
don’t blame the stupid pols