“This Cyclical Model Seems To Have Run Into A Roadblock”
Some housing bubble reports from Wall Street. “D.R. Horton Inc.’s sales orders for new homes fell 23% during the first quarter from a year earlier, the company said. The drop comes as home builders facing higher buyer cancellations in midst of a U.S. housing slowdown offer more inducements to sell houses.”
“D.R. Horton also said its cancellation rate for the quarter was 33%, down from 40% in the fourth quarter. ‘Although our cancellation rate decreased … we continue to experience higher-than-normal cancellation rates and an increased use of sales incentives in many of our markets,’ Chairman Donald Horton said.”
“‘The lower cancellation rate appears to have benefited from fewer last-minute cancellations,’ wrote analyst Daniel Oppenheim, who had predicted an 18% order decline for the latest quarter. ‘This may have been driven by increased flexibility to negotiate with buyers who had planned to cancel.’”
From MarketWatch. “Meritage Homes Corp. Tuesday said quarterly net sales orders fell 42% to 1,201 homes from a fourth-quarter record of 2,072 in the year-ago period. As a percentage of quarterly gross sales orders, cancellations rose to a record 48%, the residential builder said.”
From Reuters. “Meritage expects to book pre-tax land and inventory charges of $55 million to $65 million in the fourth quarter.”
“‘We continue to actively renegotiate a number of option contracts that would enable us to move forward on projects that are no longer feasible at the land prices in the original contracts,’ said CEO Steven J. Hilton. ‘But when these negotiations are unsuccessful, we must sometimes make the difficult decision to forfeit the option deposit and leave the project. We plan to continue to operate cautiously until we are confident that housing demand is strengthening in our markets.’”
“In 2006, Brookfield Homes Corporation closed 1,159 homes and 834 lots for a total of 1,993 home and lot closings. This compares to a total of 2,824 home and lot closings in 2005. The company’s backlog at December 31, 2006 was 247 homes, a decrease of 208 homes when compared to the same period last year. The targeted home closings for 2007 is between 1,150 and 1,250 homes.”
“The company said net new home orders in its latest quarter rose 52 units from the previous year to 208 homes. Brookfield said the gain was driven by an increase in active selling communities.”
“‘While some might interpret this increase in orders might indicate a market rebound, in our view, it is more reflective of the company’s aggressive discounting to close standing inventory and an easy comparison from a year ago,’ JMP Securities said in a report to clients Tuesday.”
“A worse-than-expected housing slump has left homebuilders with less cash flow to cover debt interest, and some ratings could be cut if that trend continues, Moody’s Investors Service said. Some homebuilders, including some highly rated ones, have forecast interest coverage in 2007 that covers their covenant requirements by only a small cushion, Moody’s said.”
“Typically, homebuilders operate with negative cash flow during good years as they pay for high inventories, then turn cash flow positive in slowdowns as they reduce backlogs, start fewer homes and convert existing inventory to cash, Moody’s said. ‘However, this cyclical model seems to have run into a roadblock,’ Moody’s said, as rising cancellations keep the inventory of unsold homes high.”
“Only six of the 19 builders that file public financial documents have turned cash flow positive, Moody’s said. The cash flow squeeze has been exacerbated by builders’ growing appetite for share repurchases, Moody’s said. ‘It may take some sizeable positive swings in cash flow accompanied by some significant debt repayments to avert some rating reductions,’ the agency said.”
“Shares of Novastar Financial Inc. fell after a JMP Securities analyst said mortgage loan delinquencies and foreclosures are rising as housing suffers. Analyst Jim J. Fowler painted a bleak portrait of what the weak housing market means for Kansas City, Mo.-based Novastar Financial, which lends money to home buyers with bad credit.”
“During the run-up, lenders like Novastar Financial loosened their credit standards and devised creative ways to entice consumers with bad credit to borrow money to buy a house, Fowler said. Now, home prices have stopped rising as much and in some cases are falling as unsold homes remain on the market.”
“This hurts Novastar Financial because low-income consumers will find it more difficult to pay off loans by borrowing against the value of their homes. That leaves Novastar Financial vulnerable to loan defaults. ‘A cursory review of industry data would show that most especially the nonprime market is under siege from faltering credit,’ Fowler said.”
“Secured Funding of California has shuttered its wholesale division, which accounts for about one-third of its total production.”
The Providence Journal. “About 75 Rhode Islanders have been left in financial limbo after Mortgage Lenders Network USA Inc, which is based in Middletown, Conn., backed out of nearly $38 million it had promised to borrowers or was considering, because of a downturn in Wall Street’s taste for sub-prime mortgages.”
“‘What you are finding is that as business got tougher last year, some lenders began to stretch their guidelines,’ said Sam Garcia, publisher of an online newsletter. ‘Some of those loans that they have made have started to default, and those that are buying these mortgages have started to pay attention.’”
“According to Rhode Island Department of Business Regulations Director Michael Marques…the fallout of Mortgage Lenders Network’s decision to halt its operations is the kind of episode one expects to see during a housing-market contraction.”
“‘They are doing $12 billion in mortgage volume and all of a sudden the music just stops,’ Marques said. ‘When it’s hot, nobody thinks it’s going to happen — and then delinquency rates increase and foreclosures go up, and the secondary market stops buying…. But there is no crystal ball, so there is no way you can predict when it’s going to happen.’”
The Union Tribune. “Late payments on credit card bills climbed in the summer to their highest point in a year, suggesting that some consumers are feeling financially squeezed. A factor influencing the rise in the third-quarter delinquency rate can be traced to the housing slump, said James Chessen, the association’s chief economist.. With home prices either falling or not going up nearly as much as they had, some owners aren’t feeling as wealthy.”
“‘With savings rates negative and home values stagnant, the spring has gone out of shock absorbers that handle life’s financial bumps in the road,’ Chessen observed.”
‘Mortgage Payment Deferral Inc., Roseville, Calif., has announced the introduction of a patent-pending mortgage program that allows homeowners to defer from three to 36 months of their mortgage payments. The 12 Month Deferral program, or 12MoDef, works by setting aside home equity into a trust account, and the appointed trustee ensures that the mortgage payments are made. The homeowner receives a monthly statement that combines the mortgage and trust account statements. At the end of the deferral period, the trust account is closed, and the borrower receives all the earned interest and resumes making mortgage payments, the company said.’
‘Many of our clients are making job changes, starting families, or struggling with a new business venture, while some are being crushed by meeting the monthly financial burden of their mortgage payment and credit card debt,’ said Jeremiah Miller, president of Mortgage Payment Deferral. ‘A year without the stress of a mortgage payment allows people to reassess their financial situation and regain control of their life again.’
‘Williams-Sonoma Inc., which operates kitchenware stores and the Pottery Barn home decor stores, on Tuesday gave a ‘cautious’ outlook for 2007, and said competitive pressure and the ‘home-related macroeconomic environment’ may keep a lid on profit and revenue growth.’
‘While it works to revive Pottery Barn’s business, it is also facing pressure from the slowing housing market, which has dampened consumer demand for high-ticket items like furniture.’
I can’t wait to see what the regulators think of this patent. and I would love to know if these guys are going for VC to support this “patent pending idea” ?
isn’t modef a rapper ?
now a wrap arounf mort
If I am reading this article right ,they want to start a loan where you don’t make any payments for a time period ? I think I predicted a while back that no payment loans would be the next big thing ,(but I was just kidding at the time ).
see that - you’re a visionary and you don’t even know it.
So the next “innovation” is a loan where they pay you every month to live …
As far as I’m concerned, the neg-am is paying the borrower every month (of course, they do expect it back…with interest).
Time for the subprime business to shrivel up and die. The only thing the subprime business has done recently is drive prices up to such unaffordable levels that even formerly qualified buyers would default if they bought in 2004-present.
What in the world is wrong with **working toward the goal** of buying a house by maintaining a good credit score, saving for a downpayment and making good career choices which improve one’s income?
There in no reason on God’s green earth for people to buy homes just because they are able to fog a mirror. Sometimes, we just have to admit that not everyone is responsible enough to buy a home, or that some are better off with the flexibility and lower cost of renting. Time to bring some sanity back into the market.
Amen.
… and please pray tell what that mortgage payment is gonna look like after the deferrment period, I bet its gonna be at least 20% higher than what they are currently paying.
In the end the Bank gets the house.. another brilliant scheme to transfer wealth from the ‘have nots’ to the ‘have a lot’.
I just don’t get this… why would somebody take out such a loan, just get the equity and pay the mortagage from it yourself, in the meantime you can invest the rest and get a somewhat better return.
I am now waiting for a loan in which the mortgage lender also purchases a life insurance policy on the borrower…
It’s called PMI and is quite common.
If I am a guy who has bad credit record & need a place to stay for free for 1 year, this is the perfect program. Sign up for the loan, pick the most expensive house that is approved, live there for free 1 year, send the key back to the bank.
ofcourse I would need a crooked appraiser to inflate the property value for false equity; however, these guys are a penny a dozen…
Actually, buy several of these properties, rent them out, pocket the rent during this “grace” period, then walk away from these “investments” at the end of 1 year.
i like the way you are thinking…
but I think these loans are probably aimed at homeowners that already have some equity in their piggybank.
Heuhhh? Banking regulators ? You mean that these people really do exist ? Banking regulators from Cayman Islands or Panama ?
Bingo OCobserver.
This is a ludicrous idea. For someone capable of making the payments its stupid because it is certainly more costly and, if someone isn’t able to make payments on a loan FROM THE BEGINING, who (in their right mind) would loan them money?
Banking regulators should kill this “idea” in the crib.
“Mortgage Payment Deferral Inc., Roseville, Calif., has announced the introduction of a patent-pending mortgage program that allows homeowners to defer from three to 36 months of their mortgage payments.”
What a great idea — presenting borrowers facing a lending market awash in subprime debt with yet another way pay on Tuesday to eat a hamburger today.
way payway to pay
The funny thing is when I read your inital first post my mind automatically put the “to” in there even though it was missing. It wasn’t until you posted the correction that I noticed.
That same thing happened me.
The mind’s default setting is comprehension, not proofreading. So if the point a sentence is clear, you generally don’t notice missing words unless you’re looking for them.
Which is why I’d be sunk without my secretary.
I think this is their (loan company) way to buy time. You only lend on a prime piece where the owner is in trouble but has a year or more in equity and then hope to keep the home occupied and off the market until prices revert or stabilize, then repo the property when the owner’s equity runs out and try to put it back on the market. This will keep the property losses off the books for a year or two.
Right. Too bad everyones’ “time buying” strategies (esp. the Fed) have the unfortunate side effect of making the inevitable day of reckoning all the worse.
Directly inspired from the US tresury. Geeses! these guys would be perfect at the US treasury. Paulson should hire these guys.
Sounds great…..unless you mention some of the things they forgot to mention, like, when you resume payments they will be higher then they were before. There’s no free lunch, the money that was set aside was, in reality, a loan against your equity and that loan just gets added to your original loan. There are also expenses for setting up the trust, the trustee, etc. I guess all that is covered in the fine print. In reality this is just a refi with deferred payments and negative amortization for some period of time. It would be criminal for the government to allow this scheme.
“It would be criminal for the government to allow this scheme.”
So true. Unfortunately, state-regulated mortgage lenders are untouched by the new, stricter federal mortgage lending guidelines released in 9/06 by the OCC, which only covers federally mandated banks. (Unless the state has issued parallel guidelines, as many have — though not, of course, California). So this Roseville, CA, operation can be as criminal as CA’s Department of Corporations (which regulates state mortgage lenders as I understand it) will allow. And that’s pretty darn criminal, if this “12MoDef” mortgage is any indication.
And the government uses the same gimmicks to pay its bills. So don’t count on the crooks in charge. “Au contraire” I am sure Alan Grenspan (the Wizard of Oz) would call it new e-CON-omy financing, creative finance, really really agressive financial engineering. Welcome to Alice in Wonderland.
Is the rate adjustable too?
Only if you take the loan for next 200 years.
A patent for a financial product? And I used to think we are a nation with lawyers who out number engineers by three to one. Now it’s financiers who out number the engineers by three to one?
I ordered from Pottery Barn once. (True confession: I received a gift card.) I don’t have any plans to re-order anytime soon, as their stuff is QUITE pricey.
So true, they are way overpriced. Friend paid $1K for a dining table that I have a hard time believing took any more than $50 in materials, and one hour to create. I refuse to buy anything from them because you are paying a huge premium for something that in reality is just mass produced junk. I have been waiting for some of these higher end, yuppie stores to warn on earnings. I also can’t believe how many furniture stores are within a 5-10 mile radius from my abode.
Yeah sure. Cautious outlook when employment is litterally going down the drain and dissapearing in most markets. Now can in the hell can you pay your mortgage when employment is cratering.
One lie after another.
******************************************************************************
December 2006 US employment data: An information of mass deception, hiding a strong decrease of US employment
Decoded news / January 8, 2006 -
“When the wise man points to the moon, the fool sees the finger” (Lao Tse)
Major financial medias and operators have made their headlines last Friday with the “unexpected strong US non farm employment data for December 2006″ (+167,000). Based upon this ‘factual data’, the same players immediately swept the markets with the key ‘conclusion’ they have been desperately clinging to for months now: the US economy is indeed showing resilience and the ’soft landing scenario’ is definitely taking place. Fair enough? Or is it another example of Lao Tse’s proverb?
For the research team of LEAP/E2020, it definitely is another of Lao Tse’s situation. And therefore we will try to clearly identify what is the moon and what is the finger in that situation.
Let’s have a look at the reliability of the data provided by the US Department of Labor by carefully analysing the ‘Reliability of the estimates’ chapter of the ‘Employment Situation Technical Note’.
There one may learn that because the confidence interval for the monthly change in total employment from the household survey is on the order of plus or minus 430,000, it means that there is a 90% chance that December 2006 figures range from - 263000 to + 597,000. And the technical note explains that “These figures do not mean that the sample results are off by these magnitudes, but rather that there is about a 90-percent chance that the “true” over-the-month change lies within this interval. Since this range includes values of less than zero, we could not say with confidence that employment had, in fact, increased.”
For the LEAP/E2020 research team, such a limit regarding the reliability of the concerned statistics discredit them into nothing more than mere contextual information (if not pure fantasy).
As Chris Isidore, CNNMoney.com senior writer, correctly stresses it in his article on January 5th, “The fourth quarter gain was below the third quarter and 2006 saw 143,000 fewer jobs added to payrolls than in 2005, or almost a month’s worth of hiring. And that’s a comparison to a year in which hurricanes Katrina and Rita took a bite out of jobs”.
While John Williams from the Shadow Government Statistics underlines that “Highly unusual reporting and revision patterns for the jobs data were seen again, for December. Employment conditions are close to showing a recession, but each month the Bureau of Labor Statistics keeps filling in prior periods with levels of upside revisions that are unprecedented outside of the annual benchmark revisions. The revisions are unusual enough for the BLS to have published a statement last month proclaiming that the changes were not unprecedented. Something very strange is going on in the reporting”.
More about the real evolution of US economy in GEAB N°11 to be released on January 15th (on subscription)…
*******************************************************************************
I still claim that it is only possible to hide an elephant under the living room rug for a limited period of time before a terrible stench gives away the situation.
Well it’s classical Barnum and Bailey stuff. The technique is called hypnosis.
Milton Erickson called the phenomena “positive hallucination.” Yes you can even hide the Titanic under the bed.
ah yes, the infamous “Don’t pay a cent events” have now hit the mortgage industry.
My tennant fell for these to buy a new projection TV and surround sound system (Rent was $375/month, income $1200/month Gross).
“It won’t be a problem, I get my Walmart bonus in March, and I’ll be able to pay it all back before next year”
My reply: “Just be sure to pay it before it comes due or it’ll kill you. Oh and btw, you’re three weeks behind in rent”
Long story short, he’s now in debt exile (hiding), and owes me a month’s rent, and the bank $5K (I let the rent slide, his bedroom is now my computer room
)
we used to call this a “loan to own”
So true, now they are indentured servants, “owned” by their creditors. Oh, it’s different this time. This time it’s hello 1099 in 2008.
“Loan to be owned by the bank.”
Another desparate moe to save the comps! No matter what the indusdtry does, no matter how low Ben’s Helicopter flies to shower the money, no matter how fast the David Liarah spins, the Real Estate skunk has been spotted and it will stink long after the skunk is crushed by the elephant load of Sub prime, not so sub prime, and freaudulent loans outstanding.
It is fun to watch that market is finally behaving the way you thought but it is sad to see friends and other naive people to be at the verge of BK.
Typically, homebuilders operate with negative cash flow “during good years as they pay for high inventories, then turn cash flow positive in slowdowns as they reduce backlogs, start fewer homes and convert existing inventory to cash, Moody’s said.”
Hey, Moodys This is one more stupid projection with no basis in fact. How come the president of KB Homes bailed out in 2006 with $100 million severance, after cashing in his options? Do you think he saw all that cash sitting in the company’s bank account, and was salivating all over this juicy bone? Give 2007 a few more months, and there won’t be any cash left in any homebuilder’s accounts. The homebuilders are either cashing in every stock they own or buying back their company stock to keep the mirage going. Moody’s is another candidate for BS of the year award.
“The 12 Month Deferral program, or 12MoDef, works by setting aside home equity into a trust account”
Seems like many are missing the important ingredient for the “loan” to work. All they’re saying is when we fund the refi, we’ll take some of your “equity” and make your first 12 payments with it….. cause we know your so stupid, if we give it to you you’ll blow it on a Harley or something.
What if you don’t “have” any equity? I bet you don’t qualify for this loan.
I’m trying to find Qualified in the dictionary. It seems to be archaic usage… Old English or something
Well the defferral payment is not a new thing. How about ” Buy now and never pay one cent.”
Real funny article!
Makes me think of the US deficit.Soon 9 trillion dollars and counting. And 9 trillion is just a made up number. It’s even bigger than that. This guy should be in Washington!
To be clear, this deferral program is tapping the equity, probably in the form of a new recorded lien. It will be accruing interest from the time it is funded, while it is making the payments, and while it is paid off. I can only imagine the interest rate. It will buy time for many people, and probably delay the inevitable losing the house to foreclosure for most.
Yes, they claim that your “equity” will be invested and get some kind of return. Want to make a bet the return to the borrower is less than the interest rate on the loan? In other words, you might be “earning” 2% but paying 7%. There is also a “fee” for each year you use their “deferment service”. I believe it’s about $900/year or more — which is in addition to all the other rates and fees they are charging.
How many FBs think the loan will be less than what they started with when the first embarked on the “deferred payment” plan? Very few, from what I am seeing, will know that the loan will likely be higher after the 1-3 year deferment, AND they will have been paying fees for the priviledge.
Just another way to sucker in the idiots and prolong the pain.
Let’s get this over with, already!
Another thing for Sacramento flippers to worry about. Frigid temperatures bursting copper pipes later this week.
http://knbc.nbcweatherplus.com/weathernews/10703513/detail.html?dl=headlineclick
Yeah, even here on the central coast, the prediction is for a low of 31 on TH, 28 (and rain) on FR, and 29 on SA. I thought that the ocean was supposed to protect us from such ‘extremes’ as actual freezing weather. I guess it’s NOT different here.
Yo, Casey, sleepyhead!
Get out there and wrap those pipes on your empty POS houses!
glad the heat in my morro bay vacation rental is not my responsibility
“The cash flow squeeze has been exacerbated by builders’ growing appetite for share repurchases, Moody’s said.”
Another example of this blog being way out in front of the professional analysts.
That’s exactly right. It’s almost insane the way this board has identified the primary issues well ahead of the “experts.” The cash flow issue for the homebuilders is just the latest example.
One would think that in an effort to preserve cash/pay down debt, the homebuilders would have to limit stock buybacks. This removes a very important bid out from under their share prices.
It will also be interesting to watch their margins, since in their efforts to convert inventory into cash, they will likely keep pushing on the incentives.
“The cash flow squeeze has been exacerbated by builders’ growing appetite for share repurchases, Moody’s said.”
What is really going on is they need to make their EPS numbers for WS, and buying shares back makes their EPS go up (reducing the denominator without reducing the numerator works wonders). Of course the balance sheet gets hurt but when you are writing down assets like the HB’s are today, who is going to notice a little missing cash?
It is how most companies manager EPS and meet the street expectations. It is also total BS.
It’s almost insane the way this board has identified the primary issues well ahead of the “experts.”
The “experts” have a vested interest in maintaining the RE industry’s illusions and lies. We don’t.
But if they didn’t have stock buyback at the same time the executives were exercising options, the price would go down. Stockholders might actually realize that they’re giving millions more in compensation to management, and we can’t have that.
“This hurts Novastar Financial because low-income consumers will find it more difficult to pay off loans by borrowing against the value of their homes”
Am I insane, or does this just not make sense? How is borrowing to pay off loans not just more borrowing?
You rob Peter to pay Paul.
“A policy which robs Peter to pay Paul will always have Paul’s support.”
I don’t know who said that, but it’s one of the great truths of the world. Up there with Murphy’s Law and the Peter Principle… I guess you could call this the “Paul Principle.”
–Shannon
I call it the Legalized-Robbery Principle.
Paul-son from Golman Sachs ? or Paul’s son.
Ayn Rand.
New here; if my previous post attributing the quote to Ayn Rand shows up, please ignore it.
George Bernard Shaw: “A government that robs Peter to pay Paul can always depend on the support of Paul. “
It’s called borrowing your way out of debt!
It’s consolidating all of your loans into one easy monthly payment. See “current account deficit”.
Well it’s turning high interest unsecured credit into low(er) interest secured credit.
There is no better feeling than paying for a car for 30 years, while knowing it will be worthless in 7.
And a house for 100 years like they do in crazy crazy Japan.
That reminds me of that infuriating Countrywide add.
Homeowners, want to get cash?
Apply for a combo loan.
It’s a refi that combines your first mortgage, your second mortgage, car loans, and all your high rate credit card debt into one easy payment that will save you hundreds a month!
What a pile of shit.
And the farmer carried a truckload of it.
Combos for condos or condos for combos.
According to all the ads, it’s more like “eliminating your debt” with a HELOC.
Never understood how those ads could be considered legal. You are NOT eliminating debt by taking on more debt.
This is what the blog as been talking about for over a year — people using their home equity like an ATM to buy flat screen tv, SUV or periodically or pay down the credit cards. These home owners do not equate this to a loan — it’s just drawing out their money when they want it. They pretend their house is a piggy bank and lending institutions are only to happy to play pretend with them. For now. Watch .. act II is about to open.
Thise economy has been based on this model for at least 3 years now.China makes our stuff we buy at walmart then buys our debt. We inflate our asset prices thus allowing us to buy more stuff from them.Isn’t this a great game.
Anyone out there have a chart that shows our gdp vs our budget deficit over the last 10 years?
Here is a chart showing trade as a percentage of GDP.
http://tinyurl.com/y3cltz
Not a pretty picture.
But the piggy bank is empty and broke, broke, broke.
This guy is an analyst that sees the writing on the wall. What he said is very unnerving (almost infuriating), but Oh So True. Unfortunately he portrays the consumers as victims and doesn’t analyze how the financial institutions played into all of this..
“‘The lower cancellation rate appears to have benefited from fewer last-minute cancellations,’ wrote analyst Daniel Oppenheim, who had predicted an 18% order decline for the latest quarter. ‘This may have been driven by increased flexibility to negotiate with buyers who had planned to cancel.’”
Nice spin, Mr. Oppenheim!
Did you hurt your brain? Would the AntiSpin (TM) look like this:
“We were selling fewer and fewer homes, so there were fewer buyers to backout, and because we are so desparate to keep these cancellations off your books we are giving away the farm to those who are show any indications of killing the deal.”?
Or just giving them an extension until next quarter . . .
I don’t think Oppenheim is too far off base. I go to cancel my home order. The builder, stuffed with inventory and seeing continuing negative cash flow, is desperate to close the sale. So the builder says, “How about cutting that price from $600,000 to $500,000?” As a home around the corner just traded at $525,000, I can see the buyer agreeing to not cancel and close the sale.
I wouldn’t do it, but then again, I wouldn’t have been buying in the first place. What it does scream to me however, is that homebuilder profit margins are narrowing big time and fast.
“A worse-than-expected housing slump has left homebuilders with less cash flow to cover debt interest, and some ratings could be cut if that trend continues, Moody’s Investors Service said. Some homebuilders, including some highly rated ones, have forecast interest coverage in 2007 that covers their covenant requirements by only a small cushion, Moody’s said.”
Profit, schmofit! Cash flow is king and lack of it will be the downfall of these HB’s when they can’t stay afloat and pay bills. Even Wall St. will not make bridge loans when you’re not bringing in cash.
12MoDef…….is he the actor or the rapper who’s just outta’ Compton with a glock in his sock???????
OT -
friends of mine adopted a shelter dog: part pit, part Dalmatian. (not kidding). Turns out the dog was rescued from Camden, NJ. The new owners joke that the only way to calm down the pooch when she gets overexcited is to pull out a Glock from a shoulder holster.
Again I go back to old time lending . If a borrower was a big credit card user,car buyer etc. , and they wanted to refinance ,the underwriter would pay off their debt but wouldn’t go high on the loan to value because it would be likely they would get into the same mess again .
But there is no crystal ball, so there is no way you can predict when it’s going to happen.
Predicting when is a problem. Predicting that it’s going to happen is not. That was predicted here a long time ago.
IMO, these guys are just a modern incarnation of fly-by-night operators and trunk-slammers. Bigger, and with nice letterhead, but just as eager to cut and run when the going gets tough.
Or when the easy money is gone.
You haven’t heard ?
Easy money is here forever.
The New Economy.
The New Paradigm.
The Revolution of Productivity.
The New Conumdrum.
Paradise coming soon to your neighborhood.
Isn’t that a classic line. Didn’t see it comin’, huh? He’s like the sap on the railroad tracks where the signs are flashing, the tracks are quaking, the trains whistle is blowing, yet the dude never saw the train coming. What an idiot!
These are like the guys whose cars get nailed because they were driving AROUND the gates.
ISoldDearly: Act II is those of us with the beater cars and the $200 Tee-Vees hopelessly trying to defend our right not to pay for our neighbors’ excesses.
I guess I’m in a pessimistec mood today.
Living frugally in a rental home in an acceptable public school district, I have to look at my neighbors and wonder how much they are going to expect me to “share” the sacrifice of the fallout from their continued postponement of reckoning day.
I notice that many of the players on this blog have a rather secure financial picture, so you may not feel you have so much skin in this game (You’ll be able to cherry pick homes and other toys in a few years for cash.) I’m not saying that wise or frugal deserve to pay for another’s stupidity, but this isn’t going to hit all bad decision makers equally. From the (accomodative-to-the privileged) bankruptcy laws down, I’m pretty sure that the game is rigged such that many a hedonistic, system-gaming jerk will be fine out of this, and those who manage to live below more limited means and are waiting patiently will find that 20% down and paying bills on time may not be quite enough, post-housepocalypse. Maybe I’d worry less if I were confident about rents staying low in areas where people will continue to want to live.
…I have to wonder how much they are going to expect me to “share” the sacrifice of the fallout from their continued postponement of reckoning day.
I’ve wondered about this, too. I feel like I’m doing the right thing - living well within my very average means all the while trying to save up some more money. If my conservativeness somehow comes back to bite me in the butt, I will be pissed. The only way for people to learn about consequences is by actually HAVING them. Greedy spendthrifts need consequences, not bailout assistance.
I am all for bailout as long as it benefits us more than no bailout. Conservative with your finances is a relative term. I think bailout should also be relative.
Why would a mob of irresponsible jerks look out for your interestes when they weren’t even willing to look out for their own? Moral and intellectual collapse is bad news, even worse in a democracy. We’re lucy the framework of the republic is still somewhat intact. It may give us a bit of shelter.
“We’re lucy the framework of the republic is still somewhat intact. It may give us a bit of shelter.”
Hahahahahahaha! You are kidding, right? Our Republic has taken several bullets to the head - 1861-5, the Senate election amendment, Fed Reserve Act, IRS/income tax Amendment (Republic died there), 1933 gold confiscation, 1970s fiat money, Patriot Act, etc…
Sure, I have some cash put away .. but I live carefully too. No cell phone (can you imagine!!), watch rented movies at home, no fast food crap, no blue tooth, no SUV (my 1989 looks a bit sad but runs like a champ). I’ve paid my dues, so if I do well in the down turn no can say “You’re so Lucky!” [like they did when I had sold the house and they were still sitting in theirs and it was too late]. It takes years of frugal living, careful planning and THIS BLOG to climb out of the American debt trap — you can get there too memphis. Smart folks here will help you just like they did me.
“Years” is indeed the key to it. Two choices: you can start a draconian savings program in your 20’s (i did), or you can have the good fortune to run into a sharp change in the economy (for all of us here, we hope it is the coming credit collapse). Even in the latter case, we may yet have years to wait.
Goal has always been saving/investing 40-50% of gross income. Haven’t always achieved it, but I give it my best effort. My coworkers laugh at my “Walmart Wardrobe”, but that’s life.
“Typically, homebuilders operate with negative cash flow during good years as they pay for high inventories, then turn cash flow positive in slowdowns as they reduce backlogs, start fewer homes and convert existing inventory to cash, Moody’s said. ‘However, this cyclical model seems to have run into a roadblock,’ Moody’s said, as rising cancellations keep the inventory of unsold homes high.”
Is this the new typical the dude is talking about? Because the old one was to build like there is no tomorrow, then declare bankruptcy.
Well, if you consider they HBs were buying back their stock to keep the prices high so their insiders could sell at a great profit…now, the ratings agencies are beginning to worry about cashflow (didn’t we bring this up here at Ben’s last year?)…I’m thinking the HBs will be back to their old tricks again, very soon.
According to Trump, bankruptcy is a “tool” businesses use to start with a clean slate. There is no stigma, everybody does it, and it’s basically expected that businesses use this nifty “tool”. Seriously, I’m paraphrasing, but heard Trump saying this the other night on TV.
Trump is a disgusting loser.
He’s a total POS. Too bad so many Americans are suckered in by his garbage act.
“Only six of the 19 builders that file public financial documents have turned cash flow positive, Moody’s said. The cash flow squeeze has been exacerbated by builders’ growing appetite for share repurchases, Moody’s said. ‘It may take some sizeable positive swings in cash flow accompanied by some significant debt repayments to avert some rating reductions,’ the agency said.”
anyone remember the huge stock sales by Bob Toll and other homebuilder execs back in 2005 and 2006? Guess what they share purchasing really meant?
Execs sell millions of exercised options. The company buys up shares to keep up demand for them so the execs don’t get pennies for their shares when they try to sell
BINGO!
“Some borrowers are still feeling the impact of the Federal Reserve’s 17 interest-rate boosts since June 2004, the longest string of increases in Fed history. The Fed, however, has left interest rates unchanged since August.”
What might that impact be? Flat or falling home prices shutting down the home equity ATM machine, perhaps?
I was at Carmel Mountain Trader Joe’s last night; the place was virtually deserted compared to the foot traffic in there a year ago. Maybe “everyone” is still in Hawaii for the holidays at this point?
they have to refi for food ?
No, Stucco, you’ve just come down with that dreaded disease called Retail Cooties. It’s what happens when you go into formerly busy stores, and hardly anyone is there.
But seriously, I’ve noticed the same phenomenom here in Tucson. And it’s all over town, too.
Arizona Slim — where in particular have you noticed shopping traffic declining? We’re in central Tucson (Broadway & Craycroft area), and I don’t notice much drop off when we shop at Costco, Target, Park Place Mall, etc. Of course we have a 2 1/2 year old, so most of my time is spent trying to keep track of him — I’m probably not the best observer.
On another subject, I’m seeing houses advertised for rent in this part of town sit for a long time. One near my neighborhood has had a sign up (management company) for at least two months. Asking rent has decreased from $895 to $850. I think I’m paying too much rent, but I don’t know if I am willing to move to get a better deal when lease is up this fall (rent savings probably would not outweigh cost of move, plus all the hassle).
I’ve noticed it in central Tucson and around the university. And one notable example was a visit to Lowe’s on Oracle Road last October. Beautiful Saturday morning. Perfect for doing a project. Hardly a soul in the store. And only one cashier was needed.
Nope, they are not here in Hawaii, foot traffic is down. My wife sells wholesale jewlery and business is off 20% to 30% accross the board. The Hiltons’, Macy’s , are all complaining that the Christmass surge in buying never happened.
Anybody hear what’s up with The Gap?
Being bought?
Ho! Ho! Ho!
Can we please get past the notion that Trader Joe’s is a “luxury” store? Sure they have some gourmet & organic offerings, but at ton of the food sold there is same price, if not cheaper, than Safeway.
Trader Joe’s is a luxury store for folks who don’t prefer to pay a snob premium for brand image. The product mix is skewed towards luxury consumption, but to my untutored taste buds, $3/lb Trader Joe’s French Roast coffee tastes as good if not better than $10/lb Starbucks.
i would never live in a town that did not have a trader joes. its not a luxury,,,its a way of life.
A few days ago the Disneyland Hotel was so un-busy that they couldn’t afford anyone to man the parking exit and determine that my parking was not validated, so they forewent my six bucks.
Assuming you were also going to Disneyland…how was traffic there?
We drove through the “Disney complex” after Christmas (for gas & coffee), and the entire area looked packed. Of course, this was during Christmas vacation, so not sure if that was just a blip or???
Escondido still seems as overrun as ever at places like Costco and WalMart. Then again have been a magnet for “guest workers” so there is a good sized supply of folks to keep shopping.
My wife and I both commented that we were suprised that typically consumers go to ground for a bit post new years, but last weekend everyone seemed to be out spending with both hands.
Maybe its just North San Diego County…
Now listed on the local MLS, the 2005 HGTV Dream, I mean Nightmare, Home:
http://tinyurl.com/ybo8jl
For a mere $5M, you can live on leased land in the middle of East TX
Like the local brokers said in the story about this house, $5M is a fantasy. It will probably sell for under $1M if they can find anyone in East Texas with enough money and stupid enough to spend it on expensive property in Hooterville.
Imagine that $150K annual tax bill (if it sold at 5 mil of course). If it sold at a measely $1 mil the tax bill would only be $30K. Easily affordable by most Tyler residents.
““Only six of the 19 builders that file public financial documents have turned cash flow positive, Moody’s said. The cash flow squeeze has been exacerbated by builders’ growing appetite for share repurchases, Moody’s said. ‘It may take some sizeable positive swings in cash flow accompanied by some significant debt repayments to avert some rating reductions,’ the agency said.”
***************************************************************************
This amounts to a pre-announcement of coming bankruptcies of major homebuilders. It is the cash that counts and when there is no more on hand, a company can’t pay its bills. Most of the builders are leveraged, some very highly leveraged. That debt has to be paid on time and it is getting more and more likely that some builders aren’t going to be able to do so before long. We will have bankruptcies in 2007, IMHO. Look at the balance sheet of WCI, for example. It is deteriorating badly. Cash has shrunk over the past 4 quarters, receivables have risen, and debt has increased from 1.3 billion to over 2.0 billion. And there is no reason to believe that it is going to get better anytime soon.
And when the same happens to a country ? Let’s say the USA.
What I thought was interesting the past year or two, was how the HBs were **borrowing money** and buying back shares at the same time (at a high price, no less). Not sure why anyone thought that was a good idea, but admit my ignorance when it comes to complex accounting.
Well, the reasoning must have been simple:
Builders currently hold large inventories. When the spring selling season comes and the RE market rebounds as forecasted, there will immense demand for their houses. They will sell their entire inventory and new homes they finish by that time for a vast profit. Shares will rise substantially. The companies are simply buying shares when they are still undervalued. Makes sense.
“‘With savings rates negative and home values stagnant, the spring has gone out of shock absorbers that handle life’s financial bumps in the road,’ Chessen observed.”
Which spells disaster ahead when the next financial earthquake hits…
Make another war!
Wag the dog, it is the American way.
Pelosi will kick “someone” where it hurts before that happens…
I had a friend give me a really good tip that he needs to research further. He works as the Small Business Administration (SBA), it seems that alot of small construction companies (mom, pop & brother operations) are having trouble paying back their loans. According to him across the board they (SBA) are seeing stress, but especially in the construction company loans. I would love to see actually numbers on this, I know you can see the loans and amounts made but I cant find out anything about repayment, late payments or defaults. If the big guys are having trouble I bet the little guys are ripping their hair out and limbs off.
And you won’t see the numbers either.
Nope, won’t see the numbers.
One thing everyone in construction knows is that it’s a boom/bust cyclical business. They go from being the envy on the block (all the latest toys and gadgets) to being unemployed for months, even years, on end. Rough way to make a living, and I imagine we are just beginning to see the “bust” part of the cycle.
http://www.financialsense.com/fsu/editorials/2007/0109.html
Interesting (slightly bearish) article on the Bubble that ends like this:
“What will be required to work our way out of the enfolding housing crash is one or more of the following:
* Fresh buyers brought into the market by immigration, a higher birth rate, or further relaxed loan standards. Note that bringing buyers in via reduced loan standards is a dangerous and temporary fix, since those homes will most likely exit the market as foreclosures in the future
* Reduction of housing stock by disaster, planned culling or consolidation of multiple “postage stamp” lots into larger parcels by demolishing McMansions (Can I help? Can I? Can I?)
Notice that the only way that more liquidity usually helps is by drawing more first-time buyers into the market. Unfortunately, with the lending frenzy of the last few years, the pool of prospective “fresh” buyers has been depleted.
In short, because of the mechanics at work here, the outworking of the housing bubble will take decades to unwind. Because so much of the economy is now tied to housing (construction, remodeling, furniture, etc.), we cannot be heading into a pleasant economic time.”
Option 3 is that prices fall until the supply and demand dynamics stabilize.
Wouldn’t that ultimately be a good thing, if the cost of housing settled at a historically low level? Especially if the loss of equity were partially absorbed by hedge funds and financial institutions?
That’s one of the things that I’ve found so surreal about this whole housing boom: how the masses have been convinced that unaffordable housing is GOOD for the nation and economy?! Sure, all the HELOC’s that let people buy junk they don’t need with money they don’t have to impress people they don’t like is a large part of it, as is the dream of instant wealth, but I just get such a laugh out of how the MSM is “concerned” that housing prices are falling even as anyone with a clue should be able to see that the current prices are insanely high and unsustainable. The Ministry of Truth from 1984 would be proud! “Poverty is Wealth” and so on!
So true Pondering the Mess . You know I have been thinking about this new “no payment loan” and I think the banks and sub-prime lenders want a out to be able to delay forclosures . If lenders can delay the grim reaper by up to 3 years they might be able to avoid or delay alot of foreclosures .
You may be on to something there, HW. It could be an attempt to distribute the foreclosures over time, to mitigate the formation of a “foreclosure wave.”