Bits Bucket And Craigslist Finds For January 3, 2007
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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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junk bond “schadenfreude”
http://www.immobilienblasen.blogspot.com/
Whatta ya got against ukranian chicken?
Deceived housing investors turn to British authorities for help
19:58 | 03/ 01/ 2007
THE BUBBLE IS EVERYWHERE !
MOSCOW, January 3 (RIA Novosti) - A group of housing investors who lost their money in residential blocks that were never built has asked British authorities for help, a spokesman for Britain’s embassy in Moscow said Wednesday.
More than 40 defrauded co-investors of a real estate investment firm, the Social Initiative, gathered January 3 near the British embassy to transfer a letter to Prime Minister Tony Blair with a request to help return their money, popular radio station Ekho Moskvy said.
The Social Initiative lured tens of thousands of Russian citizens with a promise to build new and affordable housing.
According to co-investors, funds on the accounts of the former heads of the Social Initiative are being transferred to British banks. The co-investors are requesting the British government to check and freeze such accounts because this money belongs to Russians who have never received their apartments.
The British embassy has received the letter and transferred it to the competent bodies in London for examination, the spokesman said.
In November, a Moscow court placed the heads of the Social Initiative in custody on suspicion of gross theft of co-investors’ money.
According to a preliminary investigation, 6,000 co-investors of the Social Initiative have invested money in 170 real estate projects. More than 5,600 of them have already filed lawsuits worth over 600 million rubles ($22.7 million).
thanks.
fits good to the “no risk” mentality around the world.
http://news.yahoo.com/s/ap/20070103/ap_on_bi_ge/manhattan_apartments_1
Manhattan RE in a soft landing so far
ther is a little piece in the ny post business section that says
manhattan apts are priced to sell
lol
Priced to sell to whom?
If I could afford to blow a cool million on an apartment, I’d live in a SFH 90 miles away and take my private helicopter to work…
and 5 miles away prices are tanking
NYC will be the last place to drop RE-wise because it is the financial epicenter of this bubble. There was still lots of money made in 2006 on Wall Street.
That said, NY’ers are not immune. The inevitable crash will hit them hard, as it always does.
robert nardelli
$220 million “bonus” for 5 years over underperformance? The man owes stockholders some time in jail. Now Frank Blake steps in the rape, robe and pillage.
Manhattan prices wont be too affected until Wall Street has a down turn and there are major layoffs. The outer boroughs is another story and will come down sooner. I expect the seedier new hoods in Bklyn and Queens to mirror the slowdown in Westchester.
Mortgage Apllications Rise Again
1/3/2007 7:45 AM EST
Depsite an increase in rates the MBA’s weekly mortgage applications index rose 3.6% for the week ending December 29 and is up 6.9% percent compared with the same week one year earlier.
Refinance activity increased by 2.2% while the new applications for new purchase increased by 4.3% on the week. The adjustable-rate mortgage (ARM) share of activity decreased to 20.4% from 23.1% of total applications from the previous week. That is the largest weekly decline in ARM mortagages in over two years and sends puts ARM share is at its lowest level since April 2003.
The average interest rate for 30-year fixed mortgages increased to 6.22% from 6.12% and the average rate for 15-year fixed rate mortgages increased to 5.93% from 5.84% the prior week.
I wonder when there will be a marked increase in “trading down,” to manage debt, and how we’ll know the extent of it.
A Bankruptcy Boom Cometh
January 2, 2006 (Forbes)
Most experts expect the default rate to rise in 2007, reaching 2.5% to 3% at the end of the year. That still won’t be a boom by historic standards, but it will feel like one compared with the bankruptcy holiday that defined 2006. The following year, however, is a different story.
Ross expects default rates to rise as high as 7% or 8% in 2008, and many restructuring experts agree. “I think when [a correction] comes, and it is coming, it’s going to be a big one,” says Jay Goffman, a partner in the corporate restructuring department at law firm Skadden Arps.
The reason: Instead of going bankrupt with a sniffle, bad companies have been taking on extra leverage. Some of them might use that cash to fix fundamental problems. But others are just building themselves a larger tower of debt, so they’ll have farther to fall.
“A lot of people aren’t fixing the problems they have with their businesses,” says Ingrid Bagby, a partner with law firm Cadwalader, Wickersham & Taft. “They’re just fixing their liquidity problems.”
When they finally do file for bankruptcy, they may be in for a surprise. The same 2005 law that made it difficult for individuals to file for bankruptcy will hurt corporate filers as well. The process is now more difficult and more expensive, Goffman says. Companies now need more cash to pay vendors and utilities, and they have to pay taxes in five years instead of six.
********************************
Nothing more interesting than the first week of a new market year, when we get to see what the “real” story is after all the year end/bonus BS is over. I’m jazzed even though this is like my 20th year of it.
Since you’ve been at it for 20 years, have you seen anything like the real estate mess? What are your predictions?
Sure, I saw the 1980s and early ’90s recession and property blow up. At this point, I am more curious than anything to see if the hedges and “safeguards” everyone seems to have against catastrophic losses can really hold against the onslaught.
I thought the property blow up was mainly in Texas? Was it a national bust? Do you think this is on the same level?
We bought at the bottom in Texas, but do remember friends that lost money when they tried to move up to a larger home. We moved to a neighborhood that belly upped in the late 80’s and a builder came in and finished it in ‘92. It was strange as the homes across the street were significantly different. The boom houses were more custom where the new homes were pretty much tract homes(we were in the new bust homes). Of course they pretty much cost the same. I zillowed(I know it’s not accurate), and found that these homes haven’t appreciated much since we moved in ‘96. Maybe $40k in ten years.
Nope. It was all over the country. Fla, Ariz, Ca were bad too.
It wasn’t as much all over the country as this time. Seattle was hardly touched, which is probably one of the reasons that people here think we are immune this time.
We moved from Florida to Texas at that time. We didn’t make a killing on our home of three years when we moved to TX, we broke even after realtor costs…. I guess that was what I always assumed, a house was something to live in and if you planned to move you were lucky to break even. Even in Florida at that time, you had to hope to make enough to cover the cost of putting in a pool. Just thought that was reality not a result of a bursting housing bubble.
I do think things are different this time. I don’t recall any of my friends, coworkers…. having invested in real estate, having real estate as a career….. Now almost everyone I know owns at least one extra property, either to flip, or rent out. Too many speculated and lost. It will be interesting to see if we rebound in the same manner.
Philly dropped about 20% from 1990 to 1994. But everyone here seems to have forgotten that.
tl - you’re SO right! I’ve never seen such denial in my life.
Eastcoaster,
What part of Philly are you in? I’m at 26th and Pine.
Comment by Kim
2007-01-03 08:08:22
It wasn’t as much all over the country as this time. Seattle was hardly touched, which is probably one of the reasons that people here think we are immune this time.
I think Seattle RE prices went nuts during the dot com boom and never went back to normal. Half a million dollars for a smallish 3 or 4 bedroom on a tiny lot in Edmonds or Lynnwood is not at all reasonable in my book.
Maybe Seattle didn’t ride the current wav of housing hysteria, but that doesn’t mean the prices aren’t way out of whack.
tl - I live just outside the northeast - up Byberry Road.
Enron’s hedges couldn’t and didn’t.
Enron is small potatoes compared to the ABS/MBS market.
“As to new financial instruments, experience esrtablishes a firm rule … that financial operations do not lend themselves to innovation. What is recurrently so described and celebrated is, without exception, a small variation on an established design, one that owes its distinctive character to the aforementioned brevity of the financial memory. The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version. All financial innovation involves, in one form or another, the creation of debt secured in greater or lesser adequacy by real assets. … All crises have involved debt that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment.”
- John Kenneth Galbraith, A Short History of Financial Euphoria
–
“Ross expects default rates to rise as high as 7% or 8% in 2008, and many restructuring experts agree. “I think when [a correction] comes, and it is coming, it’s going to be a big one,” ”
If that happens, and I think that it would be exceeded, can you spell D-E-P-R-E-S-S-I-O-N?
Jas
“…can you spell D-E-P-R-E-S-S-I-O-N?”
To me, that’s the morbidly fascinating part of this. I stay cheerful with the “Cash is King!” resounder in mind, but there is always SOME way the gummint can screw me.
Sacramento Mortgage Fraud Update: 1/3/07
Happy New Year. The stupidity continues! I am so angry. Their are now EIGHT 100% LTV sub prime transactions at $200,000 above market value on Hillwood Loop. This is up from five a month ago.
I made two posts late yesterday on the thread below “‘It’s no Surprise to See Price Cuts’ in California”. Search under Paladin and you will see them.
The sub prime lenders have now done so many upside down, sub prime, cash back, over market acquisistion loans on Hillwood Loop in Lincoln, CA, that they can not see the real market level is $200,000 lower. They only need to search the MLS listings and see the market is $200,000 lower (and not selling). There are none so blind, as those PAID not to see….
It is ABSURD. I am pulling out the long gun now and will be setting up target practice at Fitch, S&P, & Moodys. A fellow blogger suggested two months ago that I notify the rating agencies. I should have done it then and will do so now. This unreal madness will stop, one way or another.
Paladin “Wire Paladin, San Francisco”
scewer some gov workers
email w links to your blog-only shame works w these folks
Speaking of shame, it is people like you that make public service the kind of flaming hell hole that all the best workers must stay a great distance from. You got the government you deserve, you “greatest generation” wonder, you.
Subprimes are scared their company is going to be next on the chopping block. They can only see today, they do not care about anybody. More the reason to double your efforts, have you contacted the Sacramento News and Review?
We cannot let subprime get away with this. I hate subprime.
I hate subprime.
Um why? This is either a very uninfomed statement or one from someone who got burned by a bad experience. Subprime has been around for a long time and is a very useful tool in the marketplace. Don’t confuse subprime with toxic ending. Subprime loans help a great many people start over and get themselves out of bad situations. Homeowners can extract equity from their homes to pay off their debts and save themselves from bankruptcy. Most banks only want “A” paper, when they lend so, without subprime, a person who ran into a tough time with their job/divorce/medical history would be S.O.L and be forced into bankruptcy. Then we can all pay their debts. Subprime gives them a chance to do it on their own and get back on their feet when they can refi later when their credit/ situation improves. Just becasue you haven’t fallen on hard times in your life yet, doesnt mean you wont and there may be a time when you are grateful that subprime was there to help you out of a tough spot.
Toxic loans are a different animal altogether and have been the driving force of the house run-up. I/O and option arms are done across the credit spectrum with total disreguard for a persons ability to repay in the future. A subprime fully ammoritzed 30 year loan at 9% goes thru the same underwrting process as conventional lending. Sure, there are abuses that occur but, its the abuses you want to eliminate not the product. Think of it like attorneys. Nobody likes them until their ass is on the line then they become your new best friend.
Nice counter MDMORTGAGEGUY …
Point taken - Toxic loans or shady loan officers are bad, subprime good. Will change verbage to accomodate.
“I hate subprime.
Um why? This is either a very uninfomed statement or one from someone who got burned by a bad experience.”
Don’t buy a home until everyone hates subprime. Right now, very few (even in the lending biz) “get it.”
Specifically, there is no decoupling the prevalence of subprime loans (or high risk loans, if you want to limit the scope of the term “subprime” to those with bad credit histories) — money loaned to help people temporarily “own” homes they can’t actually afford — and the general absence of affordability in bubble zones (where subprime lending is, not coincidently, most prevalent). The subprime bid trumps all others until credit standards revert to historical norms.
ok,you’re right, dont buy a home until subprimes go away. Guess you’ll never own a home then.
Stucco, read the whole post and absorb. YOu are in effect saying that the only people that can own homes are those who have managed to go thru life without any bumps in the road (or at least in the last 7 years). I dont like giving people 9% loans anymore than they like getting them but, i would rather have a choice than none at all. Remember, i dont do purchase loans. I work with people who have been in there homes who are on hard times and guide them back to the straight and narrow. I would venture to guess that 70% of the clients i get refi into a conforming loan within 2 years of doing a subprime with me by following my advice. How do i know? Becasue i call them and do the loan for them. Some never learn and i cant help that.
Good call. I will contact them this week. (I wish I had another 24 hours in every day).
Best of luck.
Go get ‘em!!! Nice work.
Was watching the Today show while doing my preteens hair this morning. There was a segment on How to get Rich in 2007. They had Kramer on with his predictions of stocks. I wasn’t really paying attention until some ASS from Coldwell Banker said real estate was the way to go! I couldn’t believe what he was saying! He said the Northeast is a good bet since they aren’t making anymore land(where have I heard that before??) as well as the Northwest, Oregon, Colorado….. Kramer tried to contradict him, but was cut off. I wish I could find a clip of this to hear it again. I couldn’t believe it, he’s really trying to say you can get rich in Real Estate in 2007! Well, maybe there are some greater fools out there.
I think you can get rich on soybeans this year. We’ll see.
are you serious b/c i’ve been racking my brain trying to find a soy farm for sale? i swear EVERYTHING on the shelves these days has soy in it. my fiance’s dad actually has partial ownership in a soy farm in either Iowa or Illinois. it’s been a consistent respectable earner for him. i don’t know diddly about commodities trading however so i’m probably missing an easier boat.
Spend a couple weeks talking to farmers in southern Missouri who have seen it all. Remember when rice was huge, then corn for animal feed and pellet stoves, and now soybeans. The only way to make respectable money in farming is through economies of scale combined with a weather miracle or goverment “wealthfare”.
There’s a great farming bust every couple years and we’re getting due for one now.
As a full-time farmer, I can say one can make a respectable living by carefully managing economies of scale, production, marketing, and all the other considerations that go into running any other business. Farming is no longer a business for the uneducated, uninformed poor business manager. That said, cooperative weather is always appreciated. As for the government, I would gladly forego “wealthfare” to not have to deal with all the inane and time consuming paper work and regulations. I feel the farm program has done as much to harm farmers as to help. Anyhow, commodities prices are definitely up in the last few months. Soybeans may indeed be the ticket for 2007, but I’m more impressed with the 80% increase in corn prices in the last 4 months despite a good crop this year. As for wheat, it is not a staple grain for a large percentage of the world’s population, and consumption has not increased markedly recently. Besides, it’s easy to grow and the world is never more than 90 days from a harvest somewhere. In my opinion, huge amounts of money have moved into commodities as hedge funds look for places to invest excess cash. The hype over biofuels is largely responsible for the run up in corn and bean prices. If oil prices remain high, I believe commodities prices will likely follow suit. I also believe a drought in the midwest this summer could make for some interesting times. On the housing front, I still see the same old “it’s different here mentality” in my area. Thanks for all the great info here.
I’m wondering if you are serious too TXC, because the only thing that doesn’t seem to be in a bubble to me is food type stuff.
It’s my prediction for the next bubble but things will have to get pretty bad for it to iccur I would think.
Crop prices might be headed much higher. I wonder what impact building subdivisions on prime farmland is going to have over the long term.
http://www.larouchepub.com/other/2006/3342wheat_supplies.html
Globalization’s Policy of Famine:
Wheat Supplies Plunge
by Marcia Merry Baker
Each year, the October world harvest report issued by the U.S. Department of Agriculture provides an occasion to review the crop-by-crop status of global production, stocks, trade, and consumption. This year, alarm bells are ringing. The statistics in the Oct. 12 USDA’s “World Agriculture Supply and Demand Estimates” show that the 2006 world production level for what’s called, “total grains”—wheat and all other grains combined—is below the average annual level of world grain consumption, for the sixth year, out of the last seven. Therefore, world stockpiles have been drawn down to the level of shortages. In particular, wheat stocks are expected to drop to their lowest level in 25 years, in absolute tonnage terms. Therefore, on a per capita basis, even lower; i.e., below required human consumption levels.
Three features of the situation are important to grasp. First, the extreme dimensions of the crisis. Secondly, how globalization and the cartel “players” are acting to cause food insecurity. And lastly, how insane it is for policy-makers to propose using food and feed crops for biofuels, in the face of the current shortages.
Wheat Harvest Disaster
Global wheat production for 2006 is projected to be 585.1 million metric tons (mmt), down dramatically from 618.85 mmt in 2005, and from 628.84 mmt in 2004. The 2006 plunge in wheat production comes from the immediate impact of drought and other bad weather in Australia, in Kansas and other parts of the U.S. wheat belt, and lowered production in Brazil, China, India, and the EU-25 (European Union). In Australia, instead of a crop of 25 mmt, drought will cut the harvest to barely 11 mmt. These reductions combined, far outweigh the small increase of 0.4 mmt in Canada.
At the same time, look at how the consumption level for wheat exceeds this year’s production: Consumption is expected to be in the range of 613.07 mmt, which means a drastic drawdown of stocks. Likewise, for 2005, wheat consumption was estimated at 615.79 mmt, which is higher than production that year. Only in 2004, when output was at a record level of 628.84 mmt, did it exceed usage, which was 610.07 mmt that year.
While this wheat gap is dramatic, the situation of falling production relative to use and stocks, is the same for corn and other coarse grains, and for other small grains (barley, oats, etc.).
The two graph lines in Figure 1, show the tonnage level for total grains production over the past 40 years, and for consumption of total grains over the same time frame. The gap defines the context of shortages, depending on where, and under whose control, the scarce stocks are located.
These conditions are made to order for speculation: Just before the release of the USDA report, wheat futures hit a ten-year high of $5.51 a bushel, which was an 18% price rise in less than a week. The week the Oct. 12 USDA report was released, agriculture commodity trading went wild. Twice, wheat futures prices hit the ceiling allowed for same-day increases on the Chicago Board of Trade. (Con’t)
There’s a radio advertisement by some huckster who will tell you how to get rich in real estate in downturns. I’m like, “yeah, right!” It’s basically how to get that huckster rich. I feel sorry for people who have not had the military-like discipline to have saved money in diverse investments with an objective (emotionless) dollar cost averaging methodology. The ones who just could not save money no matter how many attempts get more and more desperate as they get older. Like the sad site of elderly people sitting behind jackpot machines all day at casinos, spending their social security checks or dead spouse’s insurance money.
The Caldwell shill made a statement that went something like, ‘ Buying a home is like buying a great big basket of commodities since the price of the materials to make it rises at a 4% annual clip’. Kramer did kind of shoot ahim a wtf? look and was cutoff as he said that some markets werent affordable. Kramer then went on to say that buying raw land in fly-over country was the sound investment.
That home as a basket of commodities quote made me cringe too. He should have included the “assets” that require regular servicing like water heaters, new siding, new roofs, leak repairs, etc…
…then I had to switch back to the local NYC Fox news show for eye candy with the smoking hot morning bimbette Lucy Noland (clip below)
http://www.youtube.com/watch?v=-fB_cJ_D76A
Impressive. She said that she has kids, yet she still looks like that. Well done. (Although she clearly had some help at chest level.)
…then I had to switch back to the local NYC Fox news show for eye candy with the smoking hot morning bimbette Lucy Noland (clip below)”
Yeah, a real hottie! Wonder what kind of baggage comes with the deal?
They used to build houses like that.
No more brick houses these days?
I saw the Today Show piece this morning as well. My jaw dropped when I heard the ignorant statements this guy was making. When he said buying a home was like buying a basket of commodities because the materials rise at a 4% clip, I was thinking, “yeah, in a pinch I will pull the copper plumbing from my wall and sell it for cash. I didn’t realize I had buried treasure all over my house.” Mind numbing stupidity! How does anyone touted as an “expert” say something this ridiculous with a straight face? Shameful.
“yeah, in a pinch I will pull the copper plumbing from my wall and sell it for cash. I didn’t realize I had buried treasure all over my house.”
LOL!!!! I can’t wait to use that one!
I think that statement signifies that the crash is ON. When the cheerleaders can only come up with BS like that, the game is over.
I’ve seen something called bubblenewsnetwork while checking out housing blogs. They tend to have video segments about the housing market, maybe it’s there.
cramer is shameless
pump and dump king of cnbc cheerleading crew
dow 15000 by may rah rah rah
Which is why I wasn’t really listening! He did try and push bank stocks. Since we own tons of bank stock, I hope his followers(if he has any) do buy bank stocks!
Lennar down 3% in pre-trading. I keep hoping that somebody (beside us blogger peoples) is getting the message about these homebuilders and their house(s) of cards.
Home Depot CEO abruptly resigns:
http://tinyurl.com/sekk2
No need for him to work. Look at his compensation package.
Shareholders should be screaming. $210m? Isn’t that more than Bruce Karatz got?
I was just thinking about the $100M figure. I think that was Weil Gotshal’s entire fees for the Enron bankruptcy. Something like that and we were all aghast but that case consumed an entire firm’s banrkuptcy section in multiple offices. Now a single hedge fund manager or private equity manager gets that for one year’s “work.” Something is truly insane here.
LOL! It’s the “liquidity”!
Only $210m! That’s about half the 300million euros Volkswagen paid in december to lay off …. 1900 workers in the Socialist Union paradise of Belgium.(and the unions thought they made the deal of the century because never such lay off -pay offs had been seen before in history of Belgium)
That smells alot like Skilling resigning for personal reasons just prior to a blow up.
Watch Home Depot.
up almost 1.50 this morning on the news
“That smells alot like Skilling resigning for personal reasons just prior to a blow up”
There has been a buzz about some “Private equity” groups wanting to take HD private. I’m sure that’s behind this. The BoD want to cash out and Nardelli’s an operations guy. The $210M will salve the pain, though.
I read a few months ago that Nardelli was embarking on a plan to increase significantly the number of Home Depot employees, in order to boost its “customer service” image, which had been flagging. Whether or not a laudable goal, it seemed like terrible timing relative to the housing bust and decline in construction and remodeling.
Chip, and it was only about 30 days later that the entire plan was scrapped.
ADP says U.S. LOST 40,000 jobs in December:
http://tinyurl.com/ydlysk
That should drive up bond prices…
Stocks too, using the common perverse reasoning of the current market.
“At the end of the article: “Thirty-seven percent of chief executives surveyed by the Business Roundtable plan to increase their U.S. workforce during the next six months, up from 32 percent in the prior survey, the Washington-based group said Dec. 12.”
Wonder what that’s based on? A lot of Bureau de Change kiosks opening up?
Revised Brochure From The Federal Reserve about ARMS is Lousy
http://tinyurl.com/y42oc9
Bubble Meter Blog
Wow! In December! That’s when you expect more jobs, such as temp jobs to be taken - and a 10th of a percent drop in unemployment.
Maine’s ‘economic momentum’ tops New England
http://www.bangordailynews.com/news/t/news.aspx?articleid=144779&zoneid=500
This is like saying you’re the tallest midget in town, but at least it’s in the right direction.
socialist VT is worst as usual
,but hey they have the FREE-est healcare
Egads - I hate comments like this.
Trust me, when we’re not talking about civil unions (thank goodness that’s over), local talk is about loosening regulation to encourage job growth. Our current gov. is a republican - he vetoed bill recently that would have expanded health care coverage because of worries over job growth. (Which I’m very happy he did…) Current health care coverage is limited to very low income families and to children.
We had our own Alaska bridge to nowhere moment a few years back when then gov. Dean promised 1 million+ of public money for a private bridge for a factory to move into Milton, VT. It didn’t go through, but it’s example of what even a Democrat will promise to get jobs here.
VT politics cannot be painted with one broad brush stroke - there are liberal and very conservative pockets that work together reasonably well, IMHO. Over regulation is the cause of some of slow growth here but having one of the smallest population in NE and some other disadvantages such as low housing affordability, in part due to out of state ownership, hasn’t helped.
The NYTimes has outdone itself. Besides the article I posted earlier on global liquidity, they have posted this gem…
In 2006, a slowly improving job market finally grew strong enough to bring solid pay increases to most workers. Thanks to falling oil prices, meanwhile, inflation plummeted. As a result, the real average wage of rank-and-file workers … has risen more than 2 percent over the last year.
…Absent a speculative bubble, like the one in the 1990s that artificially heated up the economy, pay increases don’t come as easily for most families as they once did.
http://www.nytimes.com/2007/01/03/business/03leonhardt.html
It’s official, wages are up, inflation is down, and there are no bubbles in this economy.
Rearranging the Deck Chairs on the Titanic:
http://wallstreetexaminer.com/blogs/winter/?p=257
‘But that’s not all. Today, homebuilder Lennar and Cerberus announced they would be selling to CalPers a 62% stake in a large land holding (formerly Newhall) in Southern California. In actuality this property is 75% held by “funds and accounts” (code for hedge fund) managed by Cerberus.’
This suggests, prima facie, that CalPers is willingly accepting bagholder status by purchasing land that builders (who know game-set-match is over) are unloading. What’s in it for CalPers to be acquiring land at this point in the cycle? Do they fervently believe that “overvalued land” always goes up? Are they anticipating high inflation? What gives?
Cerebrus is bad news, our poster here’s friend notwithstanding.
lol i call him and ask
I work in the land development industry, and from I have been witnessing over the last 6 months the homebuilders are feverishly unloading assets from their books at fire sale prices. They are trying to restore their balance sheets all at one time and get the pain over with as quickly as possible. This is a lesson they all learned from the early 90’s slowdown. Land holding companies have a much lower cost of capital, so they can sit on the land longer. Plus, CalPers is probably only paying 20%-30% of the pre-crash land value. Most of the builders are keeping zero-payment options on the land as a term of sale just in case the market recovers more quickly than they imagine.
I know everyone here is very bearish on housing stocks, but don’t underestimate the impact taking all these write-offs at once will have on their future income. Builders can very quickly adjust to new price levels in the market by simply changing their land basis.
Builders will drive prices down in the coming correction faster than they did in the 90’s because they will quickly adjust to the new price points and keep the building product. In the previous downturn, most builders were caught holding too many lots with too high a land basis, and they were hesitant to build out at a loss. The drip, drip, drip of losses over an extended period killed them.
As long as the market sustains a price that covers their costs and makes them a percentage profit margin, they will build. They don’t give a flip what this does to existing home prices.
but the turnaround is right around the corner - they’ll need lots of lots
Controlling 15,000 acres of land that close to LA probably has value added long term, particularly if Calpeers can purchase the remaining interest @ some later date, with further discount….Lennar may not even exist when that property develops but Calpeers will, IMHO….
IrvineRenter;…I agree..I have been watching the availability of land in northern California for the past year and “everyone” is bailing….We have flippers in land just like houses…Mostly realtors that wanabee developers…Now they are stuck with the negative carry and are praying that some fool will take the dirt off their hands…
Dirt flippers will be destroyed by a decline in house prices. Land values rise and fall exponentially with movements in home price. I work for a land developer who cashed out most of his holdings in 2005 and 2006. He is starting to buy again from distressed builders and developers for a tiny fraction of the boom prices. I’ve seen haircuts of 80% or more. Ouch!
I guess the big Wall Street builders have to balance the unloading of depreciating land and options to buy land against the potential effect of such unloading on the company stock price and the part of inventory not yet unloaded. It sounds like a tricky unraveling exercise to me.
cash crash- wierd economic model
we had the re crash of early 90’s
the equities crash of 2000
next the cash crash w declining dollar
MLN Video -
http://bakersfieldbubble.blogspot.com
That was a pretty compelling local news spot. I’ve collected a few more references under yesterday’s Mortgage Lenders Network Doom post (my name links to HousingDoom).
the market is roaring this morning
here we go
You know the drill. First day or two is seasonally positive. Then kaboom.
I’ve been shorting this morning.
Me too, the HB stocks looks like they are a cruse’n for a kick down the stairs.
Check out these ominous graphs. Anyone who owns stock or trades should be especially interested:
http://biz.yahoo.com/tm/070103/15272.html?.v=1
nov construction down in the warmest nov since Dino days
news does not matter in this market it seems
it is all priced in already
Maybe not completely priced in to the homebuilders just yet…
http://tinyurl.com/leobd
It’s only January 3, and the soft landing has officially arrived. The DJIA rocketed up over 100 pts this morning on a small uptick in the ISM purchasing manager’s index of manufacturing activity. The reason this should not matter is readily apparent if one looks at a graph of the time series, which shows a fairly steady decline from a level of around 63 in early 2004 to its current level near 50 at the beginning of 2007. (Sorry, I forgot that business analysts don’t pay any attention to historical data…)
—————————————————————————————————-
ECONOMIC REPORT
U.S. factory sector grows again in December
ISM index bounces back to 51.4% after rare drop below 50%
By Rex Nutting, MarketWatch
Last Update: 10:12 AM ET Jan 3, 2007
WASHINGTON (MarketWatch) - The U.S. manufacturing sector expanded again in December following a rare contraction in November, the Institute for Supply Management reported Wednesday.
The ISM manufacturing sentiment index rose to 51.4% from 49.5% in November. Readings over 50% indicate the sector is growing. Economists surveyed by MarketWatch were expecting the index to remain below 50% at 49.5%.
It was the first gain in the index since July. The ISM index is considered to be one of the best real-time economic indicators. The Fed has always cut interest rates when the ISM goes below 50% for an extended period. The index had been above 50% for 42 consecutive months before November’s slide to 49.5%.
http://tinyurl.com/y3dgul
P.S. A graph of the ISM purchasing manager’s index is displayed in the left column of p. C1 in today’s WSJ.
so ISM trumps construction- is the contruction report old and ism new ?
take out transfer payments(gov const spending ) and it’s a real stinker
I think you may have identified the main cause for “soft landing” optimism — govt const spending replacing residential…
recession of 1937
transfer payments are bull and always fail
same in Japan in 90’s big spend doesn’t fool the markets for long
Prometheus sees one of its buildings under construction in Santa Clara torched. These were repartments.
Condo’s, not apartments….
Let me clarify;….The project has been mapped and approved as a condo….A identicle building was completed a year ago accros the street…Those sold out very fast….The market has now changed and these developers are choosing to hold the building rather than offer for sale…Prometheus is a very Prominent player in the valley that owns thousands of units and builds their projects without debt I believe….
We are all motivated by some expectation.
Maven
During my short stint reading this blog - one thing has become apparently clear - there is quiet a large cheering section of those who have their popcorn and soda ready and waiting for the house of cards to fall…don’t you guys remember the old saying”…Be careful for what you wish for - it may come true”….I am a home owner and have ZERO regrets…we bought in 2000 - brand new home after getting chessed off by the real estate agent who’s only concern was showing us homes that were SOOOoooOOOoooo out of our price range even back then. Well - I get abit peev’d when some in here seem to think anyone owning a home is somehow related to Hitler’s gene pool and deserves a million lashes. Home ownership (if done right - planned out properly) provides countless rewards…for those who mock…you have good reason towards those who paid prices of today ..or 2006..2005…2004….but to think those evil bastar*s deserve what is coming is like saying a small hole in a damn means nothing…right…No one will become immune to this…I too think the market needs a serious adjustment - but the fear of what may bestow on us all …. keeps me worried that life as we know it could be one day a cherished memory….(just my 2 cents)….remember if u don’t like my comment…no hitting below the belt….and if u rent and have a pile of cash under your mattress….get a history book and the part of pre-war Germany and how money became useless….at least I have a roof over my head…paid in advance.
“…I am a home owner and have ZERO regrets…we bought in 2000…”
Good deal. But this blog is not about paying homage to those who purchased near the last trough. Rather it is about how to purchase near the next trough.
“…this blog is not about paying homage to those who purchased near the last trough. Rather it is about how to purchase near the next trough.”
If I were a content homeowner who bought in 2000 and had no interest in selling soon, the last thing I’d be spending my time doing is reading this blog. So either DD is planning to sell soon, is sweating that her equity is vanishing and is pissed at those who sold at the top or are not going to lose paper equity, or… she’s wasting a lot of time reading this blog. IMHO.
Nope. I bought my home in 1998 and won’t be selling soon. Yet I love this blog.
I recognize a bubble when I see one. Through this blog I’ve learned even more about the causes of this bubble. As a result, I will be reallocating my investment money accordingly.
Popcorn and soda? Not me. I’ve got pork rinds and malt liquor.
Fear is good for me, so keep being fearful, Dirty.
Dirty Diaper,
Yes, I am cheering this thing on. The sooner we get it over with, the sooner we can recover. And yes, the idiots that bought in 2004-2005, deserve what they get. All you need is a high school education to know that what goes up, must come down! Those that chose to buy into the hype have only themselves to blame! Greed is greed. Ignorance is ignorance. I have nothing against homeownership. It’s speculating, calling a house a commodity, that irks me!
Yes, I know first hand how awful this thing will get. Know someone who killed himself because he was in so deep. It is a sad reality of what is to come! As sad as it is, I know we have to deal with the fallout. The market couldn’t continue as it was.
I do understand what lies ahead. Many will get hurt. However, unless you refi’d all your inflated equity you should be fine.
When I went looking at homes late 2004/2005 in Florida, I was shocked. We would see young families that probably don’t even break $100k living in $500k homes, driving fancy cars…… living on credit….. I for one am loving every minute watching these greedy people try and sell their fancy cars and homes they couldn’t afford to begin with! It will be a valuable lesson to them and their children. Money doesn’t grow on trees! And yes, you can have a very fulfilling life living within your means!
Dirty D,
I think you may be focusing a little too much on handful of people who will say anything for shock value. Normally what thay say gives me a chuckle but not taken seriously. I rent and not because I want to. I want a house, the picket fence, the vegetable garden….the whole enchilada but it ain’t happenin’. Not in this market and not because I don’t want to pay for something that’s going to depreciate…hell, my car is going to depreiciate but I bought one anyways. The point is, I’ve been “priced-out” , the crappiest 4 room box on long island is 329,000 in my humble town, it’s the cheapest house on the market here in Seaford and We just don’t make enough money. I wish no ill will on anybody but I resent people who make the same amount of money as my hard working hubbie BUT have debt (unlike us) and a jonesing car (unlike our 12 year old car) and manage to buy a house because they lied on their mort. appl. Then have the audacity to claim bankruptcy instead of getting a second job. Or worse, telling the govt. that they’ve been bamboozled and they should bail them out .
Am I bitter? Damn straight. My husband and I ALWAYS did the right thing but still got screwed.
Let ‘em burn.
Rant off
DD:
There doesn’t appear to be too many equity locusts on here, and i’m certainly one. We sold our house in el lay and hightailed it for the foothills of the Sierra Nevada and own our house free and clear, with money in the bank.
I’ve done everything I can do to prepare ourselves for whatever comes our way and for me, it’s just the satisfaction of having played my hand correctly, made a bundle and now i’m sitting pretty, watching the wheels come off. I truly feel sorry for folks in areas where new homebuilding is rampant, they will suffer the most.
The whole charade semed to center on the idea that as a country, America can’t compete with the rest of the world, on a manufacturing basis, because we became uncompetitive, against China, thus homebuilding was an viable alternative.
Danni - Well said! Echo that from me too!
Hey, I’ve owned my home since 1992, and in no way do I see the kind of attitude you’re suggesting. If I did, I suppose I’d be insulted as well, but I’m not. Not in the least.
I’ve said it before, I’ll say it again: 99% of the vitriol on this blog is reserved for those who display either stupendous stupidity or sociopathic greed.
http://yochicago.com/today/real-estate-business/its-your-most-important-purchase_3543/
Whazzup with those three red numbers at the bottom of this screen?
http://www.marketwatch.com/tools/marketsummary/
Oh mama. Hope those clowns who chased it up this a.m. are enjoying this reversal as much as I am.
I think the market expected the Fed Minutes to show Bernanke saying: “Our policy is to cut rates as necessary to support stock prices.” Anything short of that is a disappointment.
More “wonderful” news about the booming US economy: (NYT)
Ford Motor Co.’s U.S. sales dropped nearly 13 percent in December versus a year ago, putting it in danger of being beaten by Toyota Motor Corp. for the third month in 2006.
And GM too (WSJ)
BREAKING NEWS:
GM reports 13% drop in light-vehicle sales in the U.S. for December. Details to follow shortly.
What just took the wind out of the stock market?
Neil
Dunno but I just got stopped out of half my short position. Great day!
Fed meeting minutes cast doubt on anticipated cargo drops of cash out of helicopters. Members of the Wall Street cargo cult are worried.
http://tinyurl.com/ybho2t
http://en.wikipedia.org/wiki/Cargo_cult
That’ll be the excuse but look at those rising wedges on the charts. Dat’s da real reason.
Which “rising wedges” on which charts? And what was the big news item that turned the market on a dime at 3pm?
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=INDU&sid=1643&freq=9&time=1dy
WSJ NEWS ALERT: Fed Minutes Indicate Reservations About Economic Growth
http://online.wsj.com/article/SB116784708205866117.html?mod=djemalert
The madness continues. Here’s an e-mail I just received from Chase:
Whether You Are Settled In and Staying Put Or On The Move, Chase has the Best Mortgage Option For You
Dear TL,
Few lenders offer the opportunity for homebuyers to apply for the new 40-year mortgage—but Chase does. Here are a few of the advantages of this new mortgage option:
* Lower monthly payments than 30-year mortgages
* Lower payments mean you may be able to afford a larger loan size
* Larger loan size means more houses to choose from
And, with the 40-year term, you still can select either a traditional fixed-rate loan or an adjustable-rate mortgage (ARM).
One Size Does Not Fit All
Like any option, there are pros and cons to consider, while a 40-year term offers advantages that may be attractive, because of the length of the term, more interest is paid over the life of the loan. Something to keep in mind as you consider your long term plans.
Does it Work for You?
Chase has a wide range of products, and we understand one size does not fit all. Talk to one of our mortgage experts to help you decide what option will work best for you. Contact us today to find out if the 40-year mortgage is the best option for you.
FOMC Minutes Lean Hawkish
1/3/2007 2:18 PM EST
The minutes to the Federal Reserve’s December 12th FOMC meeting read more hawkish than dovish, with the Fed emphasizing upside risks to inflation over the downside risks to economic growth. Of particular importance were the Fed’s remarks on the housing market, which were much more benign than was implied by the December 12th FOMC statement wherein the Fed added the word “substantial” to describe the cooling of the housing market. On the other side of the coin, one FOMC member wanted the Fed to shift from its tightening bias to a neutral directive, although the importance of this revelation is reduced by changes to the FOMC that will take place at the January 31st FOMC meeting, when the composition of the Fed changes as a result of the Fed’s annual rotation of Reserve Bank presidents. More to come in my blog shortly.
So far the dollar up, inflation up, interest rates up theory looks good. But it’s only one day so far
Noice analysis:
TradingMarkets.com
2007 Has Major Cycle Symmetry
Wednesday January 3, 11:33 am ET
By TradingMarkets Research
There was a -6 point decline on the 3:20 PM- 3:25 PM bars Friday, but the SPX still closed at 1418.24 +0.5% on the week, and +13.6% on the year. The $INDU was +16.3, IWM +16.9, QQQQ +6.8 and $COMPX +9.5. The markup by the generals was successful, and a special thank you for the July rally should go to the PPT (Plunge Protection Team) for its efforts in accelerating the SPX into the midterm elections, and to the Federal Reserve for flooding the market with liquidity to help fend off a recession and navigate a “soft landing.” The Fed managed to give us a soft landing in 1994, but historically they have been very unsuccessful at it.
This bull cycle is now the longest time period between bull market tops in over 50 years, and that will end in 2007. This new year has a confluence of 10 significant Gann and Fibonacci yearly cycle dates, including 75 years from the 1932 bottom, and 100 years from the 1907 bottom. However, the 20 year cycle from 1987 to 2007 is the most interesting. Gann emphasized the 10-year cycle and its multiples. One way to get an idea of what to expect in a specific year is to check the various cycles and see which one mirrors the current cycle. The result of this exercise is quite interesting, because the 1987 cycle is almost identical to the current 2007 bull cycle. I have marked the symmetry of the six different highs and lows preceding the sharp-angled advance to Point 7 in both 1987 and 2007, and you can see the obvious similarity. The symmetry of 10 different cycles ending in 2007 makes it a high probability that this year will have a significant market move, and if it mirrors 1987, there could be both a top and a 4-year cycle bottom. The $US dollar was a problem for the 1987 market, and current dollar weakness could be a problem for this current bull cycle. However, the PPT is much more active now in manipulating the market, and would most likely intervene much earlier than in 1987, which was essentially the birth of the PPT.
We start 2007 with the $INDU stronger than the SPX and the NDX, which is a negative. The NDX is significantly underperforming the SPX, and that is not a positive, as the strongest market will see the NDX outperforming the SPX. January has a strong seasonal tendency in technology stocks, especially semiconductors, in the first few weeks, so we will know soon enough if the NDX can assume a lead role and prolong the inevitable bull cycle top.
When I looked last night the S&P futures (ES0703) were +8.75 points, and at 7:15 AM, as I finish this commentary, they are +7.25. It looks like 2007 will start with the “gang” making the generals pay up to put any new 2007 money to work. The more things change, the more things stay the same. With the inferior, mostly electronic opening procedure, the “gang” will have a field day in 2007, forcing premium or discount openings. This will make the Trap Door strategies and volatility bands even better strategies than they are now.
Have a good trading day.
Kevin Haggerty
“However, the PPT is much more active now in manipulating the market, and would most likely intervene much earlier than in 1987, which was essentially the birth of the PPT.”
Preemptive first strike = ramping up systemic risk.
Careful GS, you tempting Gekko to post.
At least I didn’t mention politics.
And here is the link with the ominous charts that go with it:
http://biz.yahoo.com/tm/070103/15272.html?.v=1
They can only rescue this thing so many times and there’s a lot less motivation right now than there was 3 weeks ago. I had a great day, stops did what they were supposed to and we’ll come back and do it again tomorrow.
It’s different this time. There was no PPT on Oct 19, 1987. The policy response was improvised.
I live in the Boston area and my wife and I are shopping for a home. We’ve seen a small adjustment in prices, as well as buying competition whenever something approaches the ‘value’ point where it is relatively attractive, in a decent location and priced appropriately. We’ve also heard through our realtor that many sellers have pulled their properties from the market and are waiting for the Spring to put them back on. But we’re worried that if we wait until the Spring, there will be enough buying interest to keep prices high and make it difficult to get something good. Any thoughts from anyone familiar with the Boston real estate market on whether we should be worried, or whether you think it will continue to be a decent buyer’s market in the Spring?
Unless Boston is truly different from the rest of the country, there will be a flood of homes for sale in the Spring. That flood of homes should more than compensate for any increased seasonal buying interest.
But why buy in 2007 at all? RE slumps typcially last years, not months. The probability of homes bottoming out in 2007 is low. That means that if you do buy in 2007, there is a good chance that your home will be worth less in 2008.
What if interest rates go up?
Then your house will be worth even less.
We’ve reached an affordability ceiling on **monthly payments**. At this point, higher interest rates will only affect the housing price, not the monthly payment, IMHO.
Certainly one should consider that monthly housing payments (as well as prices) are at historical highs right now.
Are you willing to allocate 50% of your monthly income if you can get a return of $10K per month? Most of us would.
HOWEVER…would you be willing to pay 50% of your monthly income on something that does not give you a return, or (gasp!) will cause you to lose $10K in equity every month? I would guess not.
See, monthly payments went up because the return — via house price appreciation — on these payments was high, and going higher. When that stops, the monthly payments become **expenses** as opposed to investment capital. Very different mindset which, IMO, will have very dire consequences for the housing market.
I lived in Boston for more than 9 years. The RE market in Boston is a torrential storm of falling knives right now. Two friends of mine who bought $350k condos in summer of 2005 are now losing equity roughly at the rate of $3k/month.
Do not listen to the realtors - their interest lies in making transactions happen, so they are scaring you into buying which also helps jumpstart the seized market.
At the end of the day, markets have their own dynamic, regardless of the decision of a single specific person/household. Boston RE prices WILL fall, a LOT. My guess is those #350k condos will be worth $200k in a couple years.
Right now is a great time to catch a falling knife in Boston RE market.
Thanks for the input. I really enjoy the conversation on this blog, and hearing from people who are well informed and can back up their statements.
Don’t shoot me, I’m only the messenger:
New York City avoids housing market slump
http://www.bloggingstocks.com/2007/01/03/new-york-city-avoids-housing-market-slump/
Ever-rising prices always gives conclusive proof that a market is healthy.
I’d be very surprised if NYC and the burbs don’t see some notable declines in price.
Update on MLS# 135340 in Bozeman, MT I’ve been tracking for the past 8 months (owner is a co-worker). Owners bought a new house in spring of 2006 before selling the old home, and this house has been vacant since March. Nice home a few blocks from campus, but on a busy street with a very small lot and no garage. Listed at 2185 sq ft, but that must include all sorts of angled attic space because with two adults and kid it was cramped. Started at $600k FSBO, then went to $589k with an agent in the beginning of June. Dropped to $519k over the course of the summer, but nary a nibble. Went off the market briefly in December and now is relisted with a new agent at $450k.
This house might, MIGHT, rent for $1500 which means the high end sale price should be $300k. So they are still at least 50% over the true value of the home. But clearly we are starting to see some seller capitulation in Bozeman. The sellers bought the home for $275k in the summer of 2002 given that real estate was already quite bubbly at the time, my guess is that by the time we hit bottom this house will have a market value below $275k in 2002 dollars.
The question is: will these sellers chase the market all the way down? Or will they find some fool to catch a falling knife?
catch a falling knife in ‘07!
http://www.larouchepub.com/pr/2007/070101china_yuan_high.html
Chinese yuan hit a record high today against the dollar. Attention US consumers: those cheap Chinese imports are about to get a lot more expensive.
Vote for Ben’s blog!
http://www.housingwire.com/2007-rebas/
Did so yesterday. I think Ben will blow away the competition, but every extra vote helps.
From the Broker’s Outpost Forum:
“Does anybody know of a lender that will refinance a timeshare in Florida?”
WTF …..now THAT is a great investment!