“An Extra Complication Moving Forward”
Some housing reports from Wall Street and Washington. “Amid brightening hopes that the U.S. housing market is stabilizing, some economists are zeroing in on a piece of data that could augur badly for the consensus view: the homeowner vacancy rate.”
“That figure has climbed to its highest level since the Census Bureau began tracking it four decades ago. Last week, the bureau said that in the final three months of 2006 there were about 2.1 million vacant homes for sale.”
“J.P. Morgan economist Haseeb Ahmed said the overhang of vacant housing stock could erode existing home values as sellers slash prices to move their vacant properties. Economists fear that many vacant homes are owned by speculators who are stuck with investment properties that they can’t sell and may be under increasing pressure to drop their prices. ‘We are concerned that there could be downward pressure on prices for awhile,’ Mr. Ahmed says.”
“The homeowner vacancy-rate increase ‘does temper your outlook’ for new construction, says David Seiders, chief economist at the National Association of Home Builders in Washington. ‘There clearly are uncertainties about how this is going to work its way out,’ says Mr. Seiders. ‘I keep preaching to builders it’s not time to ramp up production.’”
“The owner of a vacant home, could be more willing to drop the price to minimize the cost, than a homeowner who lives in the home and doesn’t have to sell. Jon Estridge owned a pair of investment homes in Virginia that sat empty for several months last year. When the market slowed, it was difficult not only to find buyers, but also to find tenants who would pay enough rent to cover his mortgages.”
“‘It eats you alive,’ said Mr. Estridge. ‘The market is going down, and you are paying a mortgage.’”
“He eventually sold one home last spring, after dropping the price. He bought the property for $395,000 and sold for about $35,000 less. The other home sold for $260,000 in late August after he dropped the price by about $30,000.”
“‘I think a persuasive case can be made that the reason we are seeing such extraordinarily excessive vacancy is because of the heavy investor demand over the past few years,’ said Richard DeKaser, chief economist at National City Corp.”
“‘This whole thing has been new,’ says Mr. Seiders. ‘We’ve never seen this kind of investor activity and we’ve never seen this kind of (vacancy) resale. It’s an extra complication moving forward.’”
From Reuters. “A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn, Merrill Lynch said in a research note released on Monday.”
“‘Looking at the inventory backlog and still-stretched affordability levels, this story is far from over,’ Merrill Lynch economist David Rosenberg wrote.”
“A Commerce Department report showing the homeowner vacancy rate rose to 2.7 percent in the fourth quarter, well above the year-earlier level of 2 percent. Goldman Sachs analyst Jan Hatzius noted that the vacancy rate had fluctuated between about 1 percent and 2 percent for the past 50 years.”
“‘By itself, this would point to a fairly enormous supply overhang and little prospect of a bottom any time soon,’ Hatzius wrote in a research note.”
From USA Today. “Housing is proving to be one of the biggest wild cards in the economy in 2007 as analysts are deeply divided about whether the worst in the downturn is over or there is much more pain to go.”
“Wachovia senior economist Mark Vitner says although recent housing data have been upbeat, they have been skewed by warmer-than-usual weather. ‘That brought out a few more buyers and allowed for more building in the Northeast,’ he says. Vitner says the warm weather ‘pulled sales forward.’ Come spring, housing activity will be slower than normal, he says.”
“‘I haven’t met a home builder yet who thinks things have bottomed out,’ he says.”
“Economist Tucker Hart Adams says the housing market won’t stabilize in 2007. The combination of resetting adjustable-rate mortgages, homeowners unable to keep up with payments on so-called exotic mortgages such as interest-only loans, and other debt will lead to higher foreclosure rates and more homes on the market, she says.”
“‘It’s really optimistic to think that it just took a little adjustment and everything is fine,’ she says.”
National Mortgage News. “Should loan brokers be held accountable for all the early payment defaults that are hammering the nonprime sector? One due diligence expert told us ‘bad’ brokers should be run out of the industry on a rail. Several wholesalers are scouring their broker-clients for bad actors with the intention of throwing them overboard.”
“Just how bad was the loan underwriting at Mortgage Lenders Network? One servicing official who worked there told us the privately held non-depository funded a ‘a ton of bad loans.’ He said underwriting was so poor that a 27-year old who claimed to be making $14,000 per month was approved for a $500,000 mortgage on a stated-income loan. The mortgage is now in default.”
“Capital Alliance Income Trust Ltd., a mortgage REIT, released a shareholder letter to address recent organizational changes and operational challenges that the company faces to restore profitability in 2007, dated February 2, 2007.”
“As we enter 2007, approximately 34% of CAIT’s mortgage loans are non-performing assets (as measured by mortgage payments delinquencies in excess of 60 days). Due to the partial financing of the mortgage loan portfolio with debt, non-performing mortgage loan balances are currently estimated at approximately 51% of total shareholder equity and approximately 95% of common shareholder equity.”
“Until this situation improves, management will focus on curing these delinquencies, in order to restore income and protect shareholder value. Until these ratios improve, operating income and new business initiatives will remain constrained.”
“2006’s fourth quarter financial results will require additional loan loss expenses (reserves) to account for the mortgage portfolio’s identified losses. If the residential housing market continues to soften or if the economy slips into a recession during 2007, additional reserves may be needed.”
An update. “Mortgage Lenders Network USA Inc. on Monday filed for Chapter 11 bankruptcy protection, becoming one of the largest casualties among ’subprime’ lenders as the U.S. housing market slows.”
“The Middletown, Connecticut-based company…had been the 15th-largest U.S. subprime lender, filed for protection from creditors with the U.S. Bankruptcy. It listed more than $100 million of assets and debts, and in excess of 5,000 creditors, court papers show.”
“The filing suggests that Mortgage Lenders’ attempts to find a suitor had broken down. On Jan. 2, Mortgage Lenders had said it was in ’strategic negotiations’ with several Wall Street firms about its loan operations.”
“Mortgage Lenders made $3.31 billion of subprime loans in the third quarter of 2006, according to National Mortgage News.”
Is it my imagination, or is the latency time between when bloggers like Russ, CR, etc post their graphs — and when the main stream runs with the story — shortening?
i don’t know what the fuss is with all the graphs and statistics. it’s time for a little common sense, like 1+1=2. ok, so let’s look at the RE market. price has doubled over 3-5 years period depending on where the market is. The market has slowed in the last six months. prices declined from 1-10%, again depending on the location. Affordability is at all time low. so if a person were to predict that this is the bottom and prices will rebound to appreciate in 2007, you can just see the brown stuff coming out of their mouth. so sit back and chill. let the market works itself out. so need to get all work up. because common sense never goes wrong.
From USA Today. “Housing is proving to be one of the biggest wild cards in the economy in 2007 as analysts are deeply divided about whether the worst in the downturn is over or there is much more pain to go.”
How could there be any division on this issue what-so-ever? Which economist think the light at the end of the tunnel is coming into view? I’ll bet they have a hammer and cresent wrench in their garages but I’m not going to let them rebuild my transmission.
It comes down to who is paying for their “research”. If your employer or primary benefactor (e.g., sugar daddy) is the NAR, MBAA or NAHB, you will supply whatever “data” is required to spin things in your benefactor’s direction in order to keep your job.
We see this happening all the time in many industries. Hence, the “debate” over anthropogenic global warning, stem cell research, whether or not sugary foods and trans-fats are good for you, etc.
The debate over global warming is how much humans are affecting climate change. If humans are responsible for 10% of climate change, and we cut our emissions by 10%, then that would only have a 1% effect on the total climate change that would naturally occur.
The Kyoto Treaty in its present form is worthless. There was a reason all it was voted down 97-0 in the Senate that included nearly 50 Democrats. The two fastest growing countries with 40% of the world’s population are exempt from the regulations. In another two decades, India and China will catch up to the US in carbon emissions. We could cut our carbon emissions by 100% (impossible) yet pollutions would increase dramatically.
Remember that when the Vikings first landed on Greenland around 1,100 years ago, it was actually green. There were many settlements and over 3,000 colonists farmed and raised cattle there. Only 300 years later, they were all dead or had fled to New Foundland due to rapidly cooling temperatures.
There’s no doubt that we need to cut down on pollution, but this “sky is falling” nonsense from the global warming crowd does a disservice to science. I still remember the “coming ice age” alarmists from the 1970’s. Where are they now?
This is totally OT, but I thought many of the Viking settlers of Greenland died due to fighting with the indigenous tribes of Greenland.
Paid for by ExxonMobil.
Just finished reading “Collapse” by Jared Diamond, the author of Guns, Germs & Steel. He offers much on the Vikings experience in Greenland and paints quite a different picture than you do. Sure, it was Green when they arrived, but the quality of that Green was very poor. Cooling temps didn’t do them in, the land simply could not support their #’s and farming methonds. That and they seemed to have bad habit of pissing off any natives they encountered. Doh!
It was theorized that they fought with the indigenous tribes. Most of them died from the cold weather. The average height of the first settlers was 5′7″. Four hundred years later, the average height was under 5 feet.
I’m still waiting for my check from Exxon and Chevron. I guess it’s not cool to question authority when it comes from certain people.
This morning I heard on the radio that the more serious environmental problem than so called “global warming” or “global cooling” (depends on which decade and which set of liberals control the media), is indoor pollution. Indoor pollution kills an estimated 1.5 million people a year. It is mostly in third world nations. Of course, mainstream environmentalists in developed countries gluttonizing themselves on Thanksgiving days give no thought about that.
“was voted down 97-0 in the Senate”
ugh, are you sure you are talking about this in the current historical timeline and not some other parallel ones?
On that same note, what caused the ice age to end and the glaciers to melt all the way from the US back up to Canada thousands of years before there were fossil fuels. Was that Gobal warming too?
OK HARM,
On the global warming thing. As an engineer and scientist I have extreem doubts about the climactic models the scientists are throwing out there. Its a continual battle to get guys to admit that we just don’t know if we are in a man made warming cycle, a natural warming cycle or perhaps heading tword an ice age. Its really a near complete unkown. The climate data has been interesting and some statistical anomallys have occured recently BUT nothing really in a six sigma event (thank God).
Competing data shows high altitude air cooling and mixing more violently so that shows a cooling trend is happening. Similar early models ignored things like the effect of heat exchange with the oceans… So of these jokers making models were able to turn around new models including all the oceans in just a few months. That was laughable when it happened.
I am all for energy independance and conservation. The potential for this effect should not be ignored BUT don’t get super confident in it.
Transfats…. uhg… I hope they ban them everywhere.
Actually, Kyoto was voted down 95-0 in the Senate in a bi-partisan resolution in 1997. You can do a google search on it yourself. I know it’s not cool, but it’s true.
“Kyoto was voted down 95-0 in the Senate in a bi-partisan resolution in 1997″
maybe if you mean voted down as follows, i will agree with you. the byrd-hagel resolution was passed even before kyoto protocol was finalized. the protocol was never submitted to the senate for ratification.
Really, what did cause the last ice age to end?
Hmmm No oxygen above 10-12,000 feet because O2 is too heavy. But wait, carbon dioxide is 27% heaver. It must go up into the air an trap heat.
However one feels about the reality of global warming, China is a real-time model of what happens with development without restraint or environmental concerns…No one wants to see America in these straits.
China’s environment is edging closer to a condition of crisis with each passing day. Pollution and environmental degradation have already left scars and will continue to create problems as the situation worsens….
There is little disagreement that China’s environment is a mounting problem for Beijing. The country produces as many sulphur emissions as Tokyo and Los Angeles combined but with only a fraction of the vehicles; China is home to 16 of the world’s 20 most polluted cities; water pollution affects as much as 70 percent of the country; air pollution is blamed for the premature death of some 400,000 Chinese annually; crop returns are steadily decreasing in quantity and quality because of polluted land and water; and solid waste production is expected to more than double over the next decade, pushing China far ahead of the U.S. as the largest producer (The Economist, August 19, 2004).
http://www.asianresearch.org/articles/2758.html
Jerry:
IMHO — either you believe scientists and the scientific method or you don’t.
You’ve accepted a rather plausible — but ultimately false model — that global climate change has occurred before and therefore who is anyone to say that what is occurring now is caused by humans.
In reality, past periods of global climate change have been attributed over and over again to some combination of volcanic explosions, large asteriod hits to earth, or earth-orbit pertubances. The past hundred years have shown none of this. In the past 100 years, scientists have conclusively proven that atmospheric concentrations of CO2 have gone up exponentially than in any time in the earth’s history (as recorded by ice core CO2 concentrations). Temperatures are indeed rising — glaciers are indeed melting — and storms are getting more severe.
The really, really scary part of all this is that we are approaching a tipping point. Ice sheets in the arctic and antarctic act as heat reflectors. As they melt, the earth heats up faster and faster. This process will become unstoppable.
Imagine sealevels rising by 10-20 feet. You think Florida real estate is tough to sell now. What happens when it is all underwater?
Your chicken-little (”sky is falling”) reference just demonstrates your misplaced confidence in your ability to draw conclusions from inaccurate facts.
You would serve yourself to by actually reading the scientific reports. Read the papers. Try to understand the climate models.
I am taking the warnings on global warming very seriously BUT I have a lot of doubt as to how the effects will manifest. As someone aluded to above the CO2 is causing more surface warming.
Another potential effect was the increased energy might mean more water vapor and more rain. So the melt off might stop and glaciers build up.
So, the scientific papers are speculations. The models are a speculation.
Worth doing something about but going on about sea levels rising exc is just fear mongering BS.
We are in danger of the magnetic feild switching off and having radiation kill everybody in equatorial areas too.
Think we should build radiation sheilds and live under water tanks?
James:
You wrote:
“The scientific papers are speculations. The models are a speculation….. but going on about sea levels risings is just fear mongering BS.”
Either you believe in science and the scientific method — or you do not. From the tone of your message, it appears that you do not.
At the point, to the average citizen, science must appear completely like magic.
Before you decide that you indeed are smarter than scientists — you might consider learning some science.
Here is some brilliant bit of science that is way, way beyond the average person: Maxwell’s equations. Learn more here: http://en.wikipedia.org/wiki/Maxwell’s_equations
.
Just scroll through the page and see how much you “understand”. And what you think are “speculations”? Can determine the equivalence between the Differential form and the Integral form? Can you derive them through empirical observations? How do Maxwell’s equaquations square with general and special relativity? Why are they relevant today?
By the way, this scientist dude Maxwell figured this out in 1864. And this is basic college level physics. I’m guessing you didn’t do any college level physics.
Before you go on about scientists speculating, and fear mongering, it would behove you to understand a bit of science and the scientific method.
It is utterly shocking that the country and citizens who gave the world the airplane, electric power, the computer, modern medicine, nuclear power, put a man on moon, the internet and on and on is now the only country in the world where the science of global warming is being challenged by non-scientists. Sad.
That light at the end of the tunnel is a freight train
so let’s look at the RE market. price has doubled over 3-5 years period depending on where the market is
Yeah-And Harley-Davidson Motorcycles wants a new wage contract with lower starting pay and higher health care payments from it’s next generation of workers.
Doubled housing costs + lower wages/benefits = Dead market
So that’s where the “hd” comes from!
From Bill Fleckenstein
‘My friend in the subprime business said that WMC Mortgage, a wholly owned subsidiary of General Electric, is laying off 35% of its work force, taking a $100 million charge and cutting back on its writing of loans. But what’s even more important, he notes: ‘They (WMC folks) are going to get rid of all 100% financing on all borrowers below 700 FICO. Also, (there will be a) 95% cap on first-time homebuyers. All we talked about is coming to a head. Now watch the home builders suffer.’
‘(Editor’s note: A WMC spokeswoman declined to comment on what she called ’speculation’ about layoffs and said the company is currently adjusting the types of loans it makes and its guidelines for underwriting loans. As for the charge, she said there have been more requests than usual from WMC’s investors asking that the company repurchase loans from those investors).’
Systemic risk at its worst: Automakers who “diversified” into the subprime lending sector.
When did General Electric get into the car business?
even worse……refrigerator manufacturers making home loans. Auugghhh.
GE capital is one of the most profitable companies in the world.
However, seeing them tighten up screams “run for the hills.”
95% loan cap? Woo hoo. Ok, anyone who cannot come up with over 5% down (when sellers are paying closing costs) is going to be a huge risk. Gee… $50k on a $1.0M home… When that home drops 15% I’m sure they’ll stick around. Not!
Got popcorn?
Neil
GE is into EVERYTHING. Frankly, I’m amazed how they do it all so well. If they’re tightening, everyone else will take notice.
Most US “industrial” companies have substantial credit divisions. GE, GM, FORD they all have a big fist in the $$ lending cookie jar. Nortel and Lucent went broke because they lent money to move product. It isn’t good business to sell things to people who can’t pay for them, it’s about to be found out in housing now.
If all the lenders are tightening lending standards, what is going to happen to all those people who were told they could refinance before their ARMs reset?
“If ?”
It is not an “IF” anymore. And the answer to the question abouth the borrowers is easy, they will be in rough shape.
One big “Doh!”
Oh, they’ll just go their Plan B. What? They don’t have a Plan B? Uh oh. Looks like jingle mail is coming.
B for bankruptcy; there’s your Plan B.
B is for border?
As in run for the border and I’m not thinking about Taco Bell.
Got popcorn?
Neil
Oh, they can probably find somebody who will make them a fixed-rate loan … at a rate higher than their ARM will reach any time in the next several more years !
Nah, hard money lenders require equity and lots of it remember.
Exactly. No point in lending $’s at any rate if you are not going to get paid back AND the loan exceeds the asset value. These people have nowhere to hide now.
Oh no! The hamanity…
But..but..but.. the lenders promised.
Greenspeak said to do it…
What..what..what did they do wrong?
“If all the lenders are tightening lending standards, what is going to happen to all those people who were told they could refinance before their ARMs reset?”
But…but…you said…
What % are below 700 FICO? Any idea where such information is published
Read a couple days ago, the average FICO in USA is 650. Sorry no source.
Not sure about %, but 700 is considered a “good” score, at or above average. I don’t think they grade on a curve, but above average implies that the majority of people are below it.
58% of scores are above 700 so that means 42% are below 700 according to Fair Issac.
Info is at
http://www.myfico.com/Downloads/Files/myFICO_UYFS_Booklet.pdf
It has been my experience that GE will “F” anybody they can and they are a very smart operator. So if GE can’t make it in the sub prime business, I don’t see how many of the more friendly outfits are going win in this market either.
IF GE is running from sub-700 FICO’s… they’ve lost faith in over half the market. A very smart operator.
Sound the dive alarm.
Start the popper.
Melt the butter.
Salt shaker in hand.
We have a show to watch.
Got popcorn?
Neil
Wow, I use WMC a lot I’m going to have to make a phone call about that and look into it. The fact they are eliminating 100% loans for anyone with less than a 700 fico is a 360 degree turnaround and hard to believe. Interesting…
I also find that very difficult to believe. I need some confirmation on this one. I am going to call a few people I know.
Ok, what I’m getting I’m taking with a grain of salt because I have a few in the pipe with them. But some alterations to the products are coming down the line I was told. A tightening if you will. However, 700 Fico for 100% was laughed at… So we shall see.
I haven’t heard anything myself from my WMC folks, altough it seems lately I find out news before any of my reps at my wholesale branches pass it along. Funny how they’re sometimes last to know they’re out of a job.
Tell me how you really feel Mrincomestream about recent news on the sub-prime outfits and changes in lending .
To be honest Wiz most of the lenders falling down are relative newcomers if you will and you expect some fallout from them when the winds change. Although I was quite surprised by one. As far as them changing lending standards…. Well what they are falling back too I was brought into the business on. So for me I go back to a relative comfort zone that with the exception of a few deals here and there I never really strayed too much from. For my core business it just doesn’t really matter. Especially since for me to get involved with a buyer and a purchase loan on a single family house would just about require an act from Congress and sedation. I just don’t go there much if at all. With lenders if 10 go out of business tommorrow you’ll have a new one the same day popping up claiming they are the best thing since written words loose lending and all trying to get apps in the door even with the bubble popping. As you have said before the genie has been let out of the bottle and it’s just going to get worse from here because shareholder demands have to be met bubble or no bubble. The lion has to be fed if you will. I’m sure, you are very well aware of the drill.
When all is said and done IMO subprime is not going to go away or become draconian, much to the chagrin of many here because there is a demand for it scream and bitch all you want, but the reality of todays world is that 700 and above FICO scores are the minority not the majority and are very hard to maintain especially if you’re not independently wealthy or have some form of gov’t job and stay within the means of your wealth and job, secondly if a banker figures he can make a few more dollars on the spread because you mismanged your finances or stumbled in life then he will if not he will be replaced. Especially if you take into consideration the way Lenders calculate TVM and Loss. Even with Wall Street taking the hits as they are now, next week, next quarter, next year some wiz kid will come up with a new structure to make it viable and profitable paper and they will start buying it again. It’s just that simple. Call for new legislation all you want within 30 days of passing any law some Lender will send you a email touting a program that circumvents it. So it’s up to borrowers to become more dilligent about what they are signing up for and resist the temptations of greed and easy money. Caveat Emptor should be all buyers slogan.
Is there a bubble? yes, is it popping? yes, will prices drop like a rock? yes and further than most think, will lending standards tighten and crash the market further? yes, will subprime go away and 20 to 30% down payments become the norm? no not in this lifetime and if you think so you are fooling yourself.
Well said. Thank you.
Yea… but historically, sub-prime as a fraction of the market drops every downturn. It will go back to its 2% norm.
MBS buyers can only be screwed so long. Down payments will become more normal. Will some Wiz figure out a way to bring it back? Certainly.
But we’ve seen credit tightening before; its happening again. A predictible pattern.
Got popcorn?
Neil
I have to say I agree with 100%!
Neil-
Would love to agree with you. But I don’t thinks so… Will credit tighten yes but not in the form of down payment but more so in income qualification and interest rates which is going to affect price moreso than downpayment requirements. You can talk about skin in the game blah blah blah, but I look at that as mindless chatter. From my years in the business whether they put in 0% or 50% a loss is a loss and most people go through great lengths to avoid it. Plus with a -1% savings rate most lenders will find out real quick that in order to survive requiring a 20-30% downpayments is going to equate to the kiss of death. They make their money lending money. Not being the morals police. They will pull prices down to nothing with interest rate and income requirements before they go back to large downpayments IMO. You’re just not going to find people with that kind of money saved. I just saw a post on Broker Outpost where a guy said he was dealing with a 51 yr old couple with 3 grand as their total savings i see it everyday and as sad as that is you’re not going to correct that in a year or two. Do you really think the banks are going to sit back and wait untill a pool of borrowers save a downpayment of 20%? You’d be sadly mistaken.
I think you’re going to see a lot less stated and no doc loans although you couldn’t tell that by my inbox and as far as MBS paper well there is a price, risk tolerance, and buyer for everything have no fear there.
Prredicatable pattern yes, but there’s a few thorns in there this time around that’s going to make the end of this cycle very interesting.
I was away mrincomestream and I didn’t see your post . Thanks for responding because I was curious what you were seeing out there and think will happen .
It’s true that the industry always comes up with a new lender or new angles to lure the investors in from the
secondary market ,but ….but ……How many investors are going to be gun-shy for years ? Part of the answer will be that they will put insurance on loans I think because the secondary market will demand that the risks factors be zero (I’m saying that this will happen after everything shakes out ). Anyway , I think more regulations are coming down the pike after tons of Senate Hearings and the old “Were shocked and dismayed “,at the amount of foreclosures .
I don’t know what a FICO score does for effecting affordability
mrincomestream,
Good post and thank you for your inputs.
I just don’t expect most sub-primes to survive nor their imitators. The ones that will survive are already cutting back agressively by 35% to 50% in their loan origination volumes. GE, GMAC, Countrywide, Fremont, Ameriquest, and others have all announced major layoffs (or cut off “independent” brokers). So they are taking the volume hit.
I’m basing my opinion on what BBB rated MBS bonds have been doing the last few weeks. Buyers have lost all appetite for them. With the drop in the bond valuations, the interest rates on subprimes will climb back to their normal risk premiums.
http://www.eurobondonline.com/abx-HE-BBB-06-2.Htm
But who is going to take the risk on the first 20% of risk? I don’t think banks will have much of a choice if they cannot package off the loan.
The drop this year has been about 2.0% to 2.5% of the bond’s value. That implies an increase in the interest rate of the mortgage going up by 0.4% to 0.8% (risk/FICO dependent).
Oh, high FICO low debt/income customers will have no problem getting a 10% down loan +PMI. FHA will cover most of the rest. I agree the government cannot let the market come to a complete halt. But typically in a downturn the loan volume drops to 1/2 the peak. Since this peak is 50% higher than normal… We’ll see loan volume drop to 1/3rd of the peak. Cest la vie. Ut is going to make us pine for a minor problem like the S&L crisis.
Its not going to be the banks determining what kind of mortgages they offer. Its going to be the FDIC and other bank regulators for a few years.
We’ve had junk bond crisis before. Its happening again.
This will be interesting, but only a recession (a bad one, but only a recession).
Got popcorn?
Neil
Neil-
Here’s the thing… You’re giving me a numbers don’t lie argument . In short… Here here Bud, I’m riding shotgun with you on that one.
You’re correct some fat trimming is going on. Cutting off independent brokers is nothing new bubble or non-bubble. GE, GMAC, and Countrywide are not really independent broker friendly in the first place and Fremont is not exactly somewhere a lot of indepent brokers would choose to place their loans. There’s a host of better options for the broker and his clients in terms of commission and rates for his clients. Actually those guys are a little late in doing that. The smart lenders stopped in 05.
“But who is going to take the risk on the first 20% of risk? I don’t think banks will have much of a choice if they cannot package off the loan.”
If they continue to sell the product at the current 80/20 split rest assured there will always be buyers for that. Tons of them private and institutional. Me being one of them. Especially if the price and discounting is right and it will be shortly.
“Its not going to be the banks determining what kind of mortgages they offer. Its going to be the FDIC and other bank regulators for a few years.”
Not being flip but you may want to do some research on how “unregulated” that regulated industry is in regards to lending particulary housing. I think you would be horrifically surprised. It also would be be very wise of you or anyone else to take that FDIC $100k liability insurance very seriously. When the Fed spoke out recently against the neg-ams and interest-only products they spoke about “suggestions” not “regulations”. Didn’t that appear odd to you? Did you ask yourself… why? Research it. I’m not up for a thesis tonight.
It’s easy to grayline a lot of stuff in the housing lending industry. Just look at the mockery that has been made of RESPA and other laws. If the gray line in the real estate/ mortage broker industry is a country road. Then the gray line for the supposedly regulated banking industry in regards to house lending is an 8 lane highway.
…will subprime go away and 20 to 30% down payments become the norm? no not in this lifetime and if you think so you are fooling yourself.
So you’re saying “it’s different this time”, eh?
Sure, subprime will always be here. Yes, 0% down will also be around. I/Os, ARMS, etc. … none of these will entirely go away.
HOWEVER, risk is risk, and the price of assuming risk will rise to appropriate levels. IOW, if you don’t have a large down payment AND excellent credit AND good income AND a stable job, you’ll pay for it dearly in much higher interest rates.
Of course, you are right in that sub-primes will soon dominate the landscape, as this housing bust will ruin a lot of previously good (but naive) people’s names. What will happen in a market composed mostly of sub-primes that are stuck paying sky-high rates? Housing prices will have to come down that much further.
Stand back… this is going to get real ugly.
I really enjoy Bill Fleckenstein’s articles. Does anyone know if he has a regular website? His article appear from time to time on msn money, but I was wondering if he has something more formal.
Yes he does, but he charges you $120 per year.
http://www.fleckensteincapital.com/index.aspx
His free articles are on Mondays and Fridays on msn money.
It seems to me that rental rates in and near downtown San Diego are dropping a bit. Not much… maybe $50 to $100 per month. My observations are frrom Craigslist… and likley involve condo owner rentable units vs apartment complexes. These observations are different than what recent apartment manager surveys have found… which that source indicate a slight increase in rents.
My own surveys of Craigslist for the LA area (we’re planning a move this summer) bear out the same thing. Rental rates have dropped on $50 on average in the areas where we’re looking. Also, there has been a noticeable uptick in available units. Didn’t somebody here predict that last Thanksgiving ?
Yes, I stated that in Sept., flying in the face of the main stream media, when they were predicting the softening housing markets would cause rents to rise. Exactly opposite. And you are seeing it now. Wait a year, when all the apartment investors, who paid top dollar, have dropped rents 10-15% and are running 80% occupancy. This will create huge negative cash flows and you will see whole complexes go back to the bank. What, you say it can’t happen? Revisit 1994-1996. This is nothing new.
The other interesting scenario will be to see what happens to all the developers who bought apartment to convert them to condos. They already overpaid for them as apartments, so they get the double whammy.
Sell all your apartment REIT stock now.
Rents are dropping in my area too: Ventura County and I’ve reported that here a few times, even when bubblewatchers were predicting rents to rise. There is too much vacant inventory, including unsold houses whose owners have moved out of state.
Same for Bainbridge Island near Seattle. I see a lot less of the first-and-last-months’ rent thing too.
And this area is six months behind the curve!
Ditto this post. Rent are dropping in SD. I check out Craigslist everyday, because I’m planning on moving soon. In some cases, rentals may seem to be the same, but you are getting more for the buck! Garage, location, upgraded kitchens, etc…..
Ditto this post. Rents are dropping in SD. I check out Craigslist everyday because I’m planning on moving soon. In some cases, rentals may seem to be the same, but you are getting more for the buck! Garage, location, upgraded kitchens, etc…..
Remember, one month free is an 8.6% DROP in rent.
Same here in SB County, CA. Since my lease is coming up, my landlord tried to increase the rent $100. I shot him 10 listings from Craigslist, all with same or more square footage renting for same or les than current rent (with one month free incentives). He backed off.
All I can say about winter monthly vacation rental rates here in Morro Bay is, they are no higher than last year’s.
NYC anecdote:
Im getting ready to move (UWS in NYC). Last year when I renewed my lease, the managing office said take it or leave it for rent increases. This year when I did not renew, the managing office actually called me to see if they could make a deal. I bet I could have gotten the rent cheaper. I also know the exact same unit one floor below me is renting for 136% of my rent (suckers). It will take them at best 2 months to rent my unit.
I can see the building across the street has just from my view at least 15 empty apartments. The salesman from the moving company who gave me an estimate, and had just come from the building across the street said people are moving left and right in NYC because rents are getting jacked up 20-30%.
Having been in my building for 4 years and having gotten in when they were giving away free rent, my current rent is well below other rents. But there is a finite level to what people will pay, even in NYC.
I just moved apartments in the same building in Brooklyn. The renting situation seems much different there. Its been two months and they still haven’t filled my old place. Plus, no rent increase when I started my new lease. Manhattan seems f**ing crazy though. Most people I talk to that live in Manhattan have seen their rents go up by 8% a year for the last two years.
This weekend I moved out of an Irvine Companies apartment to a private single-family residence. The Irvine Companies has been churning rents about 5% a year for each of the last 3 years. They are now overpriced relative to single-family homes. My renewal rate was $2 per square foot, whereas my new rental (albeit much larger) was $1.17 per square foot. The Irvine Companies is having some vacancy problems, and they are upping their incentives. IMO, rents will start to come down this summer when the spring buying season fizzles.
The time for rising rents may be over.
I’m one of the posters who said rents were rising over the past year — and the did by A LOT!
As an example, we rented our house in 2004 for $2,000. Another house (same model) rented about the same time for $1975 (not as well maintained).
Last year, another house (same model, again) rented for $2850, IIRC, and it was rented out within two weeks! Needless to say, that scared the heck out of me, but LL doesn’t seem motivated to raise our rent at this point.
Glad to see some of you are starting to see rents slide.
Bad underwriting? Maybe that explains this:
http://www.palmbeachpost.com/business/content/business/epaper/2007/02/05/c1bz_rawlscol_0205.html
“Palm Beach County high on wrong list of housing”
“The Housing Leadership Council of Palm Beach County has documented that the ratio of median home prices to median income is 7-1.
Federal guidelines say the ratio of home price to income should be no more than 3-1 to avoid being “cost-burdened.”
Now comes a new international survey of affordable housing that drives home, so to speak, just how unaffordable homes in Palm Beach County really are.
The local housing council’s survey in 2006 showed that 90 percent of Palm Beach County workers could not afford to buy the median-priced home, which was about $393,000 at the time.”
“Palm Beach County home prices - as part of the Census Bureau’s Miami-West Palm Beach Metropolitan Statistical Area - were 7.6 times the area median income.
The survey says markets with at least a 5.1-1 ratio of home prices to median income are “severely unaffordable.”
“Federal guidelines say the ratio of home price to income should be no more than 3-1 to avoid being “cost-burdened.”
“The survey says markets with at least a 5.1-1 ratio of home prices to median income are “severely unaffordable.”
Anyone from California want to run with this one? Its all you baby!
Only 7.6:1? That’s a bargain! Many markets here are greater than 9:1.
Oh my god, what I would give for 5.1:1. I think I will cry with joy the first time I see a decent house in North OC go for that much.
“He said underwriting was so poor that a 27-year old who claimed to be making $14,000 per month was approved for a $500,000 mortgage on a stated-income loan. The mortgage is now in default.”
A 27 year old making $14,000 a month? Sounds plausible. He was probably a subprime mortgage broker putting people into loans at two or three points above what they could have qualified for.
This one almost defies my ability to believe it. L.A. is at 11.4 - 1. That is incomprehensible. I thought the California crash would be catastrophic. Now I’m thinking we may need to develop a whole new series of terms to describe it. This could pull down everything in its wake. How did anybody ever let this get so out of hand? All of the jerks in power had a hand in this one. God help us all.
You got it NYCityBoy ,my feelings exactly .
This is the biggest reason why, even though we are relocating, we are keeping the house we live in in my home town (it’ll join that vacant housing stock problem, but hey, it’s just a little tiny mortgage compared to what’s out in the rest of the country.)
If the whole CA economy gets dragged down the housing whirlpool, we can come home again to dreary, stable, Midwestern prices.
That’s the deal. The smart money will move back to California after the 50% haircut in ocean view places. And it will happen. The equity locusts trapped in their Dallas 5 bedrooms or Cleveland McMansions will not be able to afford to move back to CA.
See ya in Cal when Ocean views in O.C. are in the $300k - $400 k range (1500 square feet).
No kidding…that’s why I have such disdain for clownifornians who want me to buy their overpriced stucco boxes.
There has been a premium in CA for a very long time, in the 4X-5X range. That implies a pullback of around 60% before this is all over…
Yep. California RE is going down.
Ad to that, Californias have “liberated” all of their new equity on a net basis. Think about that a minute… RE shot to the moon, so people should “own” all of that new equity. But… I see it on the road everyday. I see it in “Luxuary travel packages.”
Let’s put it this way, this is the 3rd RE boom I’ve seen in Cali. Only during the boom do Ferrari’s become common on the roads in the south bay part of LA. I cannot go out on a Saturday without seeing two or three every hour.
I hope it was worth driving the redhead for one or two years for the 30 years of payments…
Got popcorn?
Neil
ps
I love so-cal. I hope to buy here. But if my company pulls out of state, I’ll follow my fun job.
Ha Ha! Great post Neil. And you know I followed my consulting job out of Cal. But once a consultant, always a consultant. My heart’s set on buying a 24/7 guarded gated condo in Vegas after the next 50% price drop, then a global warming farm house in NH. But an ocean view California house / condo with quality construction trumps either of those if you can snag it between $300k and $400k. Got 5 years?
NYC BOY:
this is not really a problem. You are assuming these prices are supported by single-family income. They are more likely supported by 5-family incomes. That will be the “new economy” in California. Illegals will fill the houses. Zoning ordinances will be ignored and price inflation will be supported.
Income in LA is difficult to accurately measure, not just because of a preoponderance of income pooling and high std deviation from above board incomes, but also drug and criminal money, smuggling, fraud, theft, immigrants with suitcases full of cash, etc. LA in 2007 is what NYC was in 1907. I had a tenant a few years back who was picked up the day after he signed my lease and gave me a bogus check by the rapidly expanding Asian Crimes Unit of the LA County Sheriff’s Dept because he was involved in some import/export scam. I’m not so sure the ratio is really 11. Given the # of transacations involving cash it might be closer to 9.
RE: CA, I just visited a buddy of mine who bought in Mar Vista (I think that roughly translates to “marred view”), which is in West LA near the SM airport. He paid over 800 and put another 50 into it (and lost another 15 to a contractor who took off before completing the work — a guy recommended highly by his realtor!), AND… it’s a small, stucco box on an entirely charmless street. The trees look dead, there isn’t a single nice house on the block, although the one across the street is listed at 1.2 mill. The schools are so bad that the place is lousy with private schools, the nearby minimalls are also charmless, bad video stores, a 99 cent store, just… bad. I tried to put a smile on my face, tell him it was a nice place and all that, but… I just can’t get over it. I know it’s been happening for years and I should be able to acclimate to it, but to see the devil up close, that’s something else. I’m scared to leave my house.
PS - a note of good news: the same contractor that cornholed my buddy also ran off with money from the realtor.
800k in Mar Vista is grand theft. How do you justify 800k for a neighborhood that contains at least 2 low-income gang infested projects. That place has been going downhill since the 80’s. You should have made an appointment for a head doctor for your buddy. That’s just insane. He could have at least bought in Playa Vista. But I don’t know which is worse methane gas or gang bangers.
I feel for you, having to smile at your buddy, but I wouldn’t rent in Mar Vista, much less buy there! But the RE bug makes people do some *strange* things.
I’m not sure if it’s been posted elsewhere. If so, I apologize. But I wanted to share that the latest quarterly loan officer survey from the Fed was just released. It showed a very big swing from net loosening of residential mortgage lending standards only a couple quarters ago to net tightening. In fact, more institutions are tightening lending standards now than at any time since 1991
I put a post up on my blog, if you’re interested:
http://interestrateroundup.blogspot.com/
Here’s the source report as well:
http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200701/default.htm
1991- always after the fact
If we are in a ‘net tightening’ lending environment, how is the market going to clear all these vacant homes?
Fire sales by owner or the bank.
Or fools with money…soon to be parted.
Nice info.
Net tightening=declinging prices.
I’ve warned friends, save for that down payment. Expect the bank to want to see cash left over after the home purchase to give them a comfort level. One friend was shocked how much I thought would be required to buy in (too much). But then I pointed out, “you have 18 months, get to it.” For the monthly savings rate was acheivable by him with budgeting.
Eventually the banks, MBS holders, or whomever is stuck with the property will have to sell. It will be well before summer 2008. I’ll wait. Patiently wait.
Got popcorn?
Neil
‘Economists fear that many vacant homes are owned by speculators who are stuck with investment properties that they can’t sell and may be under increasing pressure to drop their prices. ‘We are concerned that there could be downward pressure on prices for awhile,’ Mr. Ahmed says.”’
Not to worry there, Mr. Ahmed. We have been repeatedly assured the flippers left the market last year or earlier…
“‘I think a persuasive case can be made that the reason we are seeing such extraordinarily excessive vacancy is because of the heavy investor demand over the past few years,’ said Richard DeKaser, chief economist at National City Corp.”
With statements like these I am starting to wonder if the qualifications these days to be a chief economist are the same as the ones for realtor.
No. Realtors must be able to cross all fingers and toes at the same time. Economists only have to be dumb.
I guess I’m not clear on what his ultimate fears/concerns are…
His concern is that his employer will be left holding the MBS bag full of crap and he will receive a smaller bonus or be unemployed.
“‘It eats you alive,’ said Mr. Estridge. ‘The market is going down, and you are paying a mortgage.’”
http://www.sonypictures.com/homevideo/monsterhouse/index.html
“2.1 million vacant homes for sale.”
add another 1.5 million the builders are planning you get 3.6 million!
Isn’t the household start rate 1.2 million =)
LMAO, we have three years worth of demand vacant and coming on line this year!
Even if builders cut back production to 600k/year (they won’t) we will be in a buyers market till 2012. How long can these stupid FB hang on, my guess is that their BURNT TOAST much sooner than 6 years. How’s that for an INVESTMENT, lose $1,500/mo for 6 years to owe $150,000 more than the POS is worth. Not to mention that inflation will have doubled the price of everything in this time frame.
PACK SAND YOU GREEDY SLUGS!!!
““2.1 million vacant homes for sale.”
Not to worry…the realtor / homeowners will swear that
“It’s not in our area?”
And these are ‘vacant’ homes - without people. Those with people and wanting to sell? The sky is the limit.
Rich, please, don’t hold back. Tell us how you really feel!!!
Oh come on Rich .. don’t hold back … tell us how you really feel.
Hey, I said that already……..
Add the impending baby boomer retirement and it could be a LONG time before a recovery. Mortality issues and that demographic bump could push a recovery far out.
I’d really like to work those numbers. The baby boomers will be demanding the FED fight inflation (higher rates) as they move to fixed income.
It could be a really really long time.
Where is Palladin when you need’m?
I’ve been watching a house in my ‘hood that’s been empty since Spring, 2005. It was put up for sale that fall for 640K - way too high given its size, location and condition. It sat for about nine months and was pulled from the market mid-2006. About mid-September of last year, it was re-listed for $450,000. If they’d asked that to begin with it probly would have sold. The For Sale sign sat for the obligatory 90 days and was taken down.
Today, I find out it sold. So I look in the online DC Property Sales Database and what do I find? Sold, December 12, 2006.
The sales price? $615,000. The place was fairly heavily advertised at 450K. How the hell does this happen? It’s also been two months since “closing.” There are cobwebs on the front door - no signs of life whatsoever.
What is going on? I know real estate only goes up, but I smell a huge, scabby rat on this one.
Better questions:
Who originated the loan? Will any financial institutions buy the loan?
The originating institution should be available as pert of the public record, or at least who’s holding the note now. In my county, you can see that on the treasurer’s tax assessment pages.
In Silly Valley I am seeing very little panic selling or correction and this has me baffled. I am spectator in the front row wanting to see a “crash & burn” show, but it hasn’t started yet.
Ah well, just be patient. I expect the show to start at any moment.
Better SV locations were the first to go up and will be the last to come down.
I’m on the sidelines too, getting a bit frustrated…but willing to wait it out.
A watched pot never boils.
You guys should put it out of your mind for about 3 years. I know it’s tough, I want to watch the train wreck too, but this won’t happen quickly.
We are in the 15 minutes of previews before the doom & destruction movie starts.
I sold my house in Saratoga in Oct ‘05 because I was sure the bubble was going to pop in a month or two. Seems like it hasn’t done so (yet). I don’t regret selling — I am now renting for half what my property taxes were, but surely SV has to fall like everywhere else.
I’d wager it’s a cash-out loan fraud. News of these have actually hit the local mainstream rags in AZ. State gov’t putting together a “task force” to look into it.
Cons find a “motivated seller,” offer them asking price or above with the condition that they slip a big chunk of the difference back to them. Usually it takes two buddies, and one sells to the other. And they trade off like that back and forth. Often just walk away from the house and never make a payment… This one sounds like the original owner got in on it.
The one piece of (admittedly speculative) information I left out is that the property records indicate the last owner’s name was Mildred. It was bought by said Mildred at a time when the block in question was the epicenter of DC’s crack cocaine epidemic and all its associated violence. In other words, the house was dirt cheap even a decade ago.
“Mildred” was a popular girls name in the early 20th Century. Anyone who knows a “Mildred” less than 80 years old, please raise your hand. All this to say, I think you are right about the possibility of fraud, but I wonder, is it “Mildred’s” heirs, or perhaps those responsible for her care? Perhaps I should dig a little bit and see if there is an answer…..
Just for clarification, I assume that if a seller is offered 200K above listed price with the stipulation that the extra cash is given to the buyer after closing (but not disclosed to the lender) that the seller (along with the other parties aware of this stipulation) is a party to the fraud?
The sellers are going to be the easiest to find by far. I hope the lending institutions track these asshats down and prosecute.
We had a front-page story in yesterday’s paper about this happening in my town - we have a lot of older housing stock in a crack-and-guns blighted part of town that as long as it isn’t posing an active danger (i.e. in flames at that exact moment), nobody cares about. Perfect place to run this kind of scam on vacant properties.
Which makes me wonder, with vacancy rates going up in general, if this scam will become more prevalnet in less-blighted neighborhoods. While everyone else hides in their crackerboxes, watching their plasma TVs and praying their comps don’t go down anymore. . .
The “buyer” probably got 150K cash back from seller. He probably has no intention of ever making a mortgage payment. Let us know if that house hits foreclosure soon.
You can count on it.
Oh I will.
what neighborhood / cross-streets? just curious.
DC_Too,
I am here, but terribly busy and trying to get the database built. I have had major weekend commitments for two weeks, plus this coming weekend. People have been e-mailing me data at paladin@paladinreports.com and I have been collecting and sifting a bit. I hope to have the whole site working soon, but am a novice and have to rely on volunteers to get it up. DC, can you find out the lender and loan amount(s) (probably 82/20 100% LTV. Call a local title company and ask for the customer service dept.
By the way, I am making some big, big headway in the law enforcement division. It is really getting fun, but have been muzzled as to what I can say any more. Just know they are also interested in the database. I hope to be kickin’ ass and takin’ names soon.
Oh, and I got two donations. A check for $50 and a $20 bill! That was very special and will spur me on next week. Thank you, Paladin
Are you saying you’ve received only $70 in donations? I was going to wait until you had the paypal set up on the website but maybe not —any ETA on the database?
Hi Lex, We hope to be up this week or early next week. Too much to do in real life, but I am comitted and tenacious to reporting fraud. Your data has been most helpful in showing the FBI what is going on and how this plan is working. Paladin
I have been wondering if realtors are “trading properties” to emulate sales in some cases and generate false comps.
‘What is going on? I know real estate only goes up, but I smell a huge, scabby rat on this one. ‘
Fraudulent appraisal and cash out scam. Call your local DA and the state Attorney General. Provide them with all the details and your observations. If you ever spot anybody in the driveway get a license plate #. I’m already sick of paying for this nonsense.
approximately 34% of CAIT’s mortgage loans are non-performing assets (as measured by mortgage payments delinquencies in excess of 60 days).
Wow. That’s 34%, not 3.4%. Yikes.
I was under the impression REITs were safe. What went wrong?
And due to partial financing of the loan portfolio with debt, non-performing loans are currently estimated at … 95% of common shareholder equity. Wow. And I bet the stock, if publicly traded, is at a new high? (Just kidding. One of you stock gurus must know the answer.)
It can only go up from here. All the bad news is priced in.
What does all this talk about finally tightening lending standards put me in mind of? Some saying of my grandfather’s about a horse and a barn door . . .
And when thinking about FBs and the lenders who love them, the words “pot,” “kettle,” and “black” come leaping to mind. It’s as if there was some sort of greed-off, and now everybody loses.
FBs and F’d lenders are so f’d that f’d does not accurately describe their situation anymore. It is beyond f’d.
“there was some sort of greed-off”
This conjures up images of avarice and debauchery with a climactic conclusion: great stuff!
I’m thinking Thunderdome - and I want to be Tina Turner in the chain mail dress, taking it in form the sidelines!
This is more like trying to slam the barn door shut and squashing your poor, estranged equine.
“‘This whole thing has been new,’ says Mr. Seiders. ‘We’ve never seen this kind of investor activity [speculation] and we’ve never seen this kind of (vacancy) resale. It’s an extra complication moving forward.’”
It is NOT and ‘extra’ complication. It is the essence of the situation when you have a bubble.
“It’s an extra complication moving forward.’”
No, no, no Mr. Seiders! You fluffed your lines again. Repeat again, “Its a totally new paradigm, its a totally new paradigm”. Okay once again from the top– 3,2,1, action!
As if the REIC didn’t know they were selling to a high % of speculators/flippers (and most likely these borrowers were unqualified ) .They are acting so surprised about this news that might throw the inventory of homes off the charts .
As if the builders didn’t know ,(with their “special lenders “),that they were selling to a high % of investors . My guess is many builders were marketing to the “speculator”. All the gamblers were betting that real estate would continue to go up for another 3 to 5 years which fits with the wishful thinking investment plan.
Cheap money always brings out the speculators ,but the lenders use to keep them in check by loan qualifying and investor limits in tracts ,higher rates ,and higher down payment requirments .
The recent group of speculators in this mania were real short term flippers . The speculators had to lie and say they would owner-occupy because if they didn’t they would be required to cash flow on the property or have that debt considered ,(how many properties cash flowed as a rental ?)
In loan underwriting it is not hard to tell when someone is a speculator vs a borrower that will owner occupy .It’s not as if speculators didn’t try to get more favorable terms by lying about their intent with the property , ( in prior lending cycles ) its just that underwriter would stop it or make sure they qualified .
it all goes back to a speculator loan is a higher risk loan . When people default they let the investment property go first . A speculator has to have even more reserves than a owner-occupant because the property can remain vacant if they can’t get a renter .
During this mania lending cycle the lenders didn’t seem to care if a property cash-flowed or not on the rental .
What a waste to have so many vacant houses where the owner can’t sell without a big loss and can’t rent without a big loss monthly .
“What a waste to have so many vacant houses where the owner can’t sell without a big loss and can’t rent without a big loss monthly .”
Wizard,
Am I wrong or do I note a touch of sympathy for these greedy bastards? I agree, it is a waste, but I truly hope it sucks every dollar they ever had out of their bank account and leads them to destitution.
If you want to “gamble”, be ready to pay up when you lose. If you can’t cover your wager, you shouldn’t be playing the game.
Try walking away when a high-stakes bet goes against you. They need to be taught a valuable lesson.
I don’t have sympathy for these greedy bastards that ran up the RE prices and put the economy at risk . I just hate waste . You have all those houses sitting vacant ,nobody living in them because of a hyped up market that was false .
People who really wanted a home could of been living in these houses that these jerks have tied up . These flipper/speculators are stuck but in the meantime the house goes to waste . I do not want a bail-out for speculators ,not at all . You should know by many of my posts that I don’t shed tears for these people . Sometimes there is a case that I think deserves some sympathy . For instance ,I have a soft spot for people who get into financial trouble because of medical problems or a sick kid . Maybe if a person got laid off and they need some relief until they get re-employed (but that’s what unemployment insurance is for I guess ).
Anyway, believe me ,I hate the way the greedy speculators messed up the market and I’m also pissed off that the Industry allowed this bubble .
Good enough. Sounds like you won’t be shedding any tears, either.
-D.
wouldn’t this include any brokehore that qualified clients at over 3x income?
One due diligence expert told us ‘bad’ brokers should be run out of the industry on a rail.
“Vitner says the warm weather ‘pulled sales forward.’ Come spring, housing activity will be slower than normal, he says.””
Ask Scooby-Doo would say: “Ruh Roe!”
““Should loan brokers be held accountable for all the early payment defaults that are hammering the nonprime sector?”
Maybe…but where was the outrage when this whole thing got started…you know, when everyone (including FBs) were making money hand over fist? Was it a matter of “It’s all fun and games until someone loses an eye”?
Reward brokers with bonuses and higher commissions for selling clueless borrowers interest only ARMs with prepayment penalties then blame them for higher than normal defaults. Is serfdom losing its appeal?
Maybe, but what difference would it make?
Every single new entity in the lending game with the exception of the bagholders that ended up with the failing mortgages are so thinly capitalized that they will simply fold up their tents and walk away…
I think you are mistaken. Many of the bagholders are also thinly capitalized.
OK, let’s take for example an MBS. I was under the impression that are fully funded… so any loss is a loss to principal. As I understand it they are not leveleraged, like a traditional S&L? Many S&Ls could be running into liquidity issues… once again?
Correct me if I am wrong. I suppose the MBS itself could be used a collateral in some ponzi scheme???
As far as I know the typical MBS entity is fully funded, but the entity is basically a legal and accounting fiction. The owners and managers are leveraged, so they cannot necessarily withstand any substantial losses.
I’ve seen circus acts of with clowns spinning umpteen plates on on poles or sticks but spinning two or MORE houses and mortgages will be THE TRICK of 2007 and on.
Be Careful CLOWNS !
My question is *where* are these vacant homes. Is there any sort of geographical break-out for the vacancy rates? This element of the housing bubble is going slam some places more than others.
The only breakout I saw was:
3.0% South
2.9% Midwest
2.4% West
2.0% Northeast
No further breakdown in WSJ–Census Bureau does the stats though, so they might have more info.
This is interesting:
Overall Homeowner vacancy Rate: 2.7%
1 unit in structure: 2.3% (1.8% a year ago) — SFH, I presume
2 to 4 units - 8.6% (6.4%)
5 to 9 units - 10.4% (6.1%)
10 units or more - 11.1% (6.9%)….. can you say “CONDO”?
Year structure built
April 1, 2000 or later — 11.7%
every other time period (95 to 2000, 90-94, all the way down the line ranged between 1.9 & 2.4%)
http://www.census.gov/hhes/www/housing/hvs/qtr406/q406tab3.html
I can’t answer the question except to say it is unusual, where I live, to come across a house for sale in which someone is currently living. They don’t even bother to “stage” them.
I have a friend who’s having a terrible time selling her house because she can’t afford to move out and let it be staged or sit empty. Her realtor’s told her that buyers expect staged or empty or so clean it looks like it’s been staged. She’s just not that clean a person so it’s tough (and can’t really afford cleaners or much of a storage locker.)
She’s offering it at a slight loss; she was not overextended when she bought, but her son has developed serious medical problems and she’s run through her savings paying co-pays, things the insurance won’t cover, etc.
I wish that your friend with medical problems of a child would get a break . I’m going to hope and pray that she get the sale that she needs .
Personally, if I were looking to buy, I could give a crap whether it was staged or not. I look passed their furnishings to envision my own stuff in the house. I say if anyone was serious about buying now, they should do the same and make an offer per the market and NOT whether it’s staged, clean or empty.
Many years ago (1991) I had the option of buying a “model” condo or one that was lived in by a little old lady whose kitchen was thick with grease, and she had STUFF everywhere! Walking from room to room was a challenge because you had to find the path. The difference between the 2 identical units was $30,000. My spouse (ex-spouse now) and I estimated that it would cost us around $1k to clean up the place, have the applicances, plumbing, etc checked. It was a true no-brainer. This staging mess is just stupid, an additional, unnecessary expense, and inconvenient.
If I were your friend, I’d tell the realtor either list it as I want to, or move on. And then get another RE person. The one she has is living in the past.
BayQT~
You know, you could get together a bunch of people to help her clean and organize her house. I’ve been to houses (for sale, where I was a potential buyer) where we accidentally walked in the garage FULL of stuff or opened an over-stuffed closet. It couldn’t be that hard to hide most of her crap until the house sells.
I have a friend who’s having a terrible time selling her house because she can’t afford to move out and let it be staged or sit empty
WTF cares whether a house is “staged” or not? You’re buying a house, not a ticket to “Phantom of the Opera”.
This “staging” stuff is just a rationalization. There’s only one reason why that house (or any other house) isn’t selling - she’s asking too much.
Sorry for the follow-up post…here is a link to the actual report from the US Census Bureau.
http://www.census.gov/hhes/www/housing/hvs/qtr406/q406press.pdf
WARNING - PDF
I think the most interesting piece of data on this is the breakdown between suburbs and in the cities:
2.8% inside the Metropolitan Statistical Areas
Further broken down as:
3.6% in principal cities
2.4% in suburbs
So, the vacant housing stock by volume generally falls in the suburbs (ie, average is closer to the data from the burbs than principal cities). By very rough measure 2/3rds of the vacant units are in the burbs–lots of single family houses are empty.
BUT, condos are where the real pain is going to be felt–3.6% vacant in the principal cities can be only driven by empty condo towers.
http://www.census.gov/hhes/www/housing/hvs/qtr406/q406tab3.html
This one shows that multi-family buildings have an 11% vacancy rate.
I’d love to see the vacancy numbers in San Diego.
The real problem is that there aren’t enough bodies to fill all these homes that have already been built or are being built. Those of us (myself included) who want housing prices to crash should want builders to keep ‘em coming.
This may have appeared on an earlier thread, or yesterday’s; in case not, I want to share with all of you that Suze Orman, who formerly appeared to be a permabull on SFRs, is now (2/2/07) telling wannabe sellers to LOWER THEIR PRICES. Thank you Suze for finally making sense.
I was flipping channels the other night with the sound off (kids asleep), and I got mesmerized by the Suze Orman show. She had a flipper sitting like a deer in the headlight while she was yakking away. It was pretty obvious that she was breaking all his dreams. I wish I had the sound on.
Suze Orman is over-rated. I remember back in 2005 when she was beseeching all of her callers to buy a home, ANY home, even if it was just a starter because “real estate is your best investment” and renting was just throwing money away. Housing bubble talk was just noise to her. Fast forward to 6 months ago when she started telling callers that real estate “might be a little pricey right now”.
I agree. The only “advice” I’ve ever taken from her was when we bought her will-writing-wizard CD. First thing you read on the screen after you install it is something like “If your net worth is more than $50k, you shouldn’t write a will, you need a living trust”. Oh thank you very much. Couldn’t she have written that on the CD box and saved me $14.95?
That sounds to me like you heard what you expected. Suze was one of the first to be telling people that Cisco was not coming back, period. Her advice to pay off any existing home loans as soon as possible is different from a spur to buy. It does not seem consistent at all that one could listen to her ongoing mantra of saving and limiting spending and think that was advice to buy. People first, then money, then things consistently comes up as her mantra. How do you work going broke for a house into that?
Let’s see: Suze Orman, Kiyosaki (Rich Dad Poor Dad), Harry Dent, Most of the FNC Saturday morning analysts, have missed the mark, and a great deal of their followers who believed their every word suffered. “Oh, my bad,” say all the above shills in unison. Like an earlier poster said, when house prices increase 100% in 3 or 4 years while incomes go up 2 or 3% per year, something smells very fishy in real estate and I would run away from that loser investment - I did.
The shame is that a lot of what they’re saying is correct. Suze Orman preaches responsibility & debt management, Kiyosaki promotes asset-generated income vs. living on a paycheck, and Dent has some great demographic research. Unfortunately, they’ve all badly misread current circumstances.
I have read a couple of Kiyosaki books and it is true he is a very pro real estate investor, but to be fair, I have heard him on the radio and read several articals in the last couple of years warning about overvaluation. He has actaully been pro commodities and metals recently.
Kiyosaki is a liar, a conman, and just about the extreme polar opposite of a “pro real estate investor”, although he is a slick salesman (books, snake oil, etc.) and good self-promoter. I actually knew some people who read his book, decided not to go finish college, and instead are trying to become like the fake “rich dad”. John T Reed has a great review on him and his book.
http://www.johntreed.com/Kiyosaki.html
I love the John T. Reed write up of Kiyosaki and often tell clients to read it before following any of his advice. I read “Rich Dad, Poor Dad” years ago and at the end was inspired to be rich, although not really sure how, yet at the same time had a really strong feeling the book was just not right. Reed’s analysis and heavy research into Kiyosaki and his claims pointed out all the things that bothered me that I could not verbalize. (This was long before I was in finance.)
However, I do recommend the book because I like what he has to say about employees being “owned” by the company. As a former supervisor I knew too many people who complained daily about their pay and jobs but refused to do anything to change them like get an advanced degree or other training. We seem to having a growing population of people who feel entitled to high pay and great benefits even if they don’t do a thing all day long. The book helps you spot them and not become one. Ignore all the legal and accounting advice though - much of it is illegal and dangerous.
Suze Orman was a big RE bull up until early 2006…then abruptly changed her tune: from “the best investment you can ever make” to “home prices are falling in many parts of the country, so be sure where you’re buying and that you’ll be there for some time.”
Another person who has got it all wrong: Bill Gross of PIMCO. Since early 2005, he has been calling for the Federal Reserve to lower rates and has often appeared on CNBC explaining why the FED would do so. Even after the effect on GDP of two hurricanes in 2005, and throughout 2006, he was always sure they would lower rates. Last I heard, he was saying that the FED would reduce by one full percentage point in 2007. I know he has bonds to push, but this behavior borders on fraudulent.
Always difficult to keep wishes and concrete analysis separate.
I believe Bill Gross was predicting that a strong economic slowdown/recession would compel the Fed to lower interest rates. Who knows, maybe he’ll be proved right. There are so many cross-currents with global liquidity, booms and bubbles, and so on I would be amazed if anyone could accurately predict the course of interest rates over the next year or two. For every good argument why rates “have” to go lower you can come up with one why they “have” to go up.
Tom use the caption function on your tv. I’m hearing impaired and never have the sound on just captions. Works great.
Suze Orman is a very articulate and accomplished published speaker. But I find it hard to take financial advice from someone trying to sell me a car payment from GM.
Oh yeah, and a lot of her financial advice sucks!
Most of the advice always fills the mold of the good consumer who invests in 401k (lots of broker fees), buys a home (pays 2X its value in interest), and generally greases the wheels of the financial establishment.
I can retire on 100k tomorrow if I want a simple lifestyle and live in an RV and go from place to place… no real estate taxes, $5 of food and $10 of gas every day + some maintenance.
Thinking outside of the box and by yourself (100K in 401k + some gold and silver!!! :-)) is the best way to be happy!
To Suze’s credit she was saying to get out of stocks around 99′
,and if she has at least been saying to get out ..is late but better than never..She saved my aunt on her stock call so I thank her for that….
From the update, this just out:
‘Mortgage Lenders Network USA Inc. on Monday filed for Chapter 11 bankruptcy protection, becoming one of the largest casualties among ’subprime’ lenders as the U.S. housing market slows.’
‘The Middletown, Connecticut-based company…had been the 15th-largest U.S. subprime lender, filed for protection from creditors with the U.S. Bankruptcy. It listed more than $100 million of assets and debts, and in excess of 5,000 creditors, court papers show.’
‘The filing suggests that Mortgage Lenders’ attempts to find a suitor had broken down. On Jan. 2, Mortgage Lenders had said it was in ’strategic negotiations’ with several Wall Street firms about its loan operations.’
‘Mortgage Lenders made $3.31 billion of subprime loans in the third quarter of 2006, according to National Mortgage News.’
Calculated risk has this additional quote from Dow Jones:
“Mark Adelson, managing director and head of structured finance research at Nomura Securities in New York, said he expects ‘many more mortgage lenders to file for bankruptcy in 2007 so I would not get worked up about it.’”
dup dup dupp
Another one bites the dust
And another one gone, and another one gone
Another one bites the dust
Hey, Im gonna get you too
Another one bites the dust
dup dup dupp…
That’s huge… and a very very bad sign. Not for bubblewatchers but for FB’s.
“…bad sign. Not for bubblewatchers but for FB’s.”
Please elaborate…
Hmm… I tried to take a look in PACER to see if they filed schedules or summaries of assets and debts. I’m curious to see whether they’re badly upside down or in a temporary cash crunch. The article says they filed in Delaware. Delaware PACER has no listing at this time. Will check again tomorrow.
PACER has a lag time that varies from place to place. Should be up in a day or two.
When subprimer files for Chapter 11, what happens to the mortgage? For the 2 groups the ones making the payments and the ones not making the payments?
AMT - would love to see a graph of that as you go from 150k to ? 250k
so as you start to make enough for the heavy mort mcmansion the benefits start to evaporate
Mortgage interest and charitable deductions are not lost under AMT, although almost everything else - including property tax - is. Of course, for everyone the mortgage interest deduction is capped at one million dollars of debt for both first and second homes combined.
It’s the weather, right? It will get better when the weather gets better, right?
Blizzard chills home sales
For the 24,534 Denver homeowners who had homes listed for sale in December, showings, offers and closings dropped sharply when the first blizzard hit Dec. 20.
Sixty-seven percent of metro real estate agents say winter weather has had an impact on their business, according to a survey by Jordan Graham of Clarion Mortgage. Fifty-eight percent reported that snow-removal issues have kept them from showing some properties to their clients.
Most real estate agents surveyed said the weather has delayed home sales, and 82 percent expect business to pick back up when the weather improves.
Some of this has got to be true . . . the weather has been crappy for a month (doubt if it delayed any closings . . . maybe showings). January closings were about the same as last year . . . but, these were most likely contracted back in November/December when the weather was nice. IMO, February and March closings will be down quite a bit because very few have been looking over the past 4 weeks.
The weather Spin will live on for another couple of months . . . count on it.
There is no doubt business will improve. We got 20″ of snow, and a few days later another 8″. I didn’t leave my house for days, the grocery stores ran out of milk and bread and were low on everything else. I’d say that most thoughts of selling/buying/ moving were put on hold.
Now as the foreclosures mount and the news shows prices dropping people will have a different set of expectations. Yes, business will impvove for those paid by the deal, prices will likely come down.
“‘We’ve never seen this kind of investor activity and we’ve never seen this kind of (vacancy) resale. It’s an extra complication moving forward.’”
It’s not just an “extra” complication moving forward, it’s THE complication moving forward. Investor appetite drove every aspect of this madness.
‘This whole thing has been new,’ says Mr. Seiders. ‘We’ve never seen this kind of investor activity and we’ve never seen this kind of (vacancy) resale. It’s an extra complication moving forward.’”
Wrong, we’ve seen this before….Austin, TX 1985. 30% investor owned speculative homes, mostly in the tract suburbs. Bubble mentality. Good local economy, 3-4% unemployment, mostly high tech, etc… (not oil). Result: 1990 - suburb tract home down 40%-50%, intown high demand neighborhoods down 20%-25%, condos down 50+%, land down 60%-75%. 3 years of 2 pages of RTC foreclosures every week.
In town recovered (due to location and scarcity) by 1996-7. Many suburb tract homes quite a bit later and never got too much above (more than 20%) 1985 prices even in 2005. Always too much supply of the latter.
“Just how bad was the loan underwriting at Mortgage Lenders Network? One servicing official who worked there told us the privately held non-depository funded a ‘a ton of bad loans.’ He said underwriting was so poor that a 27-year old who claimed to be making $14,000 per month was approved for a $500,000 mortgage on a stated-income loan. The mortgage is now in default.”
Yet another example of why one shouldn’t compete in the market until lending standards change: his is the guy you are competing against!! Anyone with skin in the game would be crazy to bid against all these no-doc, interest only types. Like sitting at the poker table playing against people with monopoly money.
“his is the guy” = “this is the guy”
No brain - No pain.
Sorta OT but fun to watch nonetheless -
Here’s a harbinger of things to come.
A RE scam artist and his wife attack a reporter in San Diego live on camera.
Show me the blood !!!
http://housingcrashtv.blogspot.com
That’s old news man.
“The homeowner vacancy-rate increase ‘does temper your outlook’ for new construction, says David Seiders, chief economist at the National Association of Home Builders in Washington. ‘There clearly are uncertainties about how this is going to work its way out,’ says Mr. Seiders. ‘I keep preaching to builders it’s not time to ramp up production.’”
Are you reading this, Mr. Lereah and Ms. Appleton-Young? Despite being a chief economist for the housing industry, Mr. Seiders is able intelligently identify that the shifting winds in the market probably is reason enough to hold off on further builds. Sure, he didn’t blow the doors off the hinges with his comment but it sure beats the hell out of the rubbish coming from Lereah like, “Some of the monthly gain in pending home sales may be weather-related, but it appears buyers are becoming more comfortable, sensing the timing is good and that their local market has bottomed-out” and crap from LAY like, “I would say the worst is over but we’re still going to see some adjustments in 2007″.
Here is a recent Denver Post survey on forecloseure reasons.
Top reasons for mortgage payment delinquency
41.5%
Unemployment or curtailment of income
22.8%
Illness or death in the family
10.4%
Excessive obligation
8.4%
Marital difficulties
3.3%
Extreme hardship
2.1%
Property problem or casualty loss
1.6%
Inability to sell or rent property
0.9%
Employment transfer
9%
Those are excuses not reasons. The biggest reason is failure to plan for contingencies. I’m surprised no one has challenged these numbers. My sister has been fired a bunch of times (software programmer) she never fell behind on her payments. I have a friend at church who was without work for almost a year and underemployed for another 2 (mech engineer). Things happen, it used to be considered prudent to account for at least the possibility of hard times.
Good points.
Keep 6-8 months of living expenses at hand as COLD HARD CASH always as they say.
There was a time when I brought my first house in 2000, which I resold 3 X its value in 2003 (”lost some” making profits he he) when I lived paycheck to paycheck because of the closing costs, it lasted a year then I quickly built a safety net.
Does anyone else remember those commercials with Elliot Janeway:
“Keep 6 months of living expenses in your insuuured savings account”.
Johnny Carson used to poke fun at him, but he was right. Yeah that was so 1970’s. like Jerry Ford and Jimmy Carter.
There are nine percentages listed, but only eight reasons.
“Economist Tucker Hart Adams says the housing market won’t stabilize in 2007. The combination of resetting adjustable-rate mortgages, homeowners unable to keep up with payments on so-called exotic mortgages such as interest-only loans, and other debt will lead to higher foreclosure rates and more homes on the market, she says. ‘It’s really optimistic to think that it just took a little adjustment and everything is fine,’ she says.”
There is what I like — an economist who shoots from the hip!
How can this guy call himself an economist? Did he forget to take his drugs?
She.
She catches a lot of crap for being pessimistic, aka realistic.
Colorado economist: recession by end of ‘07
By Joanne Kelley, Rocky Mountain News
September 12, 2006
Economist Tucker Hart Adams delivered another one of her signature gloomy annual forecasts Tuesday, this time predicting a recession would start by the end of 2007.
Adams, who spoke at a downtown breakfast for U.S. Bank customers, pegged the probability of an economic downturn at 75 percent and said the only question is “how hard the landing is going to be.”
“‘I think a persuasive case can be made that the reason we are seeing such extraordinarily excessive vacancy is because of the heavy investor demand over the past few years,’ said Richard DeKaser, chief economist at National City Corp.”
Everything we predicted on this blog six or more months back is now miraculously spouting from the mouths of the MSM’s annointed experts. I am honestly at a loss of anything to add beyond this point…
Is Casagrand getting a little less pessimistic?:
http://realtytimes.com/rtmcrcond/California~San_Diego~bobcasagrand
“Thus, the market dynamics of supply and demand have not changed and downward price pressures remain. I expect 2007 to be very similar to 2006 in sales volume with an increase in inventory. I think the increase in foreclosures plus people trying to sell before foreclosure hits will add to the inventory and we could peak out somewhere in the 12 month supply range. This will continue the downward push on prices we are already seeing. There is pent up demand in the market, many want to buy but are watching the price picture and waiting for their time. Each drop in price will sprinkle buyers into the market which will slow down the price declines somewhat. If sales volume gets to about the 35,000 level and inventory stabilizes at the 8 to 9 month levels I think that will be a price neutral market. There are a lot of forces at play - foreclosure rate, interest rates, job market, population shifts etc - and any major changes in one or all could dramatically change the outlook for 2007. I think there is more downside risk than upside gain.”
Foreclosure count nationally at foreclosure.com up 10% for the month of January. You would think January would be mild given
christmas bonuses, money, etc. This year RE investors will be
toasted big time!
The reason developers keep building is because they have all the sunken costs in land and infrastructure.
They simply cannot bail out at this point.
And it’s just going to get uglier.
Absolutely right. The development process is multi-year . . . infrastructure, engineering, interest costs, property taxes, etc. have already been spent (borrowed and spent). If the developer doesn’t build, they sit on permit-ready lots and the carrying costs continue to bury them. If they build, they can’t sell for a reasonable profit - they are hosed. This is where traditional lenders (vs. MBSs) will be left holding the bag. Finished lot prices in some places will drop 50%+ and new land development will virtually come to a halt.
Just part of the cycle.
“Recent Rise in Nontraditional Mortgages A ‘Ticking Time Bomb,’ Bank Regulators Say” (BNA Daily Report for Executives, 2/1/07, p. A-28, http://www.bna.com)
Found this in one of the publications I review for my job (energy association).
“The terrific growth in nontraditional mortgage products over the last decade represent a “ticking time bomb” in the nation’s love affair with home ownership that will likely explode before elected leaders impose rules to adequately protect consumers, speakers at Federal Reserve Bank of Chicago conference said Jan. 31.
“John Taylor, a compliance examiner in the Chicago Fed’s department of supervision and regulation, said nontraditional mortgages have been embraced by millions of consumers who do not understand the products and will not be able to sustain them in the future. The result will likely be a national mortgage foreclosure catastrophe affecting both consumers and financial institutions.
“”I think this is the one of the worst products to come down on consumers. I am very, very concerned that there is a ticking time bomb in portfolios out there,” said Taylor, who noted that his comments do not necessarily represent the views of the Federal Reserve.”
The others quoted in the article are Allen Fishbein, director of housing and credit policy for the Consumer Federation of America (”real action by gov’t will not occur until there has been significant damage”); Shirley Chiu, economist in the Chicago Fed’s consumer and community affairs division (”Fed already seeing an increase in foreclosure volume,” over last 12 mo. 65% increase in IL, 52% in MI, 43% in IA, and 40% in WI); and Joel Ramos, compliance examiner in Chicago Fed’s dept of supervision and regulation (”Sept 06 federal regulator guidance issued had a minimal impact on nontraditional mortgage problem”.)
Anyone know if this conference is available online? –PB
The conference was entitled “An Informed Discussion of Nontraditional Mortgage Products and Other Risks.” Jan 31, in Chicago, IL. Here is the Website:
http://www.chicagofed.org/news_and_conferences/conferences_and_events/2007_nontraditional_mortgage_agenda.cfm