“We’re Moving Beyond The Low”: NAR
Some housing bubble reports from Wall Street and Washington. “Home sales saw the biggest drop in 24 years last year, according to a trade group report on the battered real estate market. The National Association of Realtors reported that there was an 8.4 percent drop in the existing home sales in 2006, falling to 6.48 million from the record 7.08 million level in 2005.”
“The annual sales pace in December was even slower- a 6.22 million annual rate, down 7.9 percent from a year earlier, and off 0.8 percent from the November sales pace. ‘It looks like we’re moving beyond the low for the housing cycle last fall, and buyers are responding to historically low interest rates and competitive pricing by home sellers,’ said a statement from David Lereah, the Realtors’ chief economist.”
“Lereah said that in 2005, 40 percent of the market represented purchases of second homes and investors buying homes looking to resell them for quick profits. He said that speculators had now left the market and that should leave sales at a more sustainable level.”
“‘With fingers and toes crossed, it appears that we have hit bottom in the existing home market,’ he said.”
The Dallas News. “A day after the company reported its first-ever quarterly loss, officials with Dallas-based Centex Corp. said they expect to take more write-offs because of the soft homebuying market. The big homebuilder, which has already cut 17 percent of its staff, also plans more job cuts, Centex CEO Tim Eller said.”
“He cautioned that the U.S. housing market still has potential for further decline. ‘This housing correction is still unfolding,’ Mr. Eller said. ‘Although we are seeing some encouraging signs in some markets, it’s still too early to call the bottom.’”
“For the quarter ended Dec. 31, Centex reported a $228.2 million loss. It took $435 million in charges to get out of lot purchases and write down the value of land. Centex expects $130 million in write-offs in the current quarter from canceled lot purchases.”
“‘We are estimating that we will walk away from another 40 percent of our remaining option deposits,’ Mr. Eller said. Although the builder has dramatically cut back the number of vacant lots it owns, Centex still has a 3.5-year supply, which is ‘longer than we would like,’ Mr. Eller said. ‘Most land sellers are not yet renegotiating options in a way we find acceptable.’”
From MarketWatch. “Centex said its home-building total gross margin for the latest quarter plunged to 6.7% from 29.2% in the year-ago period. CFO Cathy Smith said housing margin for Centex’s latest quarter was ‘down significantly’ due mainly to an increase of discounts, which hit an all-time high of 8.3% of housing revenue in the quarter.”
“‘Our discounts will most likely remain at higher levels for a while as we stay aggressive in reducing our unsold homes and as cancellation rates remain high,’ the CFO said. She said the company’s cancellation rate was 38.5% in the quarter.”
“Two large public home builders after the closing bell Wednesday said their quarterly profits fell from a year earlier as builders reel in their balance sheets to adjust to slower activity in the U.S. housing market. Ryland Group Inc. said its fourth-quarter net income dropped to $87.2 million, from $162 million in the year-ago period.”
“The Company’s consolidated net earnings decreased 46.2 percent for the fourth quarter. For the fourth quarter of 2006, new order dollars decreased 48.7 percent to $463.9 million from $904.2 million in the fourth quarter of 2005.”
“Gross profit margins from home sales averaged 17.8 percent for the fourth quarter of 2006, compared to 26.3 percent for the same period in 2005. Total gross profit margins, including land sales, decreased to 17.9 percent in the fourth quarter of 2006 from 26.3 percent in the fourth quarter of 2005.”
“This decrease was primarily due to pretax charges totaling $54.4 million, which were comprised of $42.8 million for inventory valuation adjustments and $11.6 million for write-offs of deposits and preacquisition costs, as well as to increased sales incentives relating to deliveries for the fourth quarter of 2006.”
The Arizona Republic. “Meritage Homes Corp.’s earnings fell in its fourth quarter as it struggled with a housing slowdown that is hurting all the major home builders. The Scottsdale-based company earned $9 million in the quarter, down 91 percent from $101.9 million in the same period in 2005.”
“Builders are finding they don’t need all of the land they loaded up on during the frenzy. Meritage took $63 million in land charges in the quarter and $78 million for the year, either in inventory valuation impairments or forfeited deposits.”
“Higher cancellations raised inventory. Meritage had 545 completed-but-unsold homes and another 820 that were unsold but under construction at the end of 2006, representing 32 percent of total inventory.”
“‘In response to slower market conditions, we are managing the business more conservatively by slowing new investments in land, renegotiating construction contracts on existing projects and aggressively managing overhead,’ Meritage CEO Steve Hilton said.”
From Reuters. “Gross margins fell 12.2 percent, less than half of the 24.6 percent last year. Orders fell to 1,201, nearly half of the 2,072 the prior year. The average order price was 16 percent lower than in the fourth quarter of 2005.”
“Cancellations soared to 48 percent of orders, up from 32 percent in 2005. As a result of lower sales volume and selling prices, higher cancellations and increased closings in the last 12 months, the number of homes on order and waiting to be built fell 42 percent to 3,685, while the dollar value of the backlog shrank 45 percent to $1.2 billion.”
“‘Based on our reduced backlog and order trends in the last few quarters, we expect 2007 will be a difficult year,’ CEO Hilton said in a statement.”
“Beazer Homes USA Inc. reported Thursday a first-quarter loss and said it sees little proof pointing to ‘meaningful’ recovery in the nation’s housing market. The company said it posted a loss of $59 million in the quarter ended Dec. 31, a reversal from the profit of $89.9 million generated in the first three months of fiscal 2006.”
“The Atlanta-based home builder said $119.9 million in charges (were) taken for inventory impairments and abandoned land-option contracts. ‘At this point, we have yet to see any meaningful evidence of a sustainable recovery in the housing market,’ said Ian McCarthy, Beazer’s CEO. ‘Most markets across the country continue to experience lower levels of demand for new homes, high cancellation rates and significant levels of discounting,’ the CEO added.”
“The company’s home closings totaled 2,660 in the latest quarter, down 31%. Orders for new houses plunged to 1,779 from 3,872 a year earlier, also on lower demand for homes. The company said its cancellation rate for the quarter rose to 43% from 26% a year earlier.”
“NVR, Inc., one of the nation’s largest homebuilding and mortgage banking companies, announced that net income decreased 39% when compared to the 2005 fourth quarter. The fourth quarter results were negatively impacted by land deposit impairments of approximately $60,000,000. These impairments lowered gross margins by 375 basis points.”
From CNN Money. “Ford Motor Co. reported the largest annual loss in company history Thursday. The company has seen big drop in consumer demand for its key products, such as the F-series pickups. While still the nation’s best-selling vehicle, the pickup saw sales plunge by more than 100,000 trucks in 2006 in the face of record fuel prices and a slump in the housing market, which cut demand from contractors.”
“The number of homes in the United States foreclosed by lenders rose 42 percent in 2006 from a year earlier in a sign that many homeowners have became overextended in mortgage debt, a real estate information service reported on Thursday.”
“Recent homeowners who believed the housing market would continue its break-neck pace or used flexible mortgages to make a purchase may be feeling a sting, the company said.As much as $1.5 trillion in adjustable-rate mortgages are due to have their rates reset this year, according to the Mortgage Bankers Association.”
“Many recent homeowners are already struggling to make those higher payments and are drifting toward loan default and foreclosure, said James Saccacio, CEO of RealtyTrac.”
“‘As more and more of these loans re-set, we saw a surge to finish the year, with the fourth quarter producing more foreclosure filings than any of the three previous quarters,’ Saccacio said.”
From the Ryland press release:
‘The homebuilding segments reported pretax earnings of $130.5 million during the fourth quarter of 2006, representing a 50.8 percent decline, compared to $265.2 million in pretax earnings reported for the same period in 2005. This decrease was primarily due to a decline in closings and margins, which included the impact of inventory valuation adjustments and write-offs of deposits and preacquisition costs.’
‘For the twelve months ended December 31, 2006, the Company repurchased 4,700,000 shares of its common stock at a cost of $250.1 million.’
Borrowing money to buy back stock?
and dumping land that no ones making more of- 3 years out
so maybe it’s not turning around till 2010 ?
How come I am not seeing all of this land coming on the market? Where is the evidence of falling land prices?
Are you in the market for entitled lots? These properties aren’t something you typically find listed through the MLS. This is a market my company watches very closely, and prices are indeed falling.
Entitled lots ie. “American Dreamland Ranch Estates”? So they are selling off improved lots and entire subdivisions? I am more or less wondering about raw land which has not been through that improvement and permit process. Surely this has to be part of their land portfolio as well.
Or maybe I am unclear as to how the big builders work. Do they not buy raw land at all? Do they only buy improved lots from developers? If so, will the developers be selling off large chunks of unimproved acreage? I would guess that developers would have options on this sort of land as well. I am curious because I am looking for land, 20 acres max. I am hopeful that the falling prices show up in raw rural land.
what I am seeing in my little rural corner of the world are farmers putting up their measley 6 acres for sale for $725K+
know why? because everyone wants to live here, silly.
you’ll probably need to wait a while until the rural land holders get religion.
Mina
In some places, the builders do develop their own raw land; however, In California this is mostly done by separate companies of land developers. In California just getting permission to sell lots adds value (basic entitlements - this is what I do). The added value is about a 4 times multiplier. This is very risky investment because if you don’t get the entitlements, you’re screwed. Most developers option the land for about 3 years and try to get the entitlements. If they get them, they sell the option and make huge money. If not, it is a complete loss. Builders in California generally buy only entitled land because they don’t want to take on the entitlement risk.
The small parcel raw land prices you describe are often the most divorced from reality. There is a landowner near one of my projects asking $50K an acre for land that is worth at most $5K per acre. Everyone is a dreamer. Raw land became very expensive during the runnup, and it will take some time before these landowners accept reality. The 20 acre parcel type transaction will be 2 or 3 years behind the crash. These sellers generally don’t need to sell, so they can maintain their delusions a bit longer.
I hope that answers your question.
Thank you IrvineRenter, you answered my questions perfectly. And my suspicions are correct. The raw land that I am interested in will not be seeing any sort of correction in the near future. I have noticed the prices are not budging. These folks have tremendous staying power as they have owned the land for years, sometimes generations. The problem has been, for me, that the small builders have been way overpaying for rural acreage, and baking it into the selling price. What was normally a poor strategy, became possible during this bubble. Since the price of land became so artificially inflated, the raw land owners no longer want to sell at old, or even reduced prices. My only hope is that the small builders stop this practice, or go bankrupt (sorry guys) so there are few to none of these types left to overpay for the rural secluded stuff. Then, an estate sale or something may provide the acreage I am looking for at a fair price. Though admittedly impatient, I will be on this as it is my future at stake.
Why not? Private equity firms do it all the time. I understand it’s risky, but if the bond covenants let them do it and mgmt thinks its stock is cheap, then they should do it.
Whatever management thinks is best for management is what they should do.
so share buybacks are bad for shareholders?
Arguably, leveraged share buybacks ARE bad for shareholders. Unless of course, your personal risk profile is such that you are comfortable buying stock in a capital intensive, cyclical industry with 100% leverage (implying very little cash in reserve) at a time when things are cycling down to an uncertain bottom.
Seems like a foolish risk to take to me. Personally, I would not make that leveraged bet.
Now, buying back stock with idle cash that is highly unlikely to be needed when you believe the stock price is down is a different story.
Well, if shareholders agree with you they can sell and we can all get past our misplaced indignation.
“so share buybacks are bad for shareholders?”
In this case it may be good for old shareholders who want to dump their personnel stock onto the company books before things get worse. They get higher prices for their stock and the corporation holds the bag.
This might not be borrowed money. Many of the builders are flush with cash with all the money they made during the runnup in prices. Since investing this cash in land or more product inventory is a bad idea, they probably determined a stock purchase a recent low valuations was the way to go. Personally, I think they would have been better off buying back some of their bond debt to reduce their cash outflows, but if they weren’t already overleveraged, the stock buyback is probably the best use of their money. As someone is sure to point out, this also props up their sagging stock price and provides some stock to give away to their CEO’s in stock options.
“As someone is sure to point out, this also props up their sagging stock price and provides some stock to give away to their CEO’s in stock options. ”
You beat me to it. It is a very old form of “signaling”. The company is “signaling” that they think their fortunes are turning, and trying to take back as much control of their operation as possible.
Isn’t this an innately contractionary measure, though? The whole idea of selling stock is to raise capital to expand the business or fund R&D. Aren’t stock buybacks the opposite, a signal that there is little opportunity for expansion or technology development (which admittedly is limited in the homebuilders world)?
I suppose the takeover fear is there as well.
Actually stock buybacks are often a signal that the company believes there is no better investment than its own stock. When a company is making money, has large cash reserves, and wants to reward stockholders, it has two options: pay dividends or buy back its stock. Paying dividends results in double taxation, so most companies will go buy back its stock in the open market.
“Actually stock buybacks are often a signal that the company believes there is no better investment than its own stock.”
And since all the GFs know that, pumping up the share price by corporate stock buybacks is a great way for the company to dump and Wall Street middle-men to skim cream in a falling market.
“And since all the GFs know that, pumping up the share price by corporate stock buybacks is a great way for the company to dump and Wall Street middle-men to skim cream in a falling market.”
Also true. When the SEC disclosures come out in a few months, it will be interesting to see if insiders were selling while the company was buying.
Take a look at their balance sheets. The builders are very low on cash and have been increasing their credit lines since summer. They all have under $100 million in cash and billions in debt. Centex has $6.25 billion in debt and only $42 million in cash. They have to pay a minimum of $360 million/yr on that debt. They are expected to earn only $308 million in FY 2008. It looks like they will be going deeper into debt.
All that money they made the past few years was plowed back into buying land at inflated values and land options which expired worthless. They have been borrowing money for stock buybacks due to pressure from fund managers and institutions who do not want their portfolios to crater. These same people are praying that the housing depression is over soon or else their funds will be cratering. There is heavy pressure on BB to lower the FFR this year.
Borrowing money to buy back stock?
It might make sense if they’re worried about a private equity takeover. Then again, it’s sorta like telling a mugger “I don’t think you have the balls to pull the trigger.”
If I were a HB CEO, I’d be inviting the private equity firms over to make offers. Those firms are awash in stupid investor money and are overpaying left and right. I’d sell to one and wait to pick it back up in a few years.
bust of 07 or 08 ?
LBO firms
If I were a HB CEO, I’d be inviting the private equity firms over to make offers.
Well then, you’re obviously not enough of a control freak to be the CEO.
To be explicit, the management often gets sliced; so unless the CEO is in a mood to be bought off, he would resist it.
It sure would be an easy way to dispose of the rest of your stock without worrying about shareholder lawsuits or Elliot Spitzer on your ass.
True. But some ceo’s appear to be motivated by being-the-ceo as opposed to dumping all their stock. I’ve never figured out which of those two categories are the lesser evil for shareholders.
The other thing to consider is that generally speaking Real Estate folks generally prefer to be out of the limelight. With the amount of private capital in the markets today, real estate companies do not need to be public in order to raise capital for their activities. This is why many of the REITs that have recently been bought and taken public have faced little opposition from the corporate officers. They are more than happy to get out from under the Sarb-Ox and other reporting requirements.
Because of the inefficiency of information in RE, the more opaque (secretive) your activities, the better you’ll do. This flies in the face of mass public disclosure.
That is exactly what John Laing Homes in Newport Beach did.
“Borrowing money to buy back stock?”
It’s not about the company. It’s about managing share value.
Borrowing money to buy back stock reflects management’s commitment to do whatever it takes to protect Wall Street interest. Forget what makes sense. Wall Street does not care about the company. It only cares about share value. The company, its employees, and customers can all go to hell.
and they probably don’t even buy it back directly. They probably do what Dell and Microsoft do, which is sell naked puts and take the stock if gets put to them
That is a great purchase strategy. I hadn’t thought of that.
Assuming that people who own the stock believe it’s undervalued, they probably aren’t complaining about a share repurchase program.
If you don’t own the stock, what do you care anyway?
As long as you are a stock flipper (e.g., a day trader), you don’t care. Long-term buy-and-hold accumulators = bagholders.
If owning these stocks is such a catastrophe waiting to happen, then sell them short and mind your own business. Shareholders are grown-ups and they take risk; if they don’t like the way a company is managed they can sell their shares and move on without the rest of sticking our noses in their affairs, right?
Yeah, this is a non-issue.
It’s an issue that relates to the land markets these firms hold property in. The weaker their financial position, the more likely they will have to unload it.
the question is whether or not share buybacks are good or bad for shareholders. To the extent that there is a controversy, why don’t we let shareholders decide for themselves?
So how, exactly, do I tell my 401k managers to dump these stocks? Pretty much ALL the funds within my plan which are into stocks hold stock in companies with these idiotic strategies.
My bond fund managers do some pretty stupid things too, like buying MBS’s up the wazoo and FNMA and other bonds. And make very little money even then.
Let’s say this is idiotic and that your choice of 401K managers is bad….well, no one is forcing you to put money into a 401K, right? I know, I know - there’s a tax break associated with using the 401k; but then we should all own houses if we let tax breaks dictate our behavior.
I think I already know the answer, but I’ll ask the question anyways. When groups like the NAR make predictions regarding future prices (i.e it looks like we’ve bottomed out), do they even imply that their predictions are based on any kind of scientific analysis of available data. I constantly see very specific predictions regarding future sales and price increases or decrease, sometimes to a resolution of a fraction of a percent so I wonder if these people have some well tested modeling program that they’re using or are they just pulling these numbers out of thin air (or possibly one of their body orifices). Since most of these predictions fly in the face of common sense, I wonder why the press never seems to ask what they’re are based on.
I am certain they have models although they never make reference to them specifically. I am equally certain the numbers that come out of their models are only shared with a select few- Especially the numbers that are emerging now since they would probably cause sheer panic.
Notice how he uses the fingers/toes crossed reference. That means his prediction contradicts his models… and common sense for that matter.
“Notice how he uses the fingers/toes crossed reference. That means his prediction contradicts his models… and common sense for that matter.”
I think you are on to something there… and so does the market since the housing industry is getting slammed across the board today.
The RE market is so bad its good! Cross your fingers and maybe RE will stay that way. We will sustain the Sh|tty situation.
With fingers and toes crosssed, and tongue forked…
Finally, the MSM reports what was quite evident to anyone who doesn’t make a living from reporting BS, the stocks of the HomeBuilders were going up because they were buying back their shares. AND of course their management, that had stock options, most conveniently cashed in their back dated options when the company completed buying back as much stock as they could afford. I’m following Pulte, and all I can say is “Watch Out Below” as these sleezeballs cash in their options and walk away from the Titanic. Much worse that I believed 6 months ago
Lereah has the best job in the world. He just makes sh#it up! He probably doesn’t even have a degree in economics. He has a B.S. in B.S.
posted in thread topic “From CNN Money. “Ford Motor Co. reported the largest annual loss in company history Thursday. The company has seen big drop in consumer demand for its key products, such as the F-series pickups. While still the nation’s best-selling vehicle, the pickup saw sales plunge by more than 100,000 trucks in 2006 in the face of record fuel prices and a slump in the housing market, which cut demand from contractors.”
I doubt they can count on HELOC money to bail them out either.
whilst preopsecting today I’m getting some disconnected numbers already- wow is 07 going to sck
In what industry are you prospecting?
‘It looks like we’re moving beyond the low for the housing cycle last fall…’ said a statement from David Lereah, the Realtors’ chief economist.”
Yea, we are beyond the low, now we are in to the next leg down.
but he crossed his fingers;-) so he can spin with impunity.
I noticed that too. He might as well have said, “I sure hope we are at the bottom because that is what I am paid to say.”
low, lower, lowest
and then lowestest. It’s a new paradigm.
I read that San Diego didn’t just hit bottom, it hit BEDROCK. What is below bedrock? The earth’s molten core? Hell?
Probably. And somewhere below that is where prices reflect fundamentals, i.e. a balanced market. So we’ve got a few layers to get through still here in Cali.
San Diego hit bedrock? Their prices may have fallen, but there’s still plenty of room to fall more. Let me know when I can buy a condo there within a mile of the beach for about $65,000.
That would be close to bedrock. Core would be when they give those condos away. I’m a hardcore Bear but I don’t think he’ll ever get to that point.
“Let me know when I can buy a condo there within a mile of the beach for about $65,000.”
Never in the future history of the $US is when.
Yes, we definitely will have to go through hell to get back to a normal market.
So difficult to predict the course of the decline when the decline has barely begun. I do enjoy telling the outside world about SD foreclosure statistics (here’s the memorized part: 300 in Aug 05, 600 in June 06, 1200 in Oct 06, 1300 in Nov 06). Must agree w/ Stucco that the US dollar is unlikely to strengthen so substantially as to result in a $65K price for a beach-proximate SD condo. But $150K sometime in the next three years would not totally surprise me.
Are we talking circa 2007 Dollars or 2010 Nuevo Dollars? Nothing like lopping off a few zeros off of a failing currency to make things look all peachy for the exponential functions to reset and start anew. Isn’t compounding interest in the hands of reckless bankers a wonderful thing?
Glad I’m not the only to notice the ol’ cross your fingers before you lie trick. Fingers and toes means that he is lying like never before, I guess.
C’mon GS, azl… he said “within a mile of the beach”. Heck, everyone knows that describes half of SoCal, right?
Suggestion to Lereah, call in sick on press release day
David Lereah is suggesting that the 40% speculators from 2005 have sold now and the high specuation market is behind everybody .
This can’t be true ,many of those speculators are still bagholders . In addition ,the unqualified borrowers that will have to sell when they get a reset on their adjustables and the current foreclosures in the pipeline and the excess building has not been sold yet and will add to the inventory .
DL doesn’t seen to ever talk about affordability or the laws of supply and demand .
Just admit it DL , the REIC sold to everyone who could sign on a dotted line ,along with investment purchases ,and there is a short supply of GF’s now .You notice that DL never talks about excess building and the new home tracts taking the lions share of the action in 2006 (because of incentives and cash backs ).
I think when Lereah either relocates to France or some third world hell to avoid persecution or perhaps goes in the bathroom with his revolver to throw some cold water on his face… Then we are probably pretty close to the bottom.
I think a major coup would be for Ben to interview DL on this blog. Whatcha think, Ben?
I would pay to read that.
Great comments. The vast majority of speculators are stuck in the market. They will be slowly ground out of the market.
Another suggestion to Lereah: learn to cross not only your fingers and toes, but also your b@Lz. (My apologies to the male audience, I guess I have no idea how painful this would be.)
I’ll cross his balls for him with my foot.
Maybe he can get Leslie Appleton-Young to cross his balls for him.
He’d have to grow some first……
Yeah, ok, you’ve removed the speculators and investors, for the most part, from the market - we’ll give you that one DL. Now, what to do about these factors in 07:
1. affordability still at all time lows
2. while cheering the fact that inventories have been
reduced (no mention of seasonality) the NAR fails to
mention that inventories are starting the year way over
last years mark, and recent surges in all the key areas point
to new highs and no relief in sight.
3. we’re just witnessing the dawn of the “Mortgage Nightmare”
and it’s far reaching effects (systemic meltdown) fraud,
failures, ARM resets, defaults, foreclosures,….get used to
these words and terms used over and over again in
tomorrow’s headlines.
Yep, the Fat Lady will be singing her brains out in 07.
Right. Now, DQ issues regular statements describing how foreclosures had a “deleterious” effect on home prices in the last bust and that there is no evidence that current foreclosure levels are having any impact on prices.
So, at what level of foreclosures will we likely begin to see them affect prices? How close are we? When do we press the panic button, since there’s a lot of latency built into the foreclosure process and when it impacts current reports…
good question- a rate of 1% ?
1991 would be a good base year
“we’re just witnessing the dawn of the “Mortgage Nightmare” and it’s far reaching effects (systemic meltdown) fraud, failures, ARM resets, defaults, foreclosures,….get used to these words and terms used over and over again in tomorrow’s headlines.”
….don’t forget layoffs!
indeed!
But they’re NOT removed from the market. They’re going from the buyer column to the seller column.
“‘With fingers and toes crossed, it appears that we have hit bottom in the existing home market,’ he said.”
yeah….and that with $3 will buy you a cup of coffee.
It appears we’ve hit bottom… IN ECONOMIC FORECASTING!
Twist has posted “Existing Home Sales- Lereah Can’t Seem to Find His Bottom” and I’m proposing a housing market “Bottom of the Month club”.
Was DL’s nose growing as he spoke???
His nose is so long by now he probably looks like an elephant.
“‘With fingers and toes crossed, it appears that we have hit bottom in the existing home market,’ he said.”
——————————————————————————
Great Economic analysis!! We’ve hit the bottom of the market despite predictions from just about every homebuilder that we’re just starting the decline.
Yup, that argument has me convinced. I used to think that this bubble burst was only getting started, but I had forgotten about the fact that many people had their fingers crossed.
Honestly, I can’t see how reporters can take these comments without bursting out laughing.
Next thing you know DL will be using eeny, meeny, mitey, moe.
Toes crossed? Is that what he’s paid to do? Does anyone take this clown seriously?
DL is a total buffoon…
Well the statement, “With fingers and toes crossed, it appears that we have hit bottom in the existing home market” is certainly accurate in the context that is was given. At any moment in time when the trend is downward like this, that snapshot is a bottom. Problem is with the next click of the clock’s second hand we have a new bottom. And then a new bottom, and then ………
Lereah speaketh……this should be good for 400+ comments.
“‘With fingers and toes crossed, it appears that we have hit bottom in the existing home market,’ he said.”
Didn’t he use this same fingers and toes thing once before? God, he’s so cute I can’t stand it!
On the foreclosure topice, California foreclosures are now at an 8-year high and still climbing.
http://dqnews.com/RRFor0107.shtm
“We’re in the midst of an adjusting market right now, and we won’t know until spring or summer if this is ominous or not,” said Marshall Prentice, DataQuick’s president.”
If you cross your fingers and toes, the trend will reverse. I’ve heard that that strategy works.
Here is an anecdotal story for those fellow bloggers here in SoCal.
I have a friend who basically acts as the front man/deal maker for two very wealthy brothers with lots of cash. He has been working with BofA and their “special assets” group. BofA has just sold a third “trauch” of residential loans/paper to these two guys. The first two were in the $15m-25m range. The third one was around $50m. These homes are all in the So Cal region and all are in the 50-60% LTV range. All are on BofA’s NOD list. The most interesting thing about this is BofA apparently does no sup-prime / AltA deals. These are all prime loans! Ultimately, these guys attempt to get these borrowers to refinance and make the difference. Oh, my friend took a look at the latest list. 40 properties in the south bay / huntington bch / newport bch areas.
Also, yesterday I went to a breakfast in which Jack Kyser was speaking. The guy was for the most part pro-Los Angeles and we are ok blah blah blah. He did not spend much time on the residential market because it was a commercial RE group. He did have utter the old “LA county is running out of land. We have a shortage of 12000 homes here.” I was really shocked he did not mention one work about the rapid rise in foreclosures - not.
Ultimately, these guys attempt to get these borrowers to refinance and make the difference.
————————————————————————
I’m sorry but what does this mean?
Simple example:
Loan amount is $100K outstanding. Borrower is late on payments. Bank sells said loan to broker/collector/hedge fund for $95K. Bank books $5K hit as a “trading loss” or “other loss/income” or some kind of BS that does not reflect a loan loss. Buyer of bad loan tries to collect as much as possible. As long as they collect over $95K, they make money.
There’s a whole industry of companies out there who do this - will probably have a good run coming up here.
I was at a similar talk in Tucson this past Tuesday. No words were spoken about the real estate sales slowdown, rising foreclosures, etc. Meanwhile, I’d just passed by numerous unoccupied houses for sale, which I suspect are owned by “investors” trying to unload them, and a condo complex that looks about ready to undergo re-partment-ation.
DQ entertains media calls. I suggest Ben calls in and asks some probing questions.
Andrew LePage (916) 456-7157 or John Karevoll (909) 867-9534
“There are 7.87 million houses and condos in the state. ”
Does anyone know how many houses and condos there were at the last peak in foreclosures/defaults in 1996? This would allow a better comparison to the last time. In fact, a chart showing % of total stock in trouble by year would be handy. I keep hearing that the new numbers aren’t as bad because there is more stock now, so an apples-to-apples comparison would be nice to see.
he can cross his fingers, toes or any other thing he wants but this is on a major downhill run and gaining speed all the while
Pretty soon, he’ll be sacrificing rabbits!
Nice thread Ben — I like the juxtaposition of David Lereah’s fingers and toes comment coupled with the dire reports from home builders and Ford. The NAR has zero credibility.
Yea mrktmaven FL,
One of the many things I love about this blog is Ben’s artful use of irony. And restraint. Ben never spews, but give us plenty to chew on or laugh at! Very nicely done Ben!!
This was posted a short while ago on the WSJ. When the WSJ journal is comparing you to Baghdad Bob, it can’t be good…
“We’ve heard of trying to sugarcoat things, but this is ridiculous. The National Association of Realtors said sales of existing homes just ended their worst year since 1982, and NAR’s chief economist David Lereah’s comment is this: “Despite all the doom and gloom stories and dire predictions over the last year, 2006 was the third-strongest year on record for existing home sales.”
Now there’s an assessment that might even make Baghdad Bob blanch. Sales for all of 2006 dropped by 8.4% to 6.84 million, down from a record 7.08 million in 2005. That’s the sharpest drop since the 17.7% decline in 1982, when Ronald Reagan was occupying the White House. His first term. Roger Moore was playing James Bond.
It’s true — in terms of sheer volume, this was the third-strongest year after 2005 and 2004, but of course, the inventory of homes available for sale continues to rise as well. Average monthly supply was 6.6 months for all of 2006, compared with 4.5 months in 2005. Inventories rose 23.3% in 2006.
Meanwhile, executives at Beazer Homes, which reported a fiscal first-quarter loss this morning, might quibble with the view that housing is rebounding. “At this point, we have yet to see any meaningful evidence of a sustainable recovery in the housing market,” said Ian McCarthy, Beazer’s president and chief executive, in a statement. “
Ignore the downward trend in the revenue curve. Clowns like DL can get away with remarks like this because most people cannot visualize and interpret revenue curves. This year will probably be the 4th best year in a downward trend.
Let’s see now, 2006 was the third best year in RE volume sales,
2007 will be the fourth best year in RE volume sales,
2008 will be the fifth best year in RE volume sales,
2009 will be the sixth best year in RE volume sales,
2010 will be…
Nah, cause we’re passing the up years on the other side. ‘04 and ‘05 were better than ‘06, our “third best year” But ‘03-06 will be better than ‘07 our prospective “fifth best year.” Even that assumes that things go south no more quickly than they went north (unlikely IMHO). and of course has no correciton for total population.
The National Association of Realtors reported that there was an 8.4 percent drop in the existing home sales in 2006, falling to 6.48 million from the record 7.08 million level in 2005.”
“Lereah said that in 2005, 40 percent of the market represented purchases of second homes and investors buying homes looking to resell them for quick profits. He said that speculators had now left the market and that should leave sales at a more sustainable level.”
“‘With fingers and toes crossed, it appears that we have hit bottom in the existing home market,’ he said.”
When an 8.4% drop equals a 40% disappearance rate, the bottom must be in. DL in fine spin mode. What a gem.
“Roger Moore was playing James Bond”
After the great Live and Let Die he stars in the awful MoonRaker and next thing you know the whole economy goes down the tubes. Coincidence, I think not!
“That’s the sharpest drop since the 17.7% decline in 1982, when Ronald Reagan was occupying the White House. His first term. Roger Moore was playing James Bond.”
Don’t forget interest rates were around 15% or so back in those days.
Festus,
Can you provide a link to that? I subscribe to the WSJ.
SLO-
Here you go.
http://blogs.wsj.com/marketbeat/2007/01/25/all-is-well/
Attention crew:
This is your captain speaking. The plane is in rapid descent due to complete systems failure, but do not worry. Here in the cockpit, we are all crossing our fingers and toes. Please relax and enjoy the moments of anticipating a soft landing.
However, we are still the third highest that we have been on this entire plane flight, and despite the rapid descent I doubt we’ll even have a soft landing, it’s looking more like we’ve reached a permanently high plateau.
Not sure what realtors have to pay the NAR for their, I assume forced, membership but if I was a realtor (God forbid) I would be really pissed off paying a single dime to support someone like David Liar.
This guy does nothing but damage to realtors credibility with his non-stop sound bites, “Now is a good time to buy,” or, “The bottom appears to be in,” or, “Buyers have so much choice at the moment”.
The NAR credibility level is almost as low as the credibility of the Idiot in the White House. Actually, I take that back. They will have to spin a lot harder to get to that level.
Realtors credibility = oxymoron
Are you listening Marc Authier?
Despite your efforts to paint all Americans as swaggering, bible thumping, my country right or wrong morons, we actually do have people that disagree with our Commander in Chief and each other. Your posts used to be funny, lately they are just annoying.
Personally, I think W is right in line with Lareah in terms of credibility,for the same reasons. He has no choice but to say what his corporate and fundamentalist supporters demand. Tax and spend!!… 9/11!!… freedom’s on the march!! no, wait evil doers are on the march!!..er..did I mention hard work!!! W at least has the excuse that he is probably less intelligent than Liereah.
So, we may be gullible and greedy, but most of us do not want to s@#t all over the rest of the world,even if certain idiots and corporations do. Instead of showing your ignorance and prejudices about America, you might want to contribute some housing insight from Canada.
Nothing different in Canada. You should know that. Nothing.
This is how things are phony. I am buying pennies and nickles instead of real estate. Real funny.
NEW YORK — Talk about pennies from heaven.
A potential shortage of coins in the United States could mean all those pennies in your piggy bank could be worth five times their current value soon, says an economist at the Federal Reserve Bank of Chicago.
Sharply rising prices of metals such as copper and nickel have meant that the face values of pennies and nickels are worth less than the material that they are made of, increasing the risk that speculators could melt the coins and sell them for a profit.
Such a risk spurred the U.S. Mint last month to issue regulations limiting melting and exporting of the coins.
But Francois Velde, senior economist at the Chicago Fed, argued in a recent research note that prohibitions by the Mint would be unlikely to deter serious speculators who already have piled up the coinage.
The best solution, Velde said, would be to “rebase” the penny by making it worth five cents rather than one cent. Doing so would increase the amount of five-cent coins in circulation and do away with the almost worthless one-cent coin.
“History shows that when coins are worth melting, they disappear,” Velde wrote.
“Rebasing the penny would … debase the five-cent piece and put it safely away from its melting point,” he added.
Raw material prices in general have skyrocketed in the last five years, sending copper prices to record highs of $4.16 a pound in May. Copper pennies number 154 to a pound. Prices have since come down from that peak but could still trek higher, Velde said.
Since 1982, the Mint began making copper-coated zinc pennies to prevent metals speculators from taking advantage of lofty base metal prices. Though the penny is losing its importance — it is worth only four seconds of the average American’s work time, assuming a 40-hour workweek — the Mint is making more and more pennies.
Velde said that since 1982 the Mint has produced 910 pennies for every American. Last year there were 8.23 billion pennies in circulation, according to the Mint.
“These factors suggest that, sooner or later, the penny will join the farthing (one-quarter of a penny) and the hapenny (one-half of a penny) in coin museums,” he said.
If this kind of stuff interests you, you have to read Murray Rothbard’s “What has government done to our Money?”
http://www.mises.org/money.asp
The collective wisdom is that the health of a country’s economy and currency is reflected in it’s coinage.
Go heft a ‘64 issue 100% silver quarter, vs. that 3rd world quality POS the mint is throwing out today.
Fookin’ thing is one grade above the coins you might get from a two-bit South American country like Paraguay.
Down the proverbial shitter we go…
For some reason the other night I was thinking “why is the dime smaller than the nickel when it’s worth more?”. Then I remembered that dimes used to be made of silver.
But that’s the POINT here. We now have a fully convertible currency, just like before they closed the gold window. You can take your federal reserve notes out and exchange them for an equal value of metal. The reality is that exchangeability doesn’t end currency value fluctuation, it just obliges the US Mint to participate at a disadvantageous rate of conversion. Zinc prices won’t prevent the dollar from rising further. If we allowed people complete freedom they’d simply be getting dump trucks full of pennies from the mint, melting them down for their specie value and selling the metal on the open market. Of course the Mint would be FORCED to buy zinc , form it into pennies worth more then 1¢ and return them to the public at a rate of 100 for $1. It’s why we got out of the gold coin business, why we got out of the silver coin business, and why pennies aren’t made of copper anymore.
Most pennies aren’t in circulation anyhow, they’re just piling up on the ground, in desk drawers and under couch cushions. Candy machines don’t take them either. I have scads of pennies lying about in my cube at work, they’re not even worth taking home or the bank. People will seldom pick a penny off the ground, it’s a public service to collect all that scrap and melt it so it can be used for something useful.
The stamp machines at the post office will take them, and I think toll booths in some states…
Seems like the USA could just do what several other countries have done, and just be rid of the penny. Take Australia as an example:
Their “penny” is gone. All prices are rounded to the nearest 5 cents at the register (credit/electronic purchases still use the cents). And it works. Sure, you are going to hear howling from those who are stuck in their ways, or conservative to change, or paranoid that someone is stealling their virtual pennies! But foreign experience can show us good examples of how to handle this and how smoothly it can go.
As for the nickel being in the same situation, the $0.05 nominal value should be high enough for the US Mint to reformulate it (again) with ever-cheaper metals — until inflation goes far enough that we round to the nearest dime. Yikes!
Oh yeah, whilst we’re at it, let’s be rid of short-lived paper dollar bills as well. Again, look overseas to see things like the UK coinage, with its 1- and 2-pound coins, and the first (common) bill being the fiver.
If it happens, it’ll start with Wal-Mart, not the federal government. This is already done in Mexico, in fact, where everything is rounded up to the next highest peso.
au contraire!
in Canada you cannot deduct mortgage payments from your income tax!
Canadian houses are more affordable A new international study released this week by Winnipeg-based economic think tank, the Frontier Centre for Public Policy, shows Canada’s real estate is the most affordable, requiring on average only 3.2 years of a citizen’s annual income to buy a home. ,
http://torontosun.com/Money/2007/01/25/3445155-sun.html
not quite sure but there are no funny mortgages: zero down, interest only, option arms for the average guy
Nothing different in Canada. You should know that. Nothing.
Why “should” anybody american know that? Are Canadian sub-primes imploding as well? Have downpayment gift programs been pushed by the Canadian government? Are developers pulling back on plans? Where’s the market in Toronto, Montreal, etc.? A lot of FBs? Have downpayment/financing standards changed–they were always tougher than those in the US? Canadians are traditionally buyers of Florida real estate–are they screaming yet? Isn’t there any news from Canada??
There is plenty of funny money in Canada. We also recently added the prestigious 40 year and 50 year loans to our repertoire.
Plenty of reading at our own bear blog: http://van-housing.blogspot.com
The author there is especially good at graphing and well worth a read.
He used to post here… don’t know if he still lurks. Funny though, he was rather optimistic for a self-proclaimed bear.
Mike,
They (Realtwhores) will continue to pay DL anything they can. As long as they hope, pray and wish it convinces another GF to swallow the bait, so be it.
At this point, DL’s spin is the only good (albeit BS) news the RE industry has.
Meritage Homes Corp “Higher cancellations raised inventory. Meritage had 545 completed-but-unsold homes and another 820 that were unsold but under construction at the end of 2006, representing 32 percent of total inventory.”
These guys are looking at going into the 2nd quarter with over 1500 homes completed but unsold, OMG. That is like $450 million of stagnant, depreciating inventory with ongoing maintenance costs and financing costs…on earning of only $9 million in the 4th quarter. Look out below.
My personal favorite stat comes from WCI’s latest earnings report — while they had gross orders of 261 in the most recent quarter, they had 270 contract defaults and cancellations. In other words, they had net orders of -9.
One other thing about the NAR stats — look closely at the Seasonally Adjusted Annual Rate of sales. It was just 6.22 million units in December While that is technically above the September “bottom,” said bottom was only 6.21 million units. In other words, all it would take is a drop of 10,001 houses — or 0.1% — from the SAAR to set a new cycle low. So DL is hanging his hat on a pretty thin reed.
http://interestrateroundup.blogspot.com
Leerah…This Little Piggy went to market…
“Recent homeowners who believed the housing market would continue its break-neck pace or used flexible mortgages to make a purchase may be feeling a sting,…”
A 4,000 lbs Bull will run like hell, when being stung by 10,000 little bees
40 percent of the market represented purchases of second homes and investors buying homes looking to resell them for quick profits. He said that speculators had now left the market and that should leave sales at a more sustainable level
That’s the stupidest thing he’s said all year.
Here in Tucson, numerous speculators are still trying to unload their properties. And, from what I’ve seen, they haven’t been too successful.
Sustainable nose dive.
Phoenix inventory just broke through 52K per zip reality. I’m sure that does not count all the FSBO.
Didn’t you predict 60K by the end of January? Could happen.
How many months of inventory is that at 60K for Phoenix?
“The Scottsdale-based company earned $9 million in the quarter, down 91 percent from $101.9 million in the same period in 2005.”
I have nothing to add to this other than stunned silence.
…
Exactly. My jaw dropped.
Can’t think of just how they can spin that number.
Unbelievable.
It could be worse, at least they had some revenue.
The public companies are making those statements to cover their asses against lawsuits down the line by shareholders and as cover for execs and other insiders to continue to sell stock while having the company officially “buying” it.
Centex still has a 3.5-year supply, which is ‘longer than we would like,’ Mr. Eller said.
Mr. Eller is a master of understatement.
yep, 3 years of supply would be better….
That’s pretty funny.
‘We are estimating that we will walk away from another 40 percent of our remaining option deposits,’
I wonder how much of the land shortage that developers cried about last year (especially in places that have essentially nothing but land) is really a side effect of their own strategy of using land options rather than buying the land outright.
Can someone explain how these land options work? I’m imagining that the developers pays a certain price for the right to buy specific parcels of land at a certain price by a certain date – and that as soon as one option for one parcel of land is sold, that parcel of land is taken off the market. If this is the way it works, I could easily imagine that the leveraging nature of the options would lead developers to tie up giant pieces of land in their options and send land prices skyrocketing, thus decreasing the efficiency of pricing in the land market.
You are essentially correct in your analysis of what land options are. They are the primary vehicle of raw land transactions in the land development realm because they limit your risk (you can only lose the option money), and it increases your rate of return (pay as little as you can as late as you can). The only raw land purchases you see for cash are long-term “land bank” transactions at very low prices; other than that, it is all by option. Also, keep in mind that options can also be traded and often are. The builders loaded up on options because it tied up land at a certain price during a period when land costs were skyrocketing. Now that the prices are plummeting, they are dumping all these options and whatever land they purchased outright.
You are also correct in noting the market for raw land is not very efficient, and it is extremely volatile. It has always been that way. This is why land developers can make and lose large sums of money. Right now, anyone holding raw land who purchased with cash at bubble prices is being destroyed. If there is any debt on the property it is even worse.
A little derivatives blowups ? And they can still find buyers for these options ? Most of them will expire worthless.
Most land options do expire worthless because most deals fail to materialize. Of course, this makes land options relatively inexpensive because most developers know its a losing proposition. I would guess there are no buyers for any of the land options the builders currently hold.
Thanks for the clarification, especially about how land options could be used to mitigate risk.
However, I was wondering about an unintended side effect: Since land options are relatively cheap compared to actually buying the land, it becomes possible to buy options for absolutely huge tracts of land. If every developer does this, then it will suddenly look like there is very little land available, thus increasing the price artificially.
This “artificial” shortage of available land inflating land price does occur. Where I live, the Irvine Company owns almost all the land available for development. They control the local land market and dictate what builders will pay for the land and at what price they will sell their homes. However, they can’t push this beyond what buyers are willing to pay, but they test that limit all the time. Is this an “artifical” control? I think it’s just the invisible hand of the market at work.
Developers do tie up very large tracts all the time, but don’t underestimate how much vacant land is out there. Raw land is not a market you can “corner” by buying it all (although the Irvine Company comes close). Even if you could, the carrying costs would wipe you out, so as an investment strategy it would never work.
My favorite line of the bulls is “they aren’t making any more land.” Well, they don’t have to as we have plenty. Even in the most heavily developed markets there is either vacant land or distressed properties which can be redeveloped. There is no shortage of land, there never was, and there never will be.
My favorite line of the bulls is “they aren’t making any more land.” Well, they don’t have to as we have plenty.
I also like, “There is no place to put the land even if they were making it”.
Just for the record, I am not a big fan of buying options. The time decay is a killer and the bid/ask spreads are generally too large. I will sometimes short options (gain from time decay) or trade options on the buy side in strong uptrends, but mostly I will buy or short the actual stock unless I am near my leverage limit and the market is moving in my favor.
I would argue though that land options are different.
Currently, the homebuilders who are letting their options lapse are losing only the carrying cost on the land (the option payments). The owners of those parcels, if they purchased the land in the past 2 years and at the time wrote the options are screwed. Yes, they had their carrying costs covered with the option payments for some time, but now they have massive capital at risk.
“Yes, they had their carrying costs covered with the option payments for some time, but now they have massive capital at risk.”
Very true. If you saw the market going south, but couldn’t sell because you sold the option, you would be very pissed. Usually in that circumstance the option holder would be happy to sell you back the option because they know it is going to expire worthless, so anything they can get for it is a bonus. In fact, one of the reasons landowners resist options is because they don’t want to be left holding the bag.
Ten year yield continues to crawl upwards - at 4.86 right now
pinching off more potential borrowers. This summer isn’t going to be pretty.
Just my opinion, but this is an absolutely critical level for 10-year note yields/prices. Lots of technical price support/yield resistance. If we break through, it could realy get the bond traders in Chicago worked up.
A freind of mine is buying a home is Reno. This is what she says is her reason for buyng now. “A realtor told her that the market is at the bottom and if you dont buy now you might have to buy after the prices grow up …and the prices are going to go up in summer”. My friend believes him.
Just last year the same realtors were saying… if you dont buy now you will be priced out forever…we are running out of land ..and all that crap….Sick bastards….
And here’s one from Tucson: Last August, a Realtor told me that a couple living near me would have “No problem!” selling their house. Reason for his assertion: The house sits on a double lot.
Well, they listed the house in September, and guess what? It’s STILL for sale. So much for the double lot argument.
Listings in the greater Reno area are increasing by around 50 per day over the last few weeks. Prices are DOWN considerably and inventory swelling rapidly. I know a few people trying to sell and the buyers (even lookers) are few and far between. Of course the realtor is going to say that, they are starving for deals (no food on the table). Ask your friend if, when buying a car, he/she asks for advice from the used car salesman. RIght now is the worst time to buy a house in the history of homebuying in Reno. Your friends is on the verge of making the worst decision of his/her entire life.
PS. Pulte homes just reduced all of their models up in Somersett by at least $100k per house. Does that indicate that prices are going up? Tell that realtor to go to hell.
Is now the time to short the home builders, using april or June puts?
They are running out of profit and cash to cover the land write downs, invetory carrying costs and cancellation socts.
I wouldn’t for two reasons. 1. Your timing has to be perfect with puts. You could be right on the trade and wrong on the timing and lose your money. 2. There is no guarantee these stocks are going to decline. Wall Street is applauding the land write downs and other cost savings measures because it increases the companies return on assets.
Builder stocks may well have another leg down. IMO, Wall Street has not figured in the implosion of sub-prime and its impact on builders margins and sales velocity; however, for the near-term, I wouldn’t count on a big drop in stock price.
What do you think of puts on Countrywide, Irvine? How exposed is CFC to the coming California tsunami?
I have been considering shorting some of the sub-primes on their next bear rally. New Century Financial looks like a good target. The stock price has already down about 40% and trending downward badly. It is due for a technical, oversold bounce which would be a great shorting opportunity.
I haven’t been watching Countrywide, but I know they bought a bunch of bad debt from KB Home in 2005. They are probably also a candidate to watch.
San Diego Union Tribune is quoting the DataQuick garbage from yesterday:
http://www.signonsandiego.com/uniontrib/20070125/news_1b25default.html
There are some more data in this article:
“About 32 percent of homeowners who found themselves in default earlier last year actually lost their homes in the October-to-December period. A year ago, the figure was 8 percent.”
Now this is the most important number in my opinion. Soon a majority of the defaults will end in foreclosure.
Obviously they found another bonehead to quote:
“The sharp rise in distressed properties “definitely reflects a softening trend in the housing market,” said Union Bank senior economist Keitaro Matsuda. “The percentage growth looks dramatic because housing demand a year ago was relatively strong. It does not necessarily reflect a housing market crisis.””
A softening trend.
“A softening trend. ”
Think Viagra might help?
Here’s another beauty:
“Most of the California loans that went into default last quarter were originated between January 2005 and February 2006, DataQuick reported. Karevoll said he believed declining home prices, not adjusting loans, were the prime cause of foreclosures. For some recent buyers, a softening in prices has resulted in less flexibility to either refinance their mortgages or to sell their homes quickly to satisfy lenders.”
So declining home prices, not adjusting loans, were the prime cause of foreclosures? Why would the home price matter if your loan is not adjusting? And why would they need refinance their mortgages or sell their homes quickly to satisfy lenders? What a load of BS.
“Why would the home price matter if your loan is not adjusting?”
It might if you were among the hordes to take private sector positions in the REIC since 2000…
So declining home prices, not adjusting loans, were the prime cause of foreclosures?
That’s possibly true, so far…
Why would the home price matter if your loan is not adjusting?
because the only way people have been able to hang on is by sucking 50K of equity out every year and now that’s over?
And why would they need refinance their mortgages or sell their homes quickly to satisfy lenders?
See above.
So the FBs are taking out a bigger mortgage because they couldn’t afford the one they had? If you extrapolate that, then they’ll have an exponentially rising mortgage debt. I guess that’s OK as long as prices rise exponentially. OK, makes perfect sense now.
More foreclosure news. “Perfect storm” in Metro-Detroit. Macomb County registered 1 in every 39 homes (does that beat Denver?)
Note: Detroit is in Wayne county. Macomb is suburbs.
http://www.freep.com/apps/pbcs.dll/article?AID=/20070125/NEWS05/701250332
“‘It looks like we’re moving beyond the low for the housing cycle last fall, and buyers are responding to historically low interest rates and competitive pricing by home sellers,’ said a statement from David Lereah, the Realtors’ chief economist.”
Realtorspeak (TM). Translation: We are moving beyond the low to unprecedented heights of for-sale inventories and foreclosure rates.
“Lereah said that in 2005, 40 percent of the market represented purchases of second homes and investors buying homes looking to resell them for quick profits. He said that speculators had now left the market and that should leave sales at a more sustainable level.”
I guess he missed the memo that said 50% of current for-sale inventories are vacant homes?
Good point. Normally when a house is sold, the seller buy another house. Today’s speculators are too busy licking their wounds to buy a new “investment”. So an empty house sold absorb one buyer, but doesn’t generate a new one.
Yep, with speculators out of the market, home sales should stabilize at near zero because non-speculators can not afford to buy at today’s prices. You know, the guys who save up their downpayment, work on their credit rating, and try to get that 3% raise every year. Those guys, Remember them NAR? Yep,what will stabilize sales is values going down to 2001 ~ 2002. Geez, yep, lets just call it an insane price runup for that last 5 years, and NOW!, lets get some stability by keeping a more workable 2 to 4% appreciation a year in home pricing. Can we do that non-speculators? C’mon, buy at today’s “monopoly game pricing”. Stop being so stubborn!
Haha, unreal!
Well it appears Wall Street didn’t miss that memo and other data GS. Everything around the world is down except copper and treasury notes. Flipping through old notes here and I think you taught me this is not a good scenario. Right?
Two days in row now, I have heard very negative housing news on NPR news. At least some media outlets are getting the news out.
This mornings report was quite humurous in that they specifically called out Lereah for calling the ‘bottom’ while foreclosures are starting to increase significantly.
I typed Lereah into my spell check. First reccomendation… Leech! That sounds about right to me along with about a dozen other choice words.
“‘With fingers and toes crossed, it appears that we have hit bottom in the existing home market,’ he said.”
Lereah is also illiterate, not merely shamelessly dishonest. Neither the “it” nor the “we” have crossed fingers and toes.
The boss man himself, tackled the Big Trouble.
It was his job to spin away, the Existence of a Bubble.
On TV he spoke with a confidence, so assured,
He made the difference between debt, and savings, seem blurred.
The old standbys he quoted, left, right and center,
Like, “It’s different here now.” and “Don’t be a renter.”
A press release he issued, based on reason so scant,
I’m sure it would embarrass, old Immanuel Kant.
A flask of straight Kool-Aid, he finished in one chug;
Declared “Mission Accomplished”, then ranted so smug,
“The Oracle of Omaha has nothing on me,
The California Orifice…Second quarter, you’ll see.”
Then laying his fingers aside of his toes,
Up the lower extremity of his digestive tract, he rose;
Next time I buy a lotto ticket here in California I’m going to cross my fingers and toes just like lereah hoping it gives me a better chance at winning!
LMAO!
“Scarface Wanna-be’s”
Small snippet in today’s USA Today article on how escalating violent crime is derailing urban renaissance efforts.
From Miami-
“The market is literally being flooded with assault weapons coming from Eastern European old Soviet bloc countries.
Ak-47’s are selling for $150 to $200.00 compared with $700 or more not long ago. Every jerk who wants one can have one…”-Police Chief John Timoney.
Yup-and with a few extra parts, everybody’s on full auto.
Wheee doggies!!!!
Body armour for the masses!!!!
Luxuary condo’s anyone?
It’s over. Got that. It’over. Any homeowner who bought in recent years and got a sub-prime loan and or refianced is now at the mercy of the banks that set this up. The federal reserve is no more federal than fereral express. Why was the new bankruptcy law passed in 2005? Think this was a accident? Can’t walk away without getting a judgement filed against any home debtor now! If you cannot understand this, I feel sorry for you. For all those who thought this was such a good deel or did not belive the banks wanted to “hook” homebuyers are now debt slaves for many years to come. Stupidity in its simplist form. It’s over.
I second your opinion, and as an off-the-wall indicator, site the sudden uptick in the number of blog postings here. Do you think there might be correlation between the number of posts here and the rate at which the housing market is turning down (I do — and the financial markets are also correlated…)?
I can remember when posts we’re like 40-60 a day. Now, when I come back here, it’s like 180/200+.
This is really picking up some incredible steam.
Woooohoooo! we’re no longer moving at 5mph kids!
were* ugh. Damn cocktails!
ITS OFFICIAL:
http://bakersfieldbubble.blogspot.com
“The National Association of Realtors reported that there was an 8.4 percent drop in the existing home sales in 2006, falling to 6.48 million from the record 7.08 million level in 2005. It was the largest decline since a 14.8 percent drop in 1989″
“The National Association of Realtors originally reported the decline as the largest since 1982. The group subsequently corrected that information, which had been reported in an earlier version of this article”
DL & the NAR can’t even report on numbers they themselves maintain, even for a press release. Incompetent buffoons.
Guys guys, relax. It’s still a soft landing.
“Lereah said that in 2005, 40 percent of the market represented purchases of second homes and investors buying homes looking to resell them for quick profits. He said that speculators had now left the market and that should leave sales at a more sustainable level.”
What a load of bullcr@p. Speculators left the BUYING side of the market and are now on the SELLING side. This means LOWER SALES and HIGHER INVENTORY for this year.
and of course LOWER PRICES - a verboten phrase in the REIC universe.
David Lereah would have been a great captain of the Titanic “While we have hit an iceberg and are taking on water, the rate of sinkage is slowing and we may have seen a bottom in amount of water taken on per minute. I have my fingers and toes crossed that we may have reached an acceptable level of flotation”
“Lereah said that in 2005, 40 percent of the market represented purchases of second homes and investors buying homes looking to resell them for quick profits. He said that speculators had now left the market and that should leave sales at a more sustainable level.”
Sounds like Nazi-Propaganda when they made the people believe on the Endsieg. When the investors sold, they sold to other investors (or did we have an explosion of first time home buyers last year ?). I think, only the clever investors are out now and sold to not so clever investors, who in turn will sell again, as soon they realize that prices did not hit the bottom yet.
“‘In response to slower market conditions, we are managing the business more conservatively by slowing new investments in land, renegotiating construction contracts on existing projects and aggressively managing overhead,’ Meritage CEO Steve Hilton said.”
Translation: we are walking away from land options, subs will be unemployed and to our employees: pink slips are on the way
From the Arizona Republic: “Builders are finding they don’t need all of the land they loaded up on during the frenzy.”
Don’t need all of the land? A FRENZY?
But I thought that they aren’t making anymore land, real estate always goes up, and we’re priced out forever!
Lower prices on the way! Resistance is futile.
DR Horton reported numbers that beat Wall Street expectations due to lower than expected write-downs.
Ok, HOLD ON!
Since there is no standardized rule on when HB can or need to write-down land options or impairments, HBs can choose when they want to put these write downs on their books. The HBs can also choose to perform the write downs in one lump sum or piecemeal.
Soooo, like some of the tech companies that moved sales numbers into the current quarter or the next to level sales figures or like what Fannie Mae was doing, HBs can “fudge” their quarterly figures to meet or exceed Wall Street expectations based on if they want to write down some, all, or none of their land options/impairments.
Wow, that’s gaming the system, don’t you think?
Does any one know of a site which has a graph of monthly foreclosures. Also what is relationship of foreclosure to when market bottoms, for example, the stock market moves up 6 months before recession finishes and vice versa.
In SoCal, it seems like foreclosures peaked around 1993 last time (three years into the correction) and the market bottomed out in 1996 or so. My recollection is fuzzy, but you can get great insight from this powerpoint presentation (in .pdf format):
http://www.realestateclubla.com/pdf/Cagan_FireBurn_1104.pdf
When I was a kid, if you were going to tell a fib (lie), you would cross your fingers.
DL isn’t wishing, he is lying!!!!!
This is what CBS marketwatch has to say about DL.
http://tinyurl.com/28nay4
Basically all about his lies in 2006
WTF does he mean by …
“He said that speculators had now left the market and that should leave sales at a more sustainable level.”
They have stopped buying and are now selling ???
They have all sold and not buying anymore ???
In either case wont that mean we’ll have muhc much lower sales from now on out to the point where its all gone and demand catches up with supply.
Cool.
Cow_tipping.
Cut and paste error.
40 percent of the market represented purchases of second homes and investors buying homes looking to resell them for quick profits. He said that speculators had now left the market and that should leave sales at a more sustainable level.”
That first part I left out. 40% = huge. Like market crashingly huge.
Cool.
Cow_tipping.