“One Of The Most Challenging Environments In 25 Years”
Some housing bubble news from Wall Street and Washington. “Centex Corporation has cancelled or intends not to exercise land option contracts related to approximately 37,000 controlled lots given the decline of housing activity in many of its markets. Consequently, the company currently expects option deposit and pre-acquisition walk-away costs to be approximately $150 million this quarter. Additionally, the company plans to record land valuation adjustments of approximately $300 million.”
“Tim Eller, Centex CEO, said, ‘We are navigating through one of the most challenging housing environments in the past 25 years. We are responding by reducing our land position and inventory, aligning our workforce to the current sales pace, and improving our overall cost structure.’”
From Reuters. “Deutsche Bank analyst Nishu Sood said, ‘Centex’s preliminary third-quarter results reflect continuing housing market challenges, belying the notion that the housing market has already turned a corner. The company’s announcement is a familiar mix of earnings below expectations, orders that continue to fall and ongoing asset impairments,’ Sood added.”
“In recent months, falling prices and rising cancellations have led home builders to repeatedly slash their forecasts as many buyers either walk away from contracts or press for additional incentives before signing.”
The Associated Press. “Home builder KB Home said Tuesday it will book more than $300 million of charges in its fiscal fourth quarter, providing yet another indication the slumping housing market has not yet reached bottom. Los Angeles-based KB Home will record inventory impairments of $255 million for the quarter ended Nov. 30. The impairment lowers the book value of certain holdings, an indication that certain properties cannot be sold for a profit.”
“KB will also book a charge of $88 million related to land option contracts it won’t pick up, indicating the company believes it cannot develop the land at a profit.”
“‘The homebuilding industry in the United States is experiencing an increasingly challenging operating environment, which includes an oversupply of inventory, a decline in new home orders and sales prices and an increase in sales incentives required to generate new home orders,’ KB said in a Dec. 8 SEC filing, announcing the anticipated charges.”
“‘This change in market dynamics has caused a decline in the fair value of certain inventory positions and changes in the company’s strategy concerning certain projects that no longer meet investment return hurdle rates.’”
From MarketWatch. “Mortgage lender IndyMac Bancorp Inc. said the U.S. housing slowdown will cause a big fourth-quarter earnings shortfall. As more of the Pasadena, Calif.-based firm’s borrowers face difficulties affording the higher rates on adjustable-rate mortgages and other esoteric loans, the company is being forced to raise reserves and provisions for losses, which directly impact its bottom line.”
“‘This shortfall reflects the challenging times being faced by the mortgage and housing industries and the difficult nature of forecasting earnings in our business,’ the company said. IndyMac said net interest margin is being squeezed by held-for-sale loans and its thrift investment portfolio in the wake of an inverted yield curve in the bond market.”
“The following is a letter to shareholders of Indymac and other Indymac stakeholders from CEO Michael W. Perry, ‘ Unfortunately, we are starting the year off with some bad news. Last week, as we began to complete our quarterly accounting ‘roll-up,’ it became clear that our Q4 earnings would be substantially below our forecast.”
“I have stated many times before that Indymac is not immune to deteriorating mortgage industry conditions, and it is clear now that during the fourth quarter industry conditions continued to erode.”
“The main differences between our prior forecast…an increase in credit costs related to the loan loss provision, secondary market reserve, and marking-to-market delinquent loans held-for-sale. A reduction in net interest margin related to loans held-for-sale and the thrift investment portfolio due to yield curve inversion.”
The Financial Times. “‘The question is: is this the bottom? Or is there another downward leg to come?’ says David Bernstein, chief economist at Fannie Mae. Mr Bernstein thinks demand could weaken again, as investors pull out of the housing market.”
“According to the latest data, which admittedly, are several months out of date, the investor share of home purchases remains unusually high, at about 10 per cent. Even if demand does remain stable at current levels, both construction and house prices could face continued weakness because of the large overhang of unsold homes - 6.3 months of sales for new homes in November (more if adjusted for cancellations).”
“Jan Hatzius, chief US economist at Goldman Sachs, says home starts need to fall considerably from their present level to clear the inventory backlog, which Goldman estimates could be as high as 900,000 houses, including vacant homes not presently offered for sale.”
“If the bond market decides it has overestimated the likelihood of Fed rate cuts, or reverts to a more normal- term premium (charging more for longer-term debt) bond yields and mortgage rates could jerk upwards, kicking away one of the main props supporting demand for homes. That could set in train a whole new round of housing market declines.”
The Telegraph. “The US Federal Reserve will need to slash interest rates three times this year as the housing slump goes from bad to worse and the American consumer begins to buckle, Goldman Sachs has warned. ‘Americans have shown a complete lack of self-control. The personal savings rate is at its lowest point ever, and has actually been negative since April 2005.’”
“‘We believe that housing will soon become the proverbial ’straw that breaks the camel’s back’,’ said David Kostin, the investment bank’s US strategist.”
“Goldman Sachs said homeowners had treated windfall gains from rising house prices as if they were ‘recurring income,’ using home equity withdrawls to subsidize over-stretched lifestyles. This artificial boost to spending has already dropped from 7% to 4% of GDP over the last year, and is likely to halve again in 2007.”
From Bloomberg. “Manufacturing growth in New York state slowed more than forecast this month as new orders and sales deteriorated. The Federal Reserve Bank of New York’s general economic index fell to 9.1 in January, the lowest in 19 months, from a revised 22.2 in December, the bank said today in New York. A number greater than zero signals expansion.”
“At the Dec. 12 meeting, (Fed) policy makers pointed to manufacturing as an ‘additional source of downside risk to economic growth in the near term,’ according to minutes released on Jan. 3. Still, they ‘continue to expect the economy to expand at a rate close to or a little below the economy’s long-run sustainable pace.’”
“Growth slowed in the third quarter to a 2 percent annual rate, dragged down by the biggest decline in home building in 15 years.”
‘The US Federal Reserve will need to slash interest rates three times this year as the housing slump goes from bad to worse and the American consumer begins to buckle, Goldman Sachs has warned. ‘Americans have shown a complete lack of self-control. The personal savings rate is at its lowest point ever, and has actually been negative since April 2005.’
I have to disagree with this statement, (I can’t tell exactly who at GS said this). Slashing rates would not increase savings, but exactly the opposite.
IMO, at this point rate cuts won’t do anything to hold up land or home prices. The fundamental problems; over-supply, hyper speculation and out-of-whack rent/income fundamentals can’t be fixed with rate cuts, that could seriously damage the US dollar.
“I have to disagree with this statement, (I can’t tell exactly who at GS said this). Slashing rates would not increase savings, but exactly the opposite.”
Took the word out of my mouth. I’m a conservative spender and good saver, but I have to admit I now feel like a fool for “saving up” for the past 7 years for a down-payment, rotting away at very low interest.
Or you could be me, buying six years ago. We’ll both be fine. I treat my place as though I were buying a car… just need to pay it off. Your down payment will come in handy when cash is king, in a few months to a couple years. Keep your powder dry.
East Beach, if I had the easy choice of my home or the cash, I’d rather the cash right now.
Definately keep the powder dry. Americans have lost all fiscal discipline. This recession will be ugly, but we’ll get through it. Nowhere are buyers eager to buy (in my area), but boy are sellers eager to sell. Coctail party conversation is starting toward’s people talking about selling homes, not buying. Or… upgrading and not moving due to the transaction costs.
Got popcorn?
Neil
MacAttack: I treat my place as though I were buying a car… just need to pay it off.
At current prices, buying a house is like buying a car - a Lamborghini, except you’re actually getting a Honda Accord, despite paying premium prices. The reason these people are having to do home equity loans is because they’ve exercised no discipline - not in their consumption of luxury goods, but in their consumption of homes. Home prices are the reason for this debt. Buying overpriced homes is included in consumption, not in savings. And the mortgage payment is probably the biggest item in any homeowner’s budget. Which is why I believe consumption will hold up and savings will increase as home prices collapse. Consumers will no longer chase overpriced homes and the exorbitant interest payments (at these home price levels, don’t think of a mortgage as an investment - it’s simply an oversized credit card bill) that come with them.
I know this is wild-eyed bear nihilism, but how would you feel after “saving up” for 25 years in a 401K or pension fund and finding out that the $ was heavily invested in REITs and so on?
I hate that our household not taking advantage of 401K gimmes, but not one damn fund in the plan doesn’t include a who-knows-how-high amount of vaguely specified RE paper. In fact, I defy any literate wage slave whose not a financial pro to even guess what their co’s 401K fund managers are up to.
A serious stock market crash-and-burn will make fools and retirement paupers out of a generation. Can the fed spin that as good for the economy? (Actually, I’m guessing “maybe”. Gak.)
REIT’s invest in rental properties for income, either residential (apts) or commercial.
The dividend rates would be extremely low, and not possible to hide, if there were an obscene bubble in REITs. REITs are overextended, but nowhere near as insane as toxic loans on residential housing. Publicly traded REITs tend to have much less leverage too.
Let’s remember that housing bubble was strapping in for take-off even as the stock market plunged and gyrated.
I took a look at my 401k yesterday and several of the funds (Vanguard) are chock full of REIT’s. At least I can identify them, but how do you spot a MBS??
MBS would be in a bond or debt fund. Stick with equities for now and you should be ok until the market corrects. The other choice is a stable value fund, which contains short term loans and contracts and returns 4-5%. My 401K is in the foreign equities fund.
Which is exactly why I pulled all my 401k $$$ and put them in IRAs. The idiot funds my company offered (thru Charles Schwab) simply no longer made any sense.
How did you do that? Don’t you have to quit before you can roll over a 401(k) into something else?
you should have a plan adminstrator that can move all your funds into some type of bond or guaranteed fund.
east beach,
You may be beating yourself up now, but take heart, you have done the right thing. Interest rates are pretty decent nowadays. There are few true fiscal conservatives these days, hard to find each other. I feel so happy to find another saver…makes me want to sing kum-bah-yah.
My CDs (none more than 6 mo.) are all right around 5.5%, though as they mature, I’m going to start moving them to banks or insurance companies I trust to be strongest in a bust, even if the yield is a half-point less.
If someone has say 100K each in 3 banks and out of those 2 banks go bust, would FDIC pay 100K for the payment money at each bank or FDIC pays only upto 100K no matter if you had 100K each in 2 different banks. ADVISE PLEASE. Btw, FDIC is also a corporation and that can also go bust as it is not Federal Government. The safest I feel is treasuries/bonds which is with the Feds.
The GS comments are for consumption by the credulous. They know full well that the bond market has been propped up (and yields suppressed) for years to support the housing bubble and wage the worst war on savers in the history of the world.
Joe Six Pack treating unearned windfall gains as permanent income? I can’t imagine who could have predicted that. It’s not like we saw the same thing only about 7 years ago or anything.
My credit union has a special .25% “BUMP” on a promo 7-month add-on certificate. As a result, I invested at 5.76% APR. Small amount, but I can add (one-time) up to the original amount.
If interest rates drop just to aid the wave of FBs, I will likely put my money elsewhere. If the US chooses to be competitive in world markets, I will be happy to roll over CDs into ever-higher rates with some guarantee of safety.
Hmmm…..
When I read it GS sounds like they are lumping a couple of topics into one sentence; not speaking in cause/effect/solution.
1)The US Federal Reserve will need to slash interest rates three times this year as the housing slump goes from bad to worse and the American consumer begins to buckle
2)Americans have shown a complete lack of self-control. The personal savings rate is at its lowest point ever, and has actually been negative since April 2005.
If GS *is* speaking otherwise, they are having a post Christmas bonus mental meltdown.
I don’t get that either. If Americans have over-borrowed and under-saved, how is making debt cheaper going to help? Won’t this make them borrow even more and save even less? IMO, the FED needs to discourage borrowing by making the rates higher and provide an incentive for saving.
What they are referring to is weaning the addict instead of going cold turkey. Better to puke, sweat and shake it out all at once in my opinion.
Besides we all know how likely an addict is to give it up.
Jerry Garcia dropped dead when he tried to kick. What will happen to the US economy when you take the dope away?
“Better to puke, sweat and shake it out all at once in my opinion.”
I agree. I remove band-aids quickly rather than slow torture.
“…The drop in oil prices has boosted GDP and encouraged traders to abandon any thoughts that the Federal Reserve will opt to lower rates in the first half of the year. This sentiment is reflected in the Fed Fund futures which went from pricing in a 70 percent chance of a first quarter rate cut at the beginning of last month to a nominal chance of a 25bp cut by the end of this year….”
http://tinyurl.com/yagzcr
Daily FX 16 Jan 2006
The warm temperatures and drop in oil/natural gas prices is helping cushion the housing bubble. If we had had a cold nasty winter in the NE, it might have pushed those standing on the edge of their ARMs into the abyss.
Was driving in DE last night. Filled gas tank $2.24@gallon.
Woo-hoo!!! Now I can go get me a house!
With enough left over for an Arby’s Jamocha shake. Large.
In South-Central Virginia regular unleaded is $1.95 a gallon. It’s just the urban areas that are getting hammered with high prices.
Do they pump your gas? I’ll move there so I don’t have to pump my own stinkin’ fuel into my vehicle.
Who ever decided that it was OK for women to pump gas? Barbaric.
NJ and OR are the only states that require full service.
It was nice in OR but then you have to live in OR.
$2.85 on Long Island….I know, I know…another reason why LI sucks
At this point it’s like everyone rushing on one side of a sinking ship… no realization whatsoever that any remedy is just an excuse to continue the spin medicine that will make back to reality even worst when it happens.
Then again our brains are made for personal self gain, so the herd mentality is everyone trying to get one more second of salvation at the expense of global mayhem.
the problem is that we need a little WAGE inflation, which isn’t happening for most people, due to global wage arbitrage.
the dollar is already “dead man walking”
I don’t see how raising the price of consumer goods will help anything.
It would help deflate the absurd debt that americans have piled up.
Funny word there - deflate.
The problem with inflation is that it discourages savings and punishes creditors. It’s like a transfer of wealth from people who’ve actually saved money to prodigal real estate speculators. Who would trust the government and monetary policy if they allowed inflation to bail out the idiots who caused the housing bubble?
Will we get this if the min wage raise goes through ?
Wage inflation is the worst of all evils for the Fed. Wage inflation directly translates into price inflation which means Big Money has less.
Inflation in Stocks, Good!
Inflation in Bonds, Good!
Inflation in assets, Double Good!
Inflation in wages, Bad!
sorry, Deflation is actually the worst evil
wage inflation is the worst form of inflation because it makes inflation obvious.
Yeah, so might as well offer all the low wage earners as much credit as possible. Viola! No wage inflation! It’s a good thing to be making $25,000/year with access to $100,000+ of credit. I believe that modest wage inflation with a tightened credit environment is a much more beneficial recipe for growth. That dastardly quest for yield pops up everywhere….
“Wage inflation is the worst of all evils for the Fed. Wage inflation directly translates into price inflation which means Big Money has less.”
It has been my observation that this philosophy is never applied in reference to ever escalating executive pay. Imagine how much more competitive American goods might have remained had the executive/worker pay ratio of the “strong America” economic times been maintained.
I”m still looking for rate increases.
I’m cautiously with you on that. The federal government needs to continue to appear solvent. The recent hike by England makes a tit-for-tat hike much more likely in the US.
“I”m still looking for rate increases.”
Me, too. Saudi Arabia has huge political incentive to keep oil prices low until Iran crawls back into its hole or at least stops trying to be the big kahuna in the Gulf.
“‘The question is: is this the bottom? Or is there another downward leg to come?’ says David Bernstein, chief economist at Fannie Mae. Mr Bernstein thinks demand could weaken again, as investors pull out of the housing market.”
No worries there, David — the investers left town already. Haven’t you seen the myriad MSM articles attesting to that fact?
Fannie Mae Chief Economist David
BernsteinBerson(Sorry Footie folk, Leonard Bernstein is no longer with us…)
Footsie… (don’t feel bad — I can’t spell, either)
Goldman Sachs has warned. ‘Americans have shown a complete lack of self-control.’
Is it even possible for anyone at Goldman Sachs to relate to people in real world?
What American in his right mind would turn down all the free money offered us by Asian savers or the free stuff exported by Asian manufacturers?
–
It is anything but “free money offered us by Asian savers or the free stuff exported by Asian manufacturers.” Sentenced to life in the Debt Concentration Camps!
Jas
“Arbeit Macht Frei!”
No, it should be “Schuld Macht Frei!”
Schuld = blame someone else for your stupidity?
Does anyone else find it ironic that Goldman Sachs is issuing forth statements pertaining to Americans lack of control in regard to spending/saving.
That’s like a drug dealer telling an addict that the addiction he/she now has had nothing to do with those free samples given away previously.
Who made it so easy to borrow? Goldman Sachs. Nope. Never. Nuh uh. Say it ain’t so Joe.
BTW, this is not meant as an excuse for those who took on debt beyond their means. I’m just saying it takes two to tango.
-Vert
My thoughts!
IMHO GS’s former director Paulson is well aware of the effects of this monetary expansion policy that has infected the economy over the last 14 years. If (as I would do if in Paulson’s position) he has talked to the Sach’s directors to start toning down expectations, then these type of statements will become the norm. GS can then say “We told you so.” It is a late CYA.
It would be interesting to learn of the exposure of Goldman Sachs to the CDS market. How much has G-S “profited” from the sale of insurance against MBS price declines?
And Goldman Sacks gave out Million Dollar Bonuses like it was candy. I would call that “lack of self control”. Why don’t you put your own house in order, before telling me about my lack of discipline??
Just so, David. Goldman Sachs is going to lecture the Sheeple about FISCAL DISCIPLINE?
“Goldman Sachs said homeowners had treated windfall gains from rising house prices as if they were ‘recurring income,’ using home equity withdrawls to subsidize over-stretched lifestyles,”
Oh, and that really TORE THEM UP INSIDE, huh?
It’s like having Fat Bastard as your personal trainer…
“Is it even possible for anyone at Goldman Sachs to relate to people in real world?”
They know the American consumer better than the consumer knows (him/her)self. All the credit offers, checks linked to credit card accounts, universal default clauses, 96-month auto loans, 100% Neg-AM mortgages, etc., with little regulatory control against the lending industry? These folks will finance the rope that the consumer will hang (him/her)self with, and then they’ll go after the estate for the balance due. Yes, they can relate the Sixpack family alright.
–
CNBC headline: “Housing: no bottom yet”
Then it said that that is what the industry insiders are saying. Well, we never believed “Housing Has Bottomed” bubble-talk anyway, did we?
Jas
There’s goes that $40 million REIC ad campaign. Time for another round.
Does David Lereah ever read any of this stuff? Time2Panic
“Mortgage lender IndyMac Bancorp Inc. said the U.S. housing slowdown will cause a big fourth-quarter earnings shortfall. As more of the Pasadena, Calif.-based firm’s borrowers face difficulties affording the higher rates on adjustable-rate mortgages and other esoteric loans, the company is being forced to raise reserves and provisions for losses, which directly impact its bottom line.”
I was going to get a CD through their bank. Boy I’m glad I didn’t do that as they might not have the funds to back it up and I’d have to stand in line to get my dinero from the FDIC.
“Most Challenging Environment In 25 Years”: CEO
Shouldn’t use such extreme language, what will he say next month, and then next and next…..
“Most Challenging Environment Since Last Week”
He will keep using extreme language for the foreseeable future, as painting a dire picture makes it easier for friends inside the beltway to open the corporate welfare spigots.
Yes, I remember “25 years” ago, 1981 in Houston, and 82 and 83 and 84 and on and on. Things were improving by 1998.
Actually, he didn’t say that, he’s being misquoted by Ben. With all the bubble bursting evidence out there, now doesn’t seem to be the time for misquoting. Seems desperate almost, when there is no reason to be.
Sheesh, OK i changed it. It was more of a space problem with the title bar.
hahaha
these bois are making you work for your award!
Hope the GS Traders put a little of that fat bonus $$$$ in a lock box! 2007 might turn out to be a tad more challenging than ‘06.
(Mortgage lender IndyMac Bancorp Inc. said the U.S. housing slowdown will cause a big fourth-quarter earnings shortfall.)
If they just have lower profits, as opposed to losses, things aren’t that bad yet, at least for this firm.
Sounds like a “soft” landing in a Goldilocks economy to me
This time its different - The bears came home early and ate Goldilocks.
And she was ‘just right’!
I’m just an idiot here with minimal economic knowledge, but it seems time to separate the issues with the bubble into two camps? Housing prices, sales & demand in the coming years and the potential economic crisis that could happen if the foreclosures and defaults that are ramping up continue over the next couple years?
It seems like the FED might be forced into lowering the rates in the next year in order to avoid potential disaster for many people (i’m not saying it’s deserved or not). I don’t think such an action would change the housing forecast in the least. People who got the fever have already bought and are underwater (one of my friends bought at the peak in late summer of 2005 paying more than 2x what the house, in a sketchy area, appraised for that same year!).
Those who got the fever, bought. Those who didn’t know not to buy anytime soon. But does our economy need to, or should it act to bail out the families who are already or on the verge of complete disaster?
I don’t see why we need to bail anyone out. What’s the worst that can happen in most cases? Bought too much house, can’t afford it anymore, need to sell, gonna’ have to take a loss, find a rental. Am I way oversimplifying? These people won’t die. They won’t spontaneously combust. “Verge of complete disaster”? Isn’t that extreme?
It is the “take a loss” part that might be a bit of an oversimplification. Many of these people, particularly the late buyers, have no cash or equity to pay for taking a loss. This will create a large number of personal bankruptcies. For each of those people, it will feel like a “complete disaster.” There are over 500,000 negative amortization loans in California. How many personal disasters does it take to qualify as a societal disaster?
I’ve watched people very cavalierly declare bankruptcy. And then turn right around and get financing for a brand new car! (read: doesn’t seem to be taken seriously by anyone). Would it suck for these families who are not cavalier about it to declare bankruptcy? Sure. But I still don’t view it as a disaster. It’s what’s needed to return to normalcy.
Last year, more people declared bankruptcy than received college degrees.
We will need to bail them out - or so the politicians will tell us in ‘08 - in order to save that grand old American Dream. By then we ought to be up to our necks in anecdotal stories about the plight of beseiged homeowners, that will provide plenty of material for many a campaign speech and TV ad.
http://www.voiceofsandiego.org/articles/2007/01/16/news/01condo.txt
“Of the 1,700 condos on the market in downtown San Diego, 1,485 are brand-new units — about one-fifth of downtown’s entire condo stock.
And there are more where that came from. Another 3,414 condos are currently under construction, having at least broken ground, according to the Centre City Development Corp. Those units are housed in 30 projects, many of which have been under construction since the market was booming in 2004. They’re set to be finished in the next two years.”
And then you get to this gem:
“”The glut potential of downtown San Diego is highly overrated,” said Russ Valone of MarketPointe Realty Advisors. Valone said an across-the-board significant price drop is as unlikely as, well, 9/11.
“Aside from someone flying an airplane into San Onofre, the capacity for wholesale price reductions is not there,” he said.”
This is one of those quotes that should be saved and brought back a year from now.
“Valone said an across-the-board significant price drop is as unlikely as, well, 9/11.”
He is on target there. Anyone who ever passed an undergraduate probability-based statistics course can tell you the probability of something which already occurred is 100%.
Russ Valone of MarketPointe Realty Advisors
Well, guys there’s another mental midget you can put on your list of “Never, ever do any type of business with under any circumstance”
wow,
that quite a string of bad news in one posting. last year it would have taken ben about a week to string that much grim news into the blog. it feels exponential (the slide) yet the equity markets continue their climb. surreal ihmo.
My WCI puts that expire this week just got killed today by Carl Icahn
Buy the 2009 Puts…..In the short term they can hype/manipulate WCI but in the long run fundamentals do matter….I remember shorting Amazon when it was $250 thinking pricing was insane….went higher everyday and was very painful to short, but eventually it became a $9 stock. I won’t live long enough to see AMZN in the 300’s again.
What are your thoughts about shorting google? I don’t see any reason why their stock is as high as it is…
Be careful. WCI might be bought out by some idiots who are looking at the book value, not realizing that it is declining by the day. The same is happening to all the builders and many lenders too.
You have a lot of company.
Although the HB’s and WCI in particular are headed for financial oblivion, I remember TXCHICK raised the issue of possible takeovers, mergers, buyouts, etc. among the HB’s by eager bottom fishers last summer.
Shiite happens. Hang in there!
“…both construction and house prices could face continued weakness because of the large overhang of unsold homes - 6.3 months of sales for new homes in November (more if adjusted for cancellations).”
Isn’t that roughly like a highway sign that says, “Danger! Bridge Out Ahead 500 Yards (or closer)!” The info in parens is not minor at all.
“the slumping housing market has not yet reached bottom”
Nope, not until the USS HousingWreck is firmly stuck in the MUD at the bottom of this sea of Greed partner.
Just came across this item in a comment section. Who wants to bet this is part of a new, emotionally targeted (and shamelessly) realtor mantra:
***BEAR STUDY CONCLUSION****
‘Bears Pay Now, Pay Later, But You Will Pay’
The conclusion from the world renowned, desired public speaker, friends of the animals, and the super intelligent, ‘Bearologist’ EZ Money, is that the bears are not going to gain anything by inactivity.
This study was focused on a certain bear named MammaBear9000. Much like my counter parts at National Geographic, an up close and persitant following and recording of her movements were carried out by the staff. We named her MammaBear9000 because she traveled over 9000 square miles hunting for a perfect den for her cubs. It also seems she looked at 9000 such dens.
They were either too old, too dirty, but none were ‘just right’.
This study showed that endless ‘bargain’ hunting did not produce a bargain. It also appears that the constant state of ‘mobility’ has had an impact on the little cubs. The cubs have not been able to develop playmates or friends, because they are uprooted constantly. Bears that grow up in these types of homes tend to be ‘picnic basket’ snatchers, camp tent invaders, and trash can diggers. Animal control usually tends to catch and relocate these anti-social bears into the wilds of Landers or Red Mountain.It is too bad that there isn’t any forum or Blog that could explain to these bears the problems they are creating for themselves. Even if there was….would they listen?”
http://blogs.ocregister.com/lansner/archives/2007/01/insider_qa_with_local_lender_1.html#more
Priceless, no? If you don’t buy your children are DOOMED!
Beat that for a reason to buy!
tried posting this 2x already, if it’s a 3-peat, apologies in advance.
Who wants to bet this is part of a new, emotionally targeted (and shamelessly) realtor mantra
Emotionally targeted? - you know it. They’re going straight for the hearts of the nest-motivated.
When I worked in REIC sales mgrs. came back from meetings with market survey data that 80% of residential home sales were driven by the female half of the couple. Consequently, marketing materials were designed to appeal to that consumer.
Also, from the link, the one guy bragging about SUCH A DEAL that he got a Toll Bros. house whose final cost was $270/sq.ft.
Sure, buddy, you won’t be crowing when the ceiling comes down on you and your dinner guests. Toll construction was crap back in the late 90’s. Can’t imagine what the last 5 or 6 years have produced. Bob Toll started in the Phila. region and then exported his junk to the rest of the country. He should be exiled to Mexico City.
“Toll construction was crap back in the late 90’s. Can’t imagine what the last 5 or 6 years have produced.”
I can tell you, it is the same stuff. Slapped together by a bunch of migrant workers. You can walk into a Toll unit and find lots of sloppy work just with the naked eye. I actually know of a ceiling that did almost collapse due to leaky plumbing. This was in a brand new home mind you. Toll had to replace half the ceiling in that room. Hot/cold lines installed backwards, clogged drains, etc. Of course, today’s status oriented sheep think it is upscale. Also, they have some butt ugly architecture.
Watch for mortgage brokers trying to get buyers to get buydowns everwhere now that its a buyers market.
This is a well known scam. Instead of lower price by 25k, seller pays 25k to the lender who cuts off 1k a month for 2 years.
So the catch: if you sell or refinance you lose the difference. The profits are astronomical considering its FREE MONEY to the brokers/lender.
I have read EZ Money’s rants before; he is a lunatic. His shilling becomes shriller each day. He has moved beyond any kind of rational argument to the worst kind of emotional pandering. It is shameless. I take comfort in knowing his income is probably near zero and likely to stay that way.
The GS rant is a strange, rather severe scream. They see the end to runaway profits, and demand ‘relief’ from the scourge of normality - as in smaller returns. This is not a good sign from what has been called the most powerful banking group in the world. The end is nigh folks, and this may be the clarion call to hide under a rock.
“The end is nigh folks, and this may be the clarion call to hide under a rock. “
Who - us, or FBs? I’m not averse to living in a cave until this all blows over.
Heck, no one has yet bought the house I sold over a year ago. At this point I could probably camp out on the forested part of the lot.
turnoutthelights,
“and this may be the clarion call to hide under a rock.”
Like hell, I’m going dumpster diving for all those tossed out escrow papers, mortgage applications, and listing flyers. I’m going to put them thru the shredder for confetti. I’ll toss it up in the air as I run naked in circles around a clone army of unemployed real estate agents, lock step marching in the Doo-Dah parade, carrying banners that say: NAR: Never a better time to buy a house.
http://en.wikipedia.org/wiki/Doo_Dah_Parade
Post of the day (so far)!
Well, I thought maybe, just maybe right now isn’t a great time to go long on equities. Sock some cash away. Though the running in circles is nice.
Oops:
http://www.bloomberg.com/apps/news?pid=20601087&sid=an3Ojkkb0TUU&refer=home
Orange County home prices and sales
A ZIP-by-ZIP sortable chart of the number of homes sold, and their median prices, during the month of December.
http://tinyurl.com/ydb68d
Not sure what to make of the extremes in this table (e.g., 80% median price increase in S J Cap???)! Except I don’t think they support Gary Watt’s “in-the-bag” prediction too well, and the preponderence of negatives in the no-of-sales column regardless of price movement leads me to suspect more price declines are on the way.
=============================================================
Community Zip Median Change Sales Change
Seal Beach 90740 $876,500 -40.4% 14 -17.6%
Corona del Mar 92625 $1,572,500 -21.5% 12 -45.5%
La Habra 90631 $420,000 -20.7% 63 14.5%
Newport Beach 92663 $745,000 -19.0% 16 -38.5%
Stanton 90680 $426,500 -17.2% 15 -53.1%
Laguna Beach 92651 $1,500,000 -16.2% 21 -30.0%
Irvine 92620 $683,500 -16.1% 65 -30.9%
Anaheim 92808 $542,500 -14.8% 24 -29.4%
San Clemente 92673 $928,500 -14.8% 82 -16.3%
Irvine 92618 $599,750 -12.3% 26 62.5%
Newport Beach 92660 $1,212,500 -12.0% 18 -21.7%
Newport Coast 92657 $2,270,000 -10.7% 22 -33.3%
…
Ladera Ranch 92694 $1,125,000 35.7% 80 -24.5%
Santa Ana 92705 $980,000 42.0% 28 -26.3%
Dana Point 92624 $914,250 42.9% 4 -20.0%
Irvine 92603 $1,746,000 46.1% 46 -28.1%
Laguna Niguel 92677 $707,500 50.6% 74 -49.0%
Yorba Linda 92887 $743,000 52.8% 12 -65.7%
Foothill Ranch 92610 $640,000 55.0% 7 -80.0%
San Juan Capistrano 92675 $1,170,000 80.0% 38 -11.6%
Yeah, I can’t figure those out either. Maybe in San Juan Cap some new high-end development was the reason for the huge price increase?
Either way, seems as though most of the high-end communities are starting to see big drops. Stanton’s price drop is rather surprising considering that the low-end of the market should be “hot” right now…maybe a jillion condo-conversions there…or maybe people just figured out it’s a lousy community
Glad to see Seal Beach coming down to reality…that’s where the wifey and I plan to move…
You guys want to start a Death Pool? Predict the date the the first MSM site will post this headline, “Its a BUST!”
don’t know who will be first, but I plan to buy a house when Businessweek has a cover proclaiming the “Death of Real Estate”
April 1st 2007
Goldman Sachs has warned. “Americans have shown a complete lack of self-control.”
Comment #1: Agreed, in fact, they were mentored: By Corporate America’s “Board of Directors” Think… Home Depot as ONE example, O.K., somebody post the list of the other Forbes 500
“It is truly enough said that a corporation has no conscience; but a corporation of conscientious men is a corporation with a conscience”
Thoreau
http://thoreau.eserver.org/civil1.html
Wells Fargo’s 4Q Profit Rises AP
http://tinyurl.com/ymxvzc
Wait for New Century’s announcements on Jan. 30. and keep a close eye on Mortgage Lenders Network before rejoicing overly much.
I’m just sharing the news here boss, not rejoicing at all…
How much of it is “interest not receieved but added to the profits”
WF doesn’t do negative amortization mortgages.
More towers coming to central Orange County (CA).
Here’s the link to the article on those new Orange County towers which are being planned …
http://www.ocregister.com/ocregister/homepage/abox/article_1545353.php
“Goldman Sachs said its employees had treated windfall gains from rising house prices as if they were ‘recurring income,’ using home equity withdrawls to subsidize over-stretched lifestyles.
A bit off topic but related to the slow down.
Appraisers are the real test of where things are on the retail and refi end of the market. Being one and having talked to the brethren I can tell you volume is down 60-70%.
Every bust is entered by a sudden and I mean sudden drop in orders. I am here to tell you it is HERE! Nothing was going into the big part of the funnel starting about November. The dribs and drabs are filtering through, but only a bit at a time.
Now we hit the doldrums for about 6 months and then the foreclosures begin to come as a torrent. This part is really tough to call as values are declining and noone knows what the the velocity will be.
I would suggest that unlike a true speculative bubble there will be an even mix of blood from investors and also soccer moms who sucked all their equity dry.
I just simply cannot tell you how sad it is to go into these houses and see balloons on the wall in a room that was once a child’s world. My heart aches just to think of what I will see over the next few years. To put a bit of humanity into it, they are not simply assets but were once a family home. When you walk through you can feel the pain and there is always evidence of them being there like the height of each kid as they grew up marked on the doorframe. A swingset in the back yard or a plackard on a wall noting this as “Our home”.
I tell you it breaks your heart and you cannot help but be a bit mad that these people may have been greedy or head in the sand or mislead by some jerk broker, or yes, some asshat appraiser who did not do the right thing and call it like it was.
In the end it is children who are impacted by such events, traumatically. Just as the “great Depression” we will have millions of children who will recall losing their world at a young age. The move away from friends, the no frills Christmas, the different school, the moving in with grandparents.
This may be the beginning of a whole new age of depression children who will grow up wiser and be frugal. Life has a way of teaching hard lessons every few generations. Perhaps this will be the rebirth of those tenets we all learned but perhaps did not adhere to in the past. I hope so. I know my dad would say, “son, there is nothing new under the sun”.
Great post. While I don’t think things will get too bad I’m afraid you’re observations will occur all too often.
Normally I’m an optimist. However, the emotional fallout from friends, family and associates when people merely hear about these stories, I’m afraid the toll on the economy (much less real estate) will be high.
I just don’t see how this degree of emotional pain will be overcome by any Fed or government policy. Heck, just seeing stories on TV as you describe above will certainly shake many to their boots. Maybe things will work out but I see consumption declining, savings rates increasing and the economy in recession even if the Fed lowers rates somewhat.
Jag- I was a Marine in Viet Nam and this stage can be likened to hearing the mortar round leave the tube with a KTHUNK and waiting for impact. Stay low. There is nothing to be done.
dimedropped: Agreed, the damage is already done. It is baked in, or as you put it, the round is already headed down range. I have an acquaintance who is an appraiser, and they say the exact same as you; volume is falling rapidly. Builders who were holding lotteries a year ago are now finding themselves with dozens of units in inventory. Still a lot of people in complete denial though.
BTW, I was Marine infantry too, although long after Vietnam. Semper Fi!
I thought that you are never a Marine in the past tense?
Not till you are dead…he was just saying he is not active duty. OOOORAHHH!
I agree it is sad.
However, it is also morally wrong not to separate fools from their money.
Picking your parents is THE most important factor in future success. In other words, luck.
If it wasn’t the house in foreclosure it would be some other bad decision made by the family that impacts the kids.
It is gonna suck to clean up after this housing mess and see those images everyday but there are a ton of other bad decisions affecting kids that you don’t see everyday.
Good post.
I think about that too. When you think of suprime borrowers, one image that comes to mind is some dirtbag who has screwed creditors repeatedly and now gets to live in a sweet house for a year or two on society’s dime. But, another image is those who had some legitimate problems in their past, like huge medical expenses, or a single mom who was married to said dirtbag who trashed both of their credit scores with gambling, drug abuse, etc. and then absconded, leaving her with the kids. A subprime lender contacts these folks through mass mailing or whatever, tells them “the house you always thought out of reach can be yours”, and this looks like a way to finally move forward with life. Yes, they are adults who are responsible for their own decisions, but you get these mortgage lenders, many of whom are quite personable, seem trustworthy and knowledgable, and know just how to talk to people in these situations. I think getting a house is often, in their minds, the first step in getting their life back together. Then, they get into something like a option ARM, or one that resets after 1 year, on a house way more than they can afford, and there you go. They are now worse of than before-credit rating now basically wrecked for life, and all the psych. trauma you mention.
“Yes, they are adults who are responsible for their own decisions, but you get these mortgage lenders, many of whom are quite personable, seem trustworthy and knowledgable, and know just how to talk to people in these situations. I think getting a house is often, in their minds, the first step in getting their life back together.”
Sub-prime brokers that are only in the business for sales volume and big money are scum. I can respect bankers and brokers that try to build relationships and find ways for both parties to make a good deal, but not the sub-prime guys. My schadenfreude will run strong when we start seeing these a-holes going up the river.
Won’t happen. Too many of them and prisons are already overcrowded with drug dealers (mandatory sentencing) and violent criminals. They’ll plead guilty to something, be ordered to pay restitution (which won’t get paid) and be back at some different scam in a year.
That is sad. I have this image in my head of all the GF’s enjoying their temporary abundance. It is the calm before the storm, and many have no idea it is coming. When it is only the adults, with their smug attitudes and conspicuous consumption, my schadenfreude runs deep; but when the innocent children are hurt by it, it just makes me sad.
Dime — great post.
You know some of the best human stories come from famlies learning to pull together through those times. Hopefully our social safety net keeps this from being a complete disaster. Frugality, working hard to recover would be good lessons for a lot of people to learn.
“Hopefully our social safety net keeps this from being a complete disaster.”
The middleclass who’ll lose their equity know little about the social safety net other than funding it. They have a rude surprise in store, IMHO.
..”to put a bit of humanity into it, these are not simply assets, but were once a family home…”
Well, that’s the problem in a nutshell, for the past 10 years, homes were viewed as assets. We’ll pay the price for that now with a lot people being hurt. But pay the price we must. Assets prices can fluctuate wildly and everybody knows that. We made a huge mistake in viewing homes as assets and assets only.
Now, some people will be financially hurt when these “assets” turn back into “homes” . But the alternative is that we never have “homes” again in this country.
So that’s our choice, either prices go through the floor and we get back to the concept of “home” and those who made bad financial decisions chasing after an overpriced “asset” get hurt, or we keep the prices of these “assets” high, save these poor souls and everyone from here on in for generations gets hurt because they’re paying too much for their home.
Of course it’s a shame that a lot of people, children, will be hurt now. But it’s either some get hurt now or everybody gets hurt forever.
This has been one of the sickest episodes I’ve ever witnessed in this society. The sooner we get beyond it the better.
Sorry for the double post but GS lecturing working Americans on “overstretched lifestyles” struck me as pretty slimey. Whose securitization desks have been printing money bundling MBS for the market? Who has been printing money advising on private equity buyouts using debt financing? At what point has GS advised restraint…for the economy or for its employees. Some of their investors must be balking on buying MBS…nice that GS finally woke up to the reality of the housing market…too bad they didn’t hire Ben to give them a heads up.
GS is not my initials (maybe I need to change names to avoid the stigma). This reminds me a lot of lenders who excuse their lack of underwriting standards by blaming the borrowers for taking out a bigger loan than they will be able to repay. Makes you wonder who the financial experts are in the both cases…
GetSachs…
GoldmanStucco…
Sorry Stucco,
GolSax (better?) surprised and indignant that wage-strapped Americans were using their houses as ATMs?? And they want the Fed to cut rates to bail them out??…what are they smoking?
I know Ben knows who reads this blog…I bet GolSax is on the list.
Sorry, Fat Cats, the iceberg is dead ahead, and just like the FBs you may find yourself unable to avoid the pain. There’s nothing like a collapse in asset prices–housing, equities, commodities–to bring a frown to an ibanker’s face.
Here is Russell Valone’s email address from Marketpointe Realty in San Diego. I suggest we all send him an email.
http://www.marketpointe.com/firm_valone.shtml
rvalone@marketpointe.com
They have a pretty long list of big clients. Hard to believe they are using these guys. Of course, maybe they use Marketpointe because they are willing to tell clients what they want to hear?