Bits Bucket And Craigslist Finds For February 15, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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TxChick57 - I am about to make a decision on Dallas Real Estate - and I have come to very much value your opinion - is there a way I could contact you off the blog here so we do not bother everyone else with things that have nothing to do with the board?
A million thanks
Dagan
This piece by Ramsay is posted at Piggington: http://tinyurl.com/2njasm
Ramsey is a retired real estate broker and grizzled 1990s housing bust veteran.
Here is an interesting excerpt from his comments on foreclosures:
“# The up cycle: lower interest rate creates demand, prices go up, more homes get built, easy financing creates more demand, prices go up more, investors/flippers create more demand, prices go up more, more homes get built, easy financing allows previously unqualified buyers to own homes creating more demand, prices go up more, more homes get built. This cycle ended in 2005, and was confirmed in 2006.
# The down cycle: the “must sell” properties will lower prices to sell their units, lower prices will depress overall prices making it more difficult for those facing recast to refinance or otherwise work out their financial woes, creating more foreclosures, more foreclosures add to the inventory, creating more price competition and further tightening of underwriting standards. How vicious this cycle will be is anyone’s guess now.
How vicious? Oh I would venture a guess….Quite vicious!
–
The boom created the Mother of All Bubbles and the bust will take down the whole US econo-political system (the ensuing crime and violence will lead to ‘revolution”). “Vicious” enough?
What part of bankers are the real evildoers don’t people get?
Jas
Human sacrifice, dogs and cats living together - mass hysteria.
I would say it only gets vicious when it takes down the European finance-scam system as well (because otherwise Da Boys will be back soon). No sign of that yet.
Jas
Yes, we will have a deep recession but the crime and violence will be no worse than any we have experienced over the last 100 years. Your average Joe citizen will not need to have a gun or store up significant quantities of food.
That kind of “Life as we know it will end” thinking is silly. Although, I believe the highly leveraged non-saving American will suffer but he/she will buckle down and recover and then repeat again 25 years from now. It is the American way.
If you talk to people who lived through the Great Depression, they seem to feel that we are headed for another **really bad** depression.
My father, who grew up during the GD, has been getting really antsy — and I’ve talked to a few others who’ve never met, and they ALL feel the same way.
I’m with Jas on this one. Things are going to get ugly, IMHO, and that includes rising crime rates. We’re already seeing more gang crime in So Cal — I believe it’s going on in other large cities as well.
The poor feel a recession before the rich. That’s why watching crime rates is a good way to gauge where the economy is going, IMO.
Sure. email is gymnastgal32 at yahoo dot com
But you know what I”m going to say
Don’t do it.
Did you ever buy that Toyota in West Palm Beach?
Just a quick comment on the obvious: how regional the housing market is.
In SE Va (Williamsburg thru Va Beach) prices peaked a year ago, and started a slow decline. Now there are 2.5 houses listed for every 1 house listed then, and inventory is still growing. (1000 condos in Va Beach alone, and new condo hi rises coming on the market still) Nevertheless many new houses are being put on the market at 2005 “wishing prices”! Good luck - in the 2 - 5 year old developments, prices are dropping slowly but relentlessly.
It seems SE Va peaked a year or so after Washington DC etc., and so this year will mirror last year’s market in those bubble markets. I am expecting some panic by Labor Day.
wait till 09 when they chop out a carrier group so folks can get FREE-er healthcare
Oceana and Norfolk will get clobbered
Thanks for the info. I recently moved to the Richmond VA area.
I can’t seem to find a good bubble blog and tracking info for the area.
Anyone have any sites to recommend?
tx
Well, I have a hrhousingbust.blogspot.com site, which has links on the side to a number of property lookups in Southeastern Virginia. I haven’t updated it recently, I mostly used it to post on craigslist and get feedback from locals. Also http://www.vblandrecords.com for Virginia Beach loan lookup.
I generally visit here for the news, but the Virginia Pilot and Daily Press haven’t talked RE in a while. I sometimes call into the local radio talk shows which are ads for real estate (850AM, Monday @ 5pm, Thursday @ 5pm, and I think Wed @ 6pm. Crunchman Monday is okay and will spin/cut you off, Tony London on Thursdays is a good spinner, he does good at turning it around. The lady who I think is on at 6pm Wednesday, you can really get the bubble message out there as she can’t control the call like the other used carsalesmen can). I also include bubble theory into every post I can on the Pilot Online comments… I’ve been accused that I could crash the market with my negative talk. Go figure.
As for stats, HousingTracker.com v2 has us under Virginia Beach, and v1 has us under Norfolk. I recently saw or heard the figure for # of houses on the market as seen on REIN/MLS and Housing Tracker is RIGHT ON THE MONEY! With v2 I now have confidence it is 100% accurate with the local MLS.
You can search for home sales by zip code if you go to http://www.MelissaData.com > Lookups > Home sales by Zip. That is another great resource.
I used to “troll” craigslist but since it’s all buyers they flag any bubble talk rapidly in the RE for sale. Some people found the posts funny, and sometimes I’d get people interested in the most outlandish ads. Unabomber shack for $250K with granite slab, doghouses as starter condos for $190k, etc.
People just don’t get it. My young friends see nothing wrong with a house now costing $340K when it was $170K 3 years ago. Stuff is still selling, friend sold his condo for $200K the other day (going to buy a $300K+ house cause his wife doesn’t want to rent). Right as they make enough money to barely afford it ,they feel good that they can and are willing to do so, because it’s what it takes to have what others have. They don’t get it that everyone else is paying 1/2 what they are, and are actually saving for retirement.
bbkj: nice handle *warai*
Blackstone´s Jon Gray Afraid Record Buyout Will Fail
Optimism on Global Stocks Climbs to 10-Month High
plus a story from moscow
http://immobilienblasen.blogspot.com/
Yesterday’s Wall Street Journal had an article on Zillow. Here’s a few relevant paragraphs:
How Good Are Zillow’s Estimates?; Popular Home-Price Web Site Often Gets It Right but Can Be Way Off the Mark, We Find
James R. Hagerty. Wall Street Journal. Feb 14, 2007
In the year since its launch, Zillow Inc. has made millions of Americans familiar with computer-generated estimates of home values, created a new online addiction and become a staple of dinner-party chatter.
But just how accurate is it? A Wall Street Journal analysis of 1,000 recent home sales shows that Zillow’s “Zestimates” often are very good, frequently within a few percentage points of the actual price paid. But when Zillow is bad, it can be terrible — off the mark by more than 25% on one in 10 homes. In one case it was off by $2 million.
The Journal looked at transaction prices recorded for 1,000 recent home sales in seven states, using data from First American Real Estate Solutions, a data provider in Santa Ana, Calif., and compared those prices with Zillow estimates, which didn’t yet reflect the sales. The median difference between the Zillow estimate and the actual price was 7.8%. (That was close to the 7.2% median “margin of error” reported by Zillow itself on all transactions involving homes whose value it has estimated.)
The estimates were about equally split between ones that were too high and those below the mark.
Zillow came within 5% of the price in a third of the transactions studied by The Journal. It was more than 25% off target on 11% of them. In 34 of the 1,000 transactions, Zillow was off by more than 50%.
Zillow tends to work best for midrange homes in areas where there are a lot of comparable houses, he says. It is less accurate for low- and high-end homes because there are fewer of those and thus less data available from comparable sales, known as “comps.” Values of rural homes are hard to gauge for the same reason. Partly for that reason, none of the Web sites can offer 100% coverage of U.S. homes; Zillow says it has estimates on about 57% of all homes.
Real-estate agents and appraisers tend to sneer at Web site valuations and insist that consumers still need their local expertise to get a true idea of values. Masood Samereie, an agent at Century 21 Hartford Properties in San Francisco, says one of his clients last year lost his chance to buy an attractive home because, relying on Zillow, he made an unrealistically low offer.
“Masood Samereie, an agent at Century 21 Hartford Properties in San Francisco, says one of his clients last year lost his chance to buy an attractive home because, relying on Zillow, he made an unrealistically low offer”.
Maybe he just didn’t want to overpay for a house you wanted to sell him.
Sounds like his client should be writing thank-you notes to Zillow’s management.
LOL
Real-estate agents and appraisers tend to sneer at Web site valuations and insist that consumers still need their local expertise to get a true idea of values. Masood Samereie, an agent at Century 21 Hartford Properties in San Francisco, says one of his clients last year lost his chance to buy an attractive home because, relying on Zillow, he made an unrealistically low offer.
LOL. This guy (the potential buyer) needs to sit down right now and cut a check to Zillow for the money that has been saved him so far by not buying that house!
Too bad the REwhore did not give a price range, we could have computed how much this buyer is in debt to Zillow for helping them correctly value the home.
In my area (Palm Beach) Zillow is a bit schizophrenic. However, if I was going to make an offer today, I would take the LOW of the ZEstimate, and then hack another 15% off of that. I think that’s probably close to a fair valuation for most of the homes that I have seen on there.
Lost a chance to buy!?? What the heck! Buying is now a “chance” that you have to take advantage of? Especially in this market! I think that should have read “Seller lost a chance to unload and salvage some equity out of their overpriced POS condo in Mission Bay, SF”.
“Real-estate agents and appraisers tend to sneer at Web site valuations and insist that consumers still need their local expertise to get a true idea of values. ”
Sure we need their “exptertise”, their income depends on it.
Zillow is OK for NYC, but horrible for the area around it. NYC has very detailed records available to anyone online and Zillow takes advantage.
I ignore the zestimate but the data on comps, size of home, price per square foot and comps on a per square foot basis for NYC is great.
the zestimate for my inlaws house in brooklyn is around $550,000 to $725,000. figure that one out.
Gee, I hope that wasn’t the last attractive house that will ever be offered for sale in the SF Bay Area. If it was, that guy made a very big mistake, trying to make a low offer.
Sheesh, don’t these Realtors realize how stupid they sound?
No, Paladin, they don’t realize how stupid they sound. They don’t have the slightest clue.
Hey you get what you pay for with Zillow. You can’t beat the price and it is a good place to start. Their best feature is putting up the sold prices of homes very promptly. It’s a lot quicker then the assessor’s office here.
Inman News does a hit piece on bloggers.
“The rise of real estate bubble blogs.”)
Name: Patrick Veling
Work: Real estate industry analyst and consultant, founder and president of Data Strategies Inc., Brea, Calif. Veling reads several bubble-related blogs and participates in the bubble discussion.
Q: What makes you a real estate bubble believer, a bubble debunker, or bubble neutral?
A: I am bubble neutral because there are too many social and economic variables in the housing market. Supply is easy to quantify but the demand component is not. Demand rises and falls with prospects for appreciation or depreciation, mortgage rates, societal and demographic shifts. People have lost money in the recent run-up and will make money in the worst of markets.
Q: How do you define a housing bubble?
A: A housing bubble is an economic phenomenon in which housing values are fueled more by speculation than by the actual need for housing. If the market is or had been a bubble, the “slow hiss” we are hearing would have been a much louder “pop.”
Q: How does this definition fit (or not fit) the national housing market? Which regional or local housing markets have exhibited the most bubble characteristics?
A: The definition applies to all markets, but is based more on behavior of the participants than on the market itself. I do not believe this is characteristic of the national market, but is certainly an issue in some local markets that have been driven more by speculators than by the social need for housing. Markets like Phoenix, Las Vegas and some Florida communities come to mind. Other high-profile markets that I do not believe fit the definition include San Diego, Los Angeles and Orange counties, and Boston.
Q: Which bubbles burst? Which ones have deflated? Which ones are inflating? Which are about to pop?
A: Human behavior is not very predictable. If we could predict behavior with certainty, none of us would be taking the time to answer these questions, because we would have solved all of the world’s problems and be living in peace on an island I own.
Q: Are there any common traits among the bubble markets?
A: Yes. Fear of not getting in, and fear of getting out too late.
Q: What is your best evidence for or against a housing bubble?
A: Seeing dire predictions of the last four or five years not coming true (and we have the statistics to prove it.) I read bubble blogs daily, and the same posters have been making the same arguments for years. It’s the “you just wait” syndrome. Meanwhile, while waiting, they have lost out on all kinds of opportunity to participate and benefit. But, if you continue to predict something long enough, it will eventually come true. Prices will mitigate and they will claim victory. More bearish observers will also claim victory when 50 percent price drops do not occur.
Q: Is it possible to accurately identify the existence of a bubble before it is gone? Explain.
A: It is not possible, because you cannot ascertain the end without historical statistics showing the trend has reversed.
Q: How are bubbles born and how do they die?
A: Bubbles are born of fear and die by confidence of the economic players.
Q: Why do people get so fired up about the concept of a housing bubble?
A: Nearly 70 percent of Americans have their financial futures tied up in the economic prospects of home ownership. Most Americans did not own stock in the tech implosion. It hits closer to home.
Q: Will there ever be an explanation for bubbles that we can all agree upon?
A: Not as long as the Internet empowers people who are not qualified to sound like experts.
Q: Will there ever be a time when the discussion about bubbles goes away? Is this just a passing fancy?
A: I suspect that as long as such large percentages of Americans own homes, there will be continued interest in the question. But, interest will rise and fall with overall economic prospects. Each of us is most concerned with what most concerns us.
Q: What has motivated you to participate in the bubble discussion and what have you learned? What is your background in real estate/economics?
A: I have learned that I value my opinion more than almost everybody else. I was driven into the discussion by my consulting clients’ concerns about what they perceived as being significant risk in the market. I am amazed at the amount of traffic and the numbers of posts on the various blogs, and find it impossible to absorb most of the thought and dialogue. I am selective about the few blogs I view on this topic. I have been a real estate analyst for 15 years. I am not an economist, but a professional communicator whose medium is numbers. That’s what makes me successful, and my opinion valid. But no blog posters seem to care.
Whaaaa. No one values or cares about my opinion.
Boo friggin hoo.
I really loved the line about not being an economist, but a professional communicator that uses numbers.
Sounded like a more successful version of a Casey Serin type.
Isnt that what blogs are about? Different people with different takes on a subject having a “conversation” and mixing it up? Kinda like tough love for self-education.
We should be listening to experts like Gary “in the bag” Watts.
“Each of us is most concerned with what most concerns us”
-BRILLIANT STUFF
Im only concerned with the suff that most concerns me. or vice versa
More like Gary ‘bag of donuts’
“I have been a real estate analyst for 15 years. I am not an economist, but a professional communicator whose medium is numbers. That’s what makes me successful, and my opinion valid. But no blog posters seem to care.”
No one should care about his comments after such an assisnine statement as:
“A: A housing bubble is an economic phenomenon in which housing values are fueled more by speculation than by the actual need for housing. If the market is or had been a bubble, the “slow hiss” we are hearing would have been a much louder “pop.””
Anyone with common sense or a slight understanding of numbers should recognize this BUBBLE was inflated primarily by SPECULATION, else it would not be a bubble, and would merely be a free market having supply/demand slighly outside of equilbrium.
(It’s the “you just wait” syndrome. Meanwhile, while waiting, they have lost out on all kinds of opportunity to participate and benefit.)
Sounds like he is talking about moving in and out of the stock market. Most people I know have been agonizing about buying a home for their family to live in for the foreseeable future, possibly for the rest of their lives, at prices that would make them permanently house poor IF they don’t ever become sick, unemployed etc. Otherwise, foreclosure looms.
This guy makes it sound like someone could have overpayed in 2002 or 2003 (when NY area prices just started getting out of hand relative to income in my opinion) and sold last year, and if they didn’t they “missed out.”
And yes, people were worried about being priced out forever, and not being able to live in the metro area where they grew up and their family and friends live. To me that was an “upside panic.”
So true! That is the best comment ever.
A lot of bulls don’t understand this. People aren’t playing arbitrage or choosing to “buy the dips,” etc. The current prices are crushingly high! A lot of people are simply priced out — they cannot afford anything. Others, as you note, will be house-poor for years if they buy now.
>>A: I have learned that I value my opinion more than almost everybody else.
“Fear of not getting in, and fear of getting out too late.”
Interesting comment.
The evidence on this blog shows that most sellers are still in denial, or have taken their houses off the market for now.
However when the catalyst comes where everybody is in “fear of getting out too late”, then the slow hiss will suddenly become a BIG pop.
Perhaps we are not quite at that point yet.
The rest of his comments are B.S.
This blog is an example of how the Internet allows people to get beyond the so-called experts, who let’s face it, have never called any trend correctly before, and never will.
The information here may not be perfect, but it allows rational people to get a better feel for what is happening, without worrying about some boss telling you what to say. And we all have that to contend with. Oops, my boss just walked i
I don’t believe it has been a slow hiss in most of Florida. 40% off in Naples does not sound like a BIG pop?
When the Realtor board stops doctoring the days-on-market numbers we’ll hear a lot louder hissing. Right now you can’t believe a thing you see, just like during the bubble itself.
The realtors can try blowing hot air in that balloon all they want. Its already flat which is why no pop or hiss is heard.
“A: I am bubble neutral because there are too many social and economic variables in the housing market. Supply is easy to quantify but the demand component is not. Demand rises and falls with prospects for appreciation or depreciation, mortgage rates, societal and demographic shifts. People have lost money in the recent run-up and will make money in the worst of markets.”
So using his reasoning he would never know or admit to a bubble, there are “too many social and economic variables”
“If the market is or had been a bubble, the “slow hiss” we are hearing would have been a much louder “pop.””
Strange, I would think that a expert on RE would know that buying and selling of property is a much slower process then things like stock or tulips
“ I have learned that I value my opinion more than almost everybody else.”
What else is he going to say, he is in the business of selling his opinion
“I am amazed at the amount of traffic and the numbers of posts on the various blogs, and find it impossible to absorb most of the thought and dialogue”
That might be your first problem there, Bub.
Yep, he just admitted he’s dense and has low reading comprehension.
This clown tried the same rap at OCR’s blog.
He was indignant that no one bowed down to his REIC employment status.
He eventually had his ass handed to him with all of his reports being backward looking and during the last bust took 18 months to show a declining market in OC.
The question was asked how is information 18 months in arrears useful.
He stopped posting on OCR’s blog after that.
He also readily admitted he could be wrong. Gee that inspires confidence.
Oh yeah, one other thing, I caught him in a blatant blogging lie. That was fun.
If Ben put’s this into a thread, I will search OCR’s archives for the comedy with this clown.
I asked him to dazzle the OCR blog with his incomparable analytical skills. He refused.
I will give Veling one comment he has mastered the strawman tactic.
People who were calling the bubble in 2002 were right because that is when the housing market should of contracted. Sub-prime lending along with speculation ,lack of media challenge, and REIC cheerleading based on lies went into full gear and prevented a normal correction .
Who could of predicted that the lenders would make these low down loans to unqualified people/speculators , based on teaser rates as the housing mania continued .This sub-prime lending went beyond just easy money into the just faulty lending that was a set-up for a big crash .
So ,I don’t think its hard to call a bubble if you know the facts which the public seemed to be in short supply of during 2002-2006.
People who were calling the bubble in 2002 were right because that is when the housing market should of contracted. Sub-prime lending along with speculation ,lack of media challenge, and REIC cheerleading based on lies went into full gear and prevented a normal correction .
———————————
You took the words right out of my mouth, Wiz (except that I’d say 2001 prices were already the peak of the “natural” RE cycle — sans credit bubble). IMHO, all of the house price inflation since 2001 (esp. in CA) was due to the CREDIT bubble.
Patrick, what makes this bubble so easy a call comes down to one simple word — Affordability. You are bright enough to know that in a residential sales transaction the buyer sets the contract price. Now that the lender origination world is starting to wake up to the fact that as players in this game they have a continuing financial responsibility for loans that were creatures of fraudulent income reporting, lending standards are naturally tightening. As lender standards tighten the pool of able buyers decreases in size. As the risk factor relating to real estate lending increases, interest rates naturally rise. As these events happen sellers learn quickly that they have no choice but to lower prices to attract the limited pool of available buyers. As potential buyers learn that prices are going down they become reluctant to purchase resulting in a further reduction in the size of the buyer pool.
Based upon some quick Internet research, I see that you are probably 47 years old. That puts you at an age too young to have participated during the downward cycle that happened in the 1979 through 1983 time period. I participated as a transactional insider during this period and ran a foreclosure department for a title insurance company during the 1990 through 1994 downturn. I can say with reasonable confidence that the situation this time is different and far worse than we have faced in recent memory. At least in the early ’80s we knew that once interest rates decreased to reasonable levels the market would return.
One of my favorite definitions of an expert goes like this. An “ex” is a “has been.” A “pert” is a drip under pressure. I don’t claim like you to be an expert in this area. I just have substantially more experience (due to age and work experience) and education (due to my love of the classroom) than you. I’m not, as you can obviously tell by the tone of this posting, bubble neutral. It’s real and it’s happening.
Regards,
SCProfessor
Professor;…Gotta ask…Where is the SC ??
I believe he’s a professor at USC, IIRC.
So in this article, he says that the posters on the blog aren’t qualified to state their predictions. Then at the end, he makes the case that he isn’t qualified either. Who are we left with? The NAR? I can see thru his opinions, he must have money to loose if the market gets flushed.
“Each of us is most concerned with what most concerns us.”
Double speak, or simply stupid?
Oh yeah, and another thing, “Patrick”…
Are you saying that you’re bubble neutral, or that you’re a bubble debunker? Because everything you’ve said has been opposed to the bubble theory, without actually addressing any of the components of the bubble theory. More double speak?
And one more thing…
I have to tell you that there are not too many social variables or whatever in order for a bubble to exist. You may be saying that there are too many variables in order for you to relate them. However, you’re wrong about that. When you see prices skyrocket to unprecedented levels, and that change corresponds to another other change that stands out like a sore thumb (like way-too-low interest rates => reserve ratios => lending standards), it’s not hard to connect the two. You don’t have to account for every other event in the Universe in order to connect 2 variables with some amount of confidence. If you then continue to track those variables for quite some time in various ways, and they continuously move together, you gain more and more confidence in their correlation. Once you have become convinced of the correlation, and you can devise a reasonable mechanism of action, you then gain some confidence in a cause-effect hypothesis. Although you can’t ever have the confidence that scientists generate with their controlled experiments, you can still estimate how much confidence you have in one hypothesis (bubble beleiver) compared to others (bubble neutral or bubble debunker).
And yet one more thing…
You mention that “people” have been predicting the death of the RE bubble since 2002. The truth is that some people prediced that it would happen then, and DIFFERENT people predicted that it would happen in 2006. The latter group happened to be right. Prices are declining, and will continue to do so until they revert to the mean.
“Supply is easy to quantify but the demand component is not.”
Let me take a stab at a qualitative description of the demand component, then: Subprime loans go buy-buy, demand turn into toast.
“[I] … am amazed at the amount of traffic and the numbers of posts on the various blogs, and find it impossible to absorb most of the thought and dialogue…. I have been a real estate analyst for 15 years. I am not an economist, but a professional communicator whose medium is numbers. That’s what makes me successful, and my opinion valid. But no blog posters seem to care.”
I find it very interesting that he mentions San Diego specifically as an area that will not see big (any?) downturn. Prices went from 4.2 times median household income to 9.7 times. Four times your income to ten times your income for a home!!! In 5 years. This is sustainable?
You’re right sir, I do not respect your opinion. You have not presented any numbers that indicate we are wrong. You cannot show one time in the last 500 years that an asset class has deviated from the mean as much as housing has and has not returned to fundamentals. You are not an economist. You are not a PhD in finance. My guess is you have not studied the history of investing nor the psychology of investors. Or more correctly, for the past three years, speculators.
This is someone I look very forward to contacting in three years. Heck, we may be totally wrong and if so I am going to take a lot of s&*% from people. Therefore if he is wrong he can take a lot of it from us!
And I am sorry to be cruel, but this blog (which I assume is the most heavily trafficked blog on housing bubbles in America and thus one he visits) is not that complicated. If he doesn’t have the intelligence to comprehend what we are saying, whether or not he agrees with it, should he be telling anyone anything about spending large amounts of money?
Who saw the guy on CNBC this morning that is predicting a credit crisis? His name was Gerard Somebody or Other. It was funny to watch him talk. It was as if CNBC told him, “you can come on and say what you have to say but you can’t mention more than 3 markets and 3 companies.” He mentioned Florida, SoCal and Vegas. He mentioned FULT, CORS and I can’t remember the third one.
Gerard talked about the bad lending. He went on about subprime melting down. He talked about construction loans, especially in condos, that were going to be a massive problem. It really had the feel that CNBC told him not to say too much. I’m no conspiracy theorist, except when the CIA killed Kennedy or we faked the moon landing, but this felt like he was being muzzled. I swear that guy must be on this board some place. Hey Stucco, is your real first name “Gerard”?
“we faked the moon landing” you mean that we faked the moon landing. So if we faked the moon landing then we faked the housing bubble.
What is this “Housing Bubble” that you speak of? Surely, you are insane, man.
Just a question before I go to work: We all know that banks and other paper holders are stuck huge numbers of REOs and soon-to-be REOs, yet they continue to get to hold these properties (specifically the REOs) on their books, most likely with over-inflated values - in the vain hope that their values recover. We all assume here that soon the Feds will make them dump these non-performing assets, as they did with the S&Ls. What if the Feds already decided that they would not force the banks to dump these properties - as that would crash many, many, markets in this country? I suspect that we would end up like Japan, in a deflationary spiral - but I’m interested in other opinions.
I was told the answer to this by a bank regulator recently, but now am not sure. But I think she told me banks are allowed to hold repossessed real estate on their books for four years. HOWEVER they have to take a much bigger write off against income if they keep the property, booking a recovery later if they get more back if they sell. If they sell immediately, they only have to take their actual loss.
In short, if banks are holding houses and renting them out, the decline in value is more than even the bears on this board have predicted.
Thanks WT. This could drag out then. I just keep reading that banks are pricing REOs to get their money back (i.e., break even), but often they don’t have a prayer at selling at those prices (particularly when they’re dealing with Neg-AMs that topped out). It seems that none of them wants to be first to unload (i.e., no-reserve auctions) - so things stay in suspended animation.
Ah, but you you are the “80″ in an 80/20 you can take a 20% haircut and all YOU lose is the cost of foreclosure. In non-bubble markets, that is a big cut indeed, and even in bubble markets, it’s a start.
I’ve seen REO haircuts in areas of OC I’m looking at. One was reduced from $599K to $499K 2 days ago. Granted that’s the worst cut I’ve seen yet, but it made me very, very happy.
Banks renting out houses?? Afterwards the rental will be an out-house. It’ll never happen.
To me the questions for any banker is; What is your incentive to liquidate? What is your incentive to hold on?
Something tells me it might be in many banker’s interests to get dump properties. If you had a relatively strong bank, I’d bet that would be better. On the other hand, if realizing losses were going to hammer you bonus….maybe you don’t. Last, maybe you can see you won’t have a bonus anyway this year and, by biting the bullet now and positioning yourself well when the yield curve normalizes, you’ll roll in dough in 08.
My little suspicion is that when things REALLY get ugly, banks that are facing liquidation for lack of assets will get a free ride from the gubment for the REO on their books. Systemic risk, cascading cross-defaults, credit crisis, these are all VERY BAD THINGS to those in charge. Letting banks continue operating while insolvent doesn’t sound as scary to big wigs.
I’m beginning to wonder about this myself. I’m wondering if with the selling off of the loans to Wall Street will the market see a different liquidation process this time. Where banks are not actually pressured to dump them as before. It’s going to be interesting watching this unfold.
The new occupation of realtors…what to do with all those active listings?
‘A Fayetteville real estate agent and her husband masterminded a $12 million operation to grow marijuana hydroponically in the basements of vacant $300,000 homes, police from at least six Georgia counties announced Wednesday.’
http://www.ajc.com/metro/content/metro/fayette/stories/2007/02/14/0215metbust.html
“Hydroponic marijuana for everyone!!!”
Oops. Sorry. Couldn’t resist.
please explain …What is marijuana ? Never heard of that word in Canada. must be different here!
Don’t they realize that abnormal power usage is the easiest way to spot a dope grower? They probably ran multiple banks of fluorescent lights around the clock. Their usage probably dwarfed that of neighboring homes. The local power company then called the cops and said, “we’ve got a suspected dope house on Evergreen Terrace.” This one was probably a slam dunk.
Disclaimer: I have only read about such things.
“They probably ran multiple banks of fluorescent lights around the clock. Their usage probably dwarfed that of neighboring homes”. Fluorescent lights use about 15-25% of an incandescent bulb. Also if there are no other big appliances in use the police should be looking at low power use - not high power use.
They are better off not using electric usage and check for repetitive and large pizza orders
Ha, ha!!
my experience from the Netherlands (we have plenty of experience with this problem, and I can assure you that many speculator homes in classy neighborhoods are generating huge income streams this way):
many of these growers can be spotted by power usage (usually power comes directly from street lights or so, but yes: one such plantation can use more than the whole street). Unfortunately our power companies cannot pin this down to the exact address. Often it’s even easier to spot because of excessive thermal heat and light leaking out of the building day and night.
Only the real pros are not found this way because they use screened compartments with air filters etc. (sometimes even whole containers that are buried in the ground somewhere!).
As you probably know, in Netherlands authorities are not really interested in stopping kind of criminal activities. We even have a special division of multinational Philips that is making huge profits by providing special growth lamps (with less power usage I guess) for this business
Funnily enough, I’m going over to Amsterdam tomorrow with my wife. I’ll do some research, and will report back…if I can remember anything…
Regards,
Loafer
We even have a special division of multinational Philips that is making huge profits by providing special growth lamps (with less power usage I guess) for this business
ROTFL
Got dope?
Neil
ps There is a reason its called dope… people don’t think as fast nor clearly after “using” and for weeks/months.
In Sequoia National Park, near where we live…
The Mexican mafia, apparently the Michoacan subtribe, has figured out that there are a good many places to grow marijuana, in the massive wilderness, full of drainages, and hidden away in the brush, way off trail. A ranger friend related that in Mineral King, they found over 5,000 feet of pvc piping, in one “garden”. There were around 5,000 plants there, valued @ $2k a plant, or a tidy $10m, @ credible street value.
Why grow it in Sequoia NP?
Growing it down Mexico way has never been a problem, getting it over the border is another story.
The Michoacan cartel fixed this by growing good quantities of weed, on federal land, in easily the most ganja smoking state, for easy delivery.
When the meskin’ planters have been busted on site, they apparently utter not a word of who the higher ups are, a code of silence. They’ll end up nearby in Corcoran state prison, where we’ll spend a lot of money housing them over the next 20 years~
This is happening in north-central AZ as well…lots of State and Forest land that is remote (ie…the po po can’t get there so easily) and perfect for growing…and lots of cheap labor to camp on-site to care for plants. I’m very careful when I’m out hiking around.
When I worked in the forests of california I always ran into plant growing operations. Geortetown up near auburn was notorious for their operations.Also the northern coast up in humboldt county was very bad.I would always find black pipe and plant containers.A dude I know was busted for picking a crop under surveylance by the feds.I think he was gathering xmas gifts for his friends.
aladinsane,
My dad owns some land near Sequoia and found a group of hippies on it (with guns). Guess they had over an acre of the stuff growing up there, with a very efficient irrigation system, etc.
My dad got the sheriffs to tear it out & arrest the hippies (they actually challenged confronted us w/guns on our own property, and told us to get off!). This was quite a few years ago.
You know LED lighting might be worthwhile for this. Huge upfront cost, but lower electric usage enabling one to not get caught might make up for it. And not running the AC might also mask the electric bill from all those lights.
As a computer geek with geek roomates, I was always waiting for the day the DEA busted down the door due to the $600+/month power bill. They would have been dissapointed, the only farm was the server farm in the dining room.
Sounds like my kind of house, VA-Bee!
In Elk Grove, CA where there have been dozens of pot homes busted in the lovely suburban tract home neighborhoods (future slums?), the pot growers are usually quite smart and bypass the power meter by tapping directly into the main supply line so that their power consumption goes unnoticed.
Actually, this is very easy to find, I used to work for SoCal Edison. This is how it was explained to me, I work up at corp office in Rosemead. Utility has a grid, each grid is split into sub sections, each subsection split into lines, each line has a transformer feeding a certain number of houses. Edison know how much power is used in each grid, if the number is off they look down stream. I remember right they get numbers from their newer transformers down at the end of your street, if numbers are off they read meters and a put up a pole reader. It doesnt take very long to find the home. I cant remember but stealing power is a pain if you get caught, first power goes off and it takes almost an act of g*d and a secured bond to get it back on, it can be reported to your home insurance company if they cancel you your mortgage company wont be happy and lets not forget the fines and you could be arrested. Stealing power doesn’t go unnoticed, its a computer program the numbers aren’t right the computer goes looking for the fault, this isnt the old days of analog technology, now everything is wired. In Socal the ultilites dont even have meter readers per se, a van rolls throught the neighborhood once a month and your meter sends the usage data to van’s computer, the van download to the billing computer, bill or cops sent to your door.
“Disclaimer: I have only read about such things.
Yea Right!
There’s a townhouse for sale near me that, in a sane market, I’d consider buying. Purchase history is 9/04 - $105,000; 10/04 - $124,500 (geez…someone made ~$20K in just one month).
I zillowed it (I know, I know - zillow’s not the bible) and the range it came up with is $119K - $156K with a “zestimate” of about $145K.
They are asking $189,500.
Taxes are $2400 and monthly assesment is $230 (so right there it’s $430/month before a mortgage).
I’m seeking advice…if I were to make an offer on it (not likely to happen), how low do you think I should go?
Use a formula tied to fundamentals to arrive at the price…ie…..20% down…..30% of income…etc. Do the math and that will give you what it’s worth TO YOU. What they are asking is irrelevant.
I would wait quite awhile as these people have no concept of realty. In San Diego, according to Data Quick and the SD Union-Tribune prices are back to July 04 levels (average not everywhere.) Thus, were it here the $105,000 might even be too high. They bought at almost the peak and yet expect a 52% return in 2.3 years. They will not listen to a real offer at this time. Relax, grab a bowl of popcorn and wait a year before you make offers.
I have another I-can’t-believe-how-people-think story to share. Yesterday I was talking to a girl I work with who’s getting married soon. She’s in her early 20s. She and her fiance just bought a house. I didn’t dare ask how much it was, but she said, “We didn’t even have to put any money down - got 100% financing!!” (like that’s a good thing). I first asked, “Did you get a fixed rate?” She said, “Yes.” But I doubt it. Why?
She went on to say, “We’re only going to live there 2 years.” I said, “Why buy then? Historically it takes about 7 years in a house to break even.” She looked at me like I was some cluebag and said, “We are going to trade up every 2 years!” as if that’s the vogue thing to do now.
See ya’ in foreclosure, sweetie. Hope you and the future hubby have a rock-solid relationship because financial troubles are the #1 reason for divorce.
“We didn’t even have to put any money down - got 100% financing!!”
I was inspired by the above comment to create a motivational poster for GFs like she:
http://www.imagedump.com/index.cgi?pick=get&tp=488265
Nice poster!
You can find more posters like this one at:
http://www.despair.com
The younger generation is just following the example set by their parents. They lined up at future shop for the playstation 3 . They had them for sale on ebay for 4 times the value. They learn quickly how to make the fast buck. Easy mastercard credit enabled them to do this. They do the same with concert tickets , thus perfecting their flipping skills. I am afraid you are going to see alot of new generation scalpers preying on the stupid(more casey’s). If this housing train wreck doesn’t speed up soon I am afraid the bubble will start to inflate again.
I have a friend that was in the baseball card biz, in the late 1980’s and occasionally i’d sit behind the counter in his store and watch a 9 year old buy a pack of cards, rifle through the pack and if there were no stars, they’d just leave the “commons” on the counter and walk away, no possibility of putting them in the spokes of the wheels of the tires on their bicycle, because even back then, kids had pretty much stopped doing anything outdoors, anymore…
Some of the more enterprising 11 year olds would grab the Beckett price guide on the counter, to see if they had scored…
Like Wall Street, for kids~
start to inflate again: that’s exactly what happened in Europe after the minor housing market hiccups in 2000/2001. Some EU markets are now 50-100% higher than in 2000, despite the fact that prices were already totally crazy then. All that was necessary was even lower rates and even more crazy lending. Bernanke and Wall Street (or maybe I should say the PPT) still seem to be in total control regarding rates and the stockmarket. If they can get rates 1% lower this year I think there’s a good chance that the US will see at least a huge ‘echo bubble’.
I wonder if it isn’t too late for that with the collapse of the subprime market. There will be probably not enough willing and able buyers.
Trading up every two years will start getting old real quick, once they discover they have bring to money to the closing table every time they sell their “old” house.
Don’t you just love these types? A girl in my office yesterday (Silicon Valley) was bragging about buying a house with her boyfriend - at 7x their combined income. The kicker is that right now she lives in low income housing. Someone asked her if they were going to get married. She said they would wait a year and see what their finances are like. I had to bite my tongue - happens a lot these days.
A girl in our office got lucky.
She bought a San Diego condo with her boyfriend and then broke up. In the breakup, due to the asset, she had to hire a lawyer. (He sued for quite a few fees.) Aparently, her lawyer was the better lawyer and he bought her out at cost (minus a few months of interest payments). She knows she dodged a bullet and is happy to get out for about $5k in losses.
Got popcorn?
Neil
At a recent forum in the valley, Patrick Veling, president of Brea-based research firm Real Data Strategies, said the valley
has a number of bubble-proofing factors in its favor. Those include continued demand for local homes among retirees, the
fact that most owners sell their homes because they want to - not because they have to - and an overall supply of homes
in the state that continues to lag demand.
If there is no “bubble” then why mention “bubble-proofing”?
BTW: The above quote was taken from the below article dated 1/14/2006. Warning; link is a PDF.
It’s actually a very humorous piece, the typical spins about the housing market are in there.. The baby boomers, expecting 15% appreciation over the year, the market is strong…
Valley realtors: Future is bright
I tend to doubt the whole “retirees want to move to CA” argument. From what I’ve seen, the only retirees who live here are those who originally worked here and continue to live in their old houses (bought for a reasonable prices) near their kids, grandkids & friends.
Can’t see why someone, who worked and lived in Texas (or some other state), would suddenly decide to move to higher-cost CA when their income goes down (they’re retired, right?).
We tend to have more/better jobs in CA, so it would be more likely people move here for JOBS, not retirement. If they move here to retire, they are doomed to live a much lower QOL than where they came from.
Can’t see the logic…
There is absolutely no logic. Retirees almost always want to move where it’s cheap. My parents, who are in CA, will be leaving the state shortly as they retire.
guess what. i know a lot of retirees who are earning more retired than working (pension plus ira plus 401, not including ss yet because they are still young). it made no sense for them to continue working. they spend most of their time now doing volunteer work.
YUP….When pensions are 90% of the last five years its fairly easy to make more in retirement….
I guess the point is that retirees will likely move OUT of California when they retire, in order to get a more affordable & better QOL. It’s like perma-stagflation in CA, with rising costs and declining wages. Been that way for a long time; the housing bubble just made it much, much worse.
Here’s another, a blog edited by Veling:
http://bubbleinparadise.com/
Seems like the blog didn’t make it with the updates; only 5 posts from June of 2005. Gee; what has housing done since then?
Go search the blog archives of OC Register’s RE blog.
There are a bunch of posts working Veling over.
He is a pipsqueak pining for respect. Guess what dumbass respect is earned not automatically granted.
Into the Kill Zone: How Fast Are Credit and Labor Conditions Deteriorating?
http://wallstreetexaminer.com/blogs/winter/?p=434
Capital flows to US reverse in December to outflow of $11B
Dec first outflow of capital from US since June 2005
07. Capital flows to US reverse in December to outflow of $11B
08. Dec first outflow of capital from US since June 2005
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIEI..LoYOBs&refer=home
I saw that. Three or fourth months of this and big changes will occur. They may be taking away our free money.
–
But the US Tresuries are soaring. Why? Because all this is bad for the US economy going forward. Recession within few short months.
Jas
recession started Q4 06
lookback period hasnt quite been revised enough
US TIC data was released this morning - for last December. The US sold only about $15 billion in securities and suffered a massive capital loss. That is excruciatingly bad news because the US needs about $55 to $60 billion every month to stay solvent.
The key elements of the report, to my mind, are as follows:
29 Change in Banks’ Own Net Dollar-Denominated Liabilities-20.0
30 Monthly Net TIC Flows (lines 21,22,29) -11.0
of which
31 Private, net -42.5
These are across-the-board net losses of US dollar denominated assets. Even the banks and private equity show a big shortfall or sell-off or non-purchase, whatever. What does this mean and why am I posting it on a housing bubble blog? Of course I’m going to tell you.
Nobody wants dollar-denominated assets at these interest rates anymore.
This means the next go-around will require higher interest rates to continue to attract foreign investors. US interest rates will go up, not because Bernake wants them to, not because anyone is trying to cause further stress on the housing market (although it obviously will) but because market forces are implacable. They demand a higher return for risking their capital in the troubled US market.
Because Bernake doesn’t want to crash the housing market, he’s trying to keep interest rates lower than the market demands. Result: capital is steadily fleeing the US. What’s left will cost more and probably a lot more. This artificial shortage will cause massive failures in lenders, who will no longer be able to afford to make loans, and who will suffer massive defaults at higher interest rates.
Once this becomes widely understood, Wall Street and even the ordinary person on the street will begin to fear. The house of cards is falling, collapsing in on itself. The security-based derivatives will unwind, and are unwinding, and the losses of “wealth” will be stupefyingly large. Stay tuned.
(US interest rates will go up, not because Bernake wants them to, not because anyone is trying to cause further stress on the housing market (although it obviously will) but because market forces are implacable. They demand a higher return for risking their capital in the troubled US market.)
I’m not sure Benanke doesn’t want rates to rise. The problem is he’s pushed up short term rates to the point where they are pretty high relative to inflation, and doesn’t want to push them higher. He may even want to cut. But long term rates are still low.
Long rates going up 2% or so would restore the incentive to save, the disincentive to do stupid things with debt, and the attractiveness of U.S. dollar without more short term increase. But it would remove the fixed-income escape hatch for the FBs.
KIA:
What is US TIC data? Can you provide us with a link to your source?
The Treasury International Capital report shows the monthly inflows/outflows of international capital into U.S. bonds, stocks, etc. It’s an indicator of foreign demand for our assets, essentially. I have a link to the latest report and some analysis available here …
http://interestrateroundup.blogspot.com/2007/02/r-uh-r-oh-tic-data-disappoints.html
–
Gates Sells Most of His Holdings in Hopedestroyers (aka Homebuilders)
This was just reported on CNBC.
Jas
KB Home , Centex Corp. , Pulte Homes Inc. , Lennar Corp. , Beazer Homes USA Inc. , Ryland Group Inc. , and WCI Communities Inc. were dropped from the list of holdings.
he bought wci?
–
Whe it comes to “wealth:” Easy Come Easy Go.
I don’t like Gates much either but he is trying to get to heaven. Starting early too - he needs it.
Didn’t the Gates folks listen to Cramer??
“KB Home (KBH): Cramer says that KBH’s strong performance is proof that negativity on housing is excessive, since the company reported a rise in revenues and a 4% gain in the price of a typical house over last year. In spite of the 4% rise in the stock, people are “so busy burying” KBH, which Cramer considers an attractive takeover target.”
http://news.yahoo.com/s/ap/20070215/ap_on_re_as/china_ant_fraud;_ylt=Asc1BWTHTavEGdqJdlUx.qlvaA8F
A Chinese man has been sentenced to death for his role in a $385 million bogus ant-breeding scheme. Compared to the stories I read in here every day, this seems almost normal - God help us.
The Philadelphia murder was over a real estate deal.
http://www.philly.com/mld/philly/news/local/16692392.htm?source=rss&channel=philly_local
Anybody catch “squawk box’ this am? Host really got pissed off with guest who stated that the economy was RE based, a bubble and about to implode and that the price of gold was the result of foreigners pulling out from US investments.
That was our buddy Shiller.
Oops - Shiff
Just thought that I should post that my neighbor who bought there house on 9/05 for 620,000 is back on market today for 520,000. Zillow has the Zestimate at 640,000. Another house down the street sold recently for 550,000. The Down spiral continues. But, still has a ways to go to be sustainable for the families that make a decent living: nurses, teachers, peace officers and firefighters that are an integral part of this city by the sea, Ventura.
Here’s a fun time waster. Hilarious, especially for you NCAA Basketball Tournament fans:
http://www.celebrityhack.com/anna-nicole-paternity-madness
That was friggen Hilarious Tchick…..
Latest Q4 metropolitan price data out from the NAR. Here’s a post from my blog — enjoy!
http://interestrateroundup.blogspot.com
The National Association of Realtors just released their data (PDF link) on Q4 home prices by metropolitan area. They showed a 2.7% decline for the United States as a whole (single-family homes). That was worse than the 1% decline in Q3 2006 and a major swing from Q4 2005, when prices were UP 13.6%. The Midwest led the declines with a -4.2% change. The only 1 of 4 regions to show gains was the West, at +0.4%.
The picture was somewhat different for condos and co-ops. Across the U.S., prices for those properties were down 2.1%. The South and West showed big drops of -6.4% and -9.1%. But there were small gains reported for the Northeast (+1.2%) and Midwest (+2.7%).
Which metros showed the biggest gains, single-family wise? A few in New Jersey, like Atlantic City, and scattered locales in Utah, Oregon, North Carolina, and Louisiana.
The biggest declines? Sarasota-Bradenton-Venice, FL, at -18% … Palm Bay-Melbourne, FL at -17%, and Cape Coral-Fort Myers, FL at -11.7%. Other drops were recorded in metros spread throughout Nevada, Ohio, Massachusetts, Illinois, Connecticut, and California. Condo prices fared much worse than single-family prices in some markets, with changes of -24% in Sarasota-Bradenton-Venice and 22% in the Palm Bay market.
The price drops are concentrated in two kinds of areas:
1) Those which experienced the most speculation during the boom and/or which have the most unaffordable homes relative to incomes. That includes large swaths of CA, FL, etc.
and
2) Those with the worst economic fundamentals. Midwest “Rust Belt” cities fall into that category, as do metros exposed to weakness in manufacturing, especially autos. Some examples include cities in Michigan, Indiana, and Ohio.
Gold’s been hanging @ $666 per Troy Ounce for a few days now…
A sign from the devil himself?
I wonder if anyone on the blog can help? I have a Merrill Lynch account where I have a chunk of cash held (sweep account). Until a couple of days ago It was a general “bank deposit account” now it is titled “Wilmington Savings Fund Society, FSB ISA” I have dictated in the past that my money goes nowhere near MBS’s, How do I find this banks exposure to the housing market? Can anyone provide me with links? I’m waiting for my rep to get back to me with his explanation…
Thanks!
Go find a prospectus or quarterly report. Maybe you can find a pdf of it online, or maybe you have to call Merrill to track one down. They have to give you one if you ask. The holdings will be several months old, but you’ll still be able to see if MBSs are part of their strategy.
Thanks! I’m on it…
John
In their 30th Jan SEC filing $530m of $2.97bn in Assets are MBS’s. Is that high, low or average sfor a Thrift? My money is in a ISA with them, 4.5% yield,- should I be concerned?
So about 20%, some of which are presumably prime? I doubt that’ll be enough to “break the buck” (google it), but if you’re worried you may want to check out any other savings vehicles they have.
Can anyone provide the link to the video clip “De-Faulting” posted this month?
Can’t find it on YouTube, googlevideo or the search tool.
Thanks.
I have been reading this site for sellers and came across this brain child and her plan. Check out what they were doing:
“Our original intention was to sell this one and move into the new one. Live there while we built another house and then move into that house, selling the new one. We never planned to live there forever, however we DID plan on living there for a while.
But when this one didn’t sell after 5 months, we listed the new house…it didn’t sell and when the listing ran out we took it off the market and reassessed what to do. We had just relisted it and less than a week later it sold….go figure.”
The saga continues, a couple of days later she posted this one:
“Hang on…we hit a snag today. Seems the appraisal came back short of what the buyers needed it to be for their loan. Our agent was a bit upset over it, as she couldn’t figure out why it came back that way. I know when I bought this house (it was brand new), I had to pay someone $350.00 to literally “drive by”. Imagaine making $350 for five seconds worth of work. From the front the house looks very very average. But inside…we did detail work only found in more expensive homes. Something I am sure the appraiser didn’t see.”
What is wrong with people? I mean really, stupid ideas like this should be placed in the world book of records for the most stupid home purchase ideas.
SKB
Guess appraisers aren’t hitting the mark anymore . Flipper ,guess you didn’t know that over-improving can cost you ?
Granite countertops aren’t worth it anymore. Linoleum is much more appreciated when you can sleep well at night.
Linoleum countertops? Oh boy….;)
That had to come from the HGTV boards - she did this in Santa Rosa if I’m guessing right. I tried to point her towards some blogs but they never listen.
This came to me via email from a commercial mortgage broker:
Subject: My thoughts after Listening to the Money at the MBA
Just back form the big annual Mortgage Bankers convention in San Diego and wanted to share the thoughts and sentiments of the “Money”.
My biggest take-away is that any transaction that makes a modicum of sense can get done with modest cash on the part of the sponsor or with more cash at pricing that is remarkable!!
All the big guys are offering any and all types and combinations of financial products and portions of the capital stack and the smaller guys are either filling in the gaps or pushing the pricing lower!
Good Ideas are being financed!!
Cohen Financial hosts a roundtable on Sunday afternoon. We had 32 senior investors from 20 or so institutions which represents umpteen billions of investment capital.
Some of the thoughts that came out of it….
The discussion was focused on: Risk, equity and capital flow.
It’s a great time to be a borrower; lousy time to be a lender. The capital markets continue to be flush. We all are praying to the Gods of capital flow not to turn off the spigot. A property’s brick and mortar value seems to pale by comparison to its capital markets value. The amount of money still being raised for investment seems in exhaustible. Since real estate remains the best performing alternative investment the future for capital flow into real estate seems a sure thing.
While we are finally getting NOI growth at the property level, the capital markets have trifurcated: structured, commoditized, and the Life insurance company/portfolio lenders - who remain deer caught in the headlights of onrushing capital. The surge of liquidity drives cheap and plentiful debt which drives acquisition and selling and cap compression and increased values. Pricing of this capital - considering base rates, spread and amortization, each component - is at an all time low. For the capital markets real estate investing has become a “moving biz” - it’s no longer a “storage” biz.
No one is pricing risk - to term - in deals. Since the biz is now a “moving biz”, pricing is to execution since nobody is holding the paper anymore. The belief is that the market is transparent and violent about pricing and re-pricing risk based on the event. The industry believes that term risk is effectively diffused and does not matter. When it does matter, when the workouts hit, this generation’s fight will be amongst the investors and lenders in various tranches - the last man standing will deal with the borrower
Guidelines for capital providers change too fast. We have to relate in order to anticipate. Memorizing programs and capital lending guidelines in today’s day and age are a thing of the past. This biz is a high touch biz - with the broker AND the provider. Even in the last month - between dinners at the ALIS (hotel conference) in January and dinners in San Diego last week - interest rates have tightened, spreads have tightened, there is more interest only, underwriting is being stretched and proceeds are increasing in order for lenders to be able to buy biz.
$200b in the CMBS market alone was executed last year. The estimates for 2007 are $400b!!
The future for the brokerage community is to be seen as a financier not a broker. Lenders concede that every broker is covered adequately by all. They don’t want to compete. Rather, they will focus on a few and go deeper with them in hopes of controlling or influencing a major part of their market share. Smart!! They will seek financiers who add value to their process and who control and know customers that match theirs.
If you are contemplating a deal, any type of deal no matter how creative, pls call me because I’ll bet you dollars to donuts that we can get it done!
It’s a great time to be a borrower; lousy time to be a lender. The capital markets continue to be flush. We all are praying to the Gods of capital flow not to turn off the spigot.
that sums it up pretty well; the ‘Gods’ at the FED and the ECB are still listening to the scum that feeds on this flood of easy money.
The War on Savers continues.
Peter Schiff again. I like this guy. check it out, it is video of today’s interview at CNBC.
http://www.cnbc.com/id/15840232?video=182082770&play=1
Good video. I love how the host tries to make Schiff look like a fringe conspiracy theorist type and tries to usher him off. Schiff just stands in and delivers the news that the host doesn’t want to hear.
Wonder how many houses the host “owns.”
“nice” story:
http://biz.yahoo.com/hmoney/070214/021307_construction_moneymag.html?.v=1&.pf=real-estate
If 60% of builders think the future for their industry will be worse and 40% think conditions are improving, then confidence has returned, right?
———————————————————————————
ECONOMIC REPORT
Home builders’ confidence returns
Index rises to 40 in February, highest since last June
By Rex Nutting, MarketWatch
Last Update: 1:52 PM ET Feb 15, 2007
WASHINGTON (MarketWatch) — U.S. home builders are still pessimistic, but are growing much more confident in the housing market, according to a monthly survey released Thursday by the National Association of Home Builders.
The NAHB/Wells Fargo housing market index rose to 40 in February from 35 in January. It’s the highest since June 2006. The index had fallen to a 15-year low of 30 in September. A year ago, the index was at 56. The index has been below 50 for 10 months.
In the 1989-92 housing slowdown, the index was below 50 for 36 consecutive months; it took 18 months for the index to go from 40 to 50
A reading of 50 would indicate builder sentiment is equally divided between those who view the market as good and those who see it as bad.
http://tinyurl.com/3b4s9h
Proposed new moniker for the residential construction sector:
“Hopebuilders”
:-)!
Dean Baker is coming down hard on the WSJ for their infatuation with quoting Lereah and nobody else. I’m actually still surprised that any respectable publication would quote him without any contrarian “expert” opinion. Is the WSJ not respectable?
http://www.prospect.org/deanbaker/2007/02/house_prices_fall_but_weve_hit.html
Let me answer your question with another question: Is there any way to trace how the NAR spent their $40m publicity campaign money? Because I would be really interested to know if the WSJ and other MSM outlets were on the receiving end?
Let’s talk about Ghost Towns!
I am kind of a history buff(got my BA in history) and living here in Nor Cal there are so many great old ghost towns and mining camps in the Sierra…(hoping to explore some more this summer) I can’t help but think there is a very real possibility of some modern day ghost towns popping up in the next year or so.
I am thinking of places like Queen Creek in AZ, or the place I just drove thru in Linda, north of Sacramento the other day…hundreds of homes slapped up out in the middle of nowhere….lots of empty homes and they are plowing ahead building even more….think it would be fun to see some empty subdivisions in a few years…
Watch out for the meth lab couriers — they will be packin’ heat.
I live near Sacramento… never heard of Linda though!?
Suggested new job title for Federal Reserve Chairman position: “Soother-in-Chief”
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MARKET SNAPSHOT
U.S. stocks rise as Bernanke reassures investors
Comments from Fed chief send Dow to new high; Caterpillar leads Dow
By Nick Godt, MarketWatch
Last Update: 3:33 PM ET Feb 15, 2007
NEW YORK (MarketWatch) — U.S. stocks rose on Thursday, with the Dow Jones Industrial Average hitting another record high, led higher by a Caterpillar Inc. share buyback and merger news, and as Federal Reserve Chairman Ben Bernanke’s second day of testimony to Congress boosted investors confidence in the economy.
question remains: is it the ‘wise words’ of the Chairman, or is it the PPT?
Guess what ? DL says the slump will be over this spring ! CNN is reporting it, so it must be true !
“Examination of data within the quarter shows home prices stabilizing toward the end,” said a statement from David Lereah, the Realtors’ chief economist. “When we get the figures for this spring, I expect to see a discernable improvement in both sales and prices.”
I think DL was a cheerleader in his former life.
Some of you may remember me from an earlier post (on 1/19)lamenting the costs of housing in the Pasadena, CA area. After some insulting comments from BanteringBear, I stayed away from the blog for a while. I went back and realized that many of you provided many thoughtful and supportive posts. To those detractors, I was not looking for sympathy. Indeed, life is very good for us. I was merely trying to point out the absurdity of the current market in the Los Angeles area. It is absurd in the Pasadena area, which pales in comparison to the westside of LA.
In case any of you care about the resolution of my personal situation, we have decided to remain in our current rental for at least another year, then to rent (if necessary) a larger place for 2 years. So about this time in 2010, we’ll either buy (if prices correct within some approximation of historic norms) or look to relocate to a less expensive city.
In spite of all the bad news posted, our local observations have made it difficult to keep the bubble faith at all times. I am rational enough to believe it will correct, but GFs keep buying around us, at prices that are truly exorbitant. I am finally seeing some signs that things are slowing, but have come to agree with those of you who predict that a bottom will be years away. I don’t expect to be able to buy at the absolute minimum, but do want to buy at a level that does not strain our finances.
Until then, I just hope that Neil will be willing to share his popcorn. I will sit back, enjoy the subprime lending catastrophe, ARM resets, and mounting foreclosures.
“…insulting comments from BanteringBear…”
The blog is occasionally good for thickening the skin.
I recall your post. Good decision. See you at the bottom in a few years (i hope).
How do you explain the “soft landing” mantra that incessantly rains down from on high?
1) Denial?
2) Deception?
3) Secret bailout plan, to be unveiled later in 2007 when things look worse than right at the moment?
4) Other?
Forgot one:
5) Cluelessness?
I vote for **hope** for a bailout plan.
Can’t tell you how many people I’ve met who say “The Fed” will not let prices fall. Not sure how they figure that should work, but there it is. Lots and lots of folks saying that — we’ve had quite a few on this board.
Let’s hope not. Stretching this thing out is far more destructive than just taking our medicine and getting it over with.
Will some people who got in way over their heads lose their homes? Yes.
Will the economy go into recession because the home equity ATM is out of money? Probably.
Will we get to a point where people can actually AFFORD a home, without suicide loans, and have money left over for food, healthcare expenses, savings, retirement, and “life”? We can only hope!
Keeping the faith…
“Can’t tell you how many people I’ve met who say “The Fed” will not let prices fall. Not sure how they figure that should work, but there it is. Lots and lots of folks saying that — we’ve had quite a few on this board.”
I think the Fed believes it will work as follows:
1) Convince “everyone” that a soft landing is on the way later in 2007.
2) “Everyone” will naturally assume that a soft landing is on the way later in 2007 if the Fed says so.
3) The collective action of “everyone” going about their business under the soft landing scenario will result in a soft landing.
Think of this as a socially-engineered psychological economic bailout. Too bad that it does nothing to replace the missing subprime bid that has, until recently, propped up home prices.
I disagree with your point number 3. I think the fed wants to avoid a panic and a run on the banks.
How is a bank run possible when the “currency” supply amounts to alleged electronic blips?
Business
Lenders see spike in subprime defaults
By Patrice Hill
THE WASHINGTON TIMES
February 16, 2007
Defaults on subprime mortgages have jumped to recessionary levels and triggered in the last month what could be the beginning of a shock to the financial system, with the failure of several lenders and major losses at a Hong Kong investment bank, top finance analysts said yesterday.
Higher interest rates and less access to cheap mortgages lie ahead, particularly for young people and minorities with shaky credit who are seeking to buy their first homes — and the nation could face a serious credit crunch in housing that spills over to the rest of the economy, said Joseph P. Mason, a Drexel University finance professor.
“This situation can unravel in a lot of different ways,” he said, as major investors such as Hong Kong’s HSBC Bank — which announced Feb. 8 that it experienced unexpected losses as a result of defaults in mortgage portfolios it traded — withdraw funding from the mortgage market and force banks and mortgage brokers to tighten the loose lending standards that enabled many people to buy homes in the past three years.
Like a slow-motion train wreck, the credit crunch is likely to unfold in stages as banks that have not been stung by losses step in and fill the void left by failed lenders, he said.
“The hiccup could be economically costly in the housing market. It will hurt the subprime borrowers we are trying to help,” he said. Mr. Mason is co-author of a study warning of potentially serious problems in the mortgage-backed securities market if rising defaults collide with declining house prices to put both borrowers and lenders in a monumental squeeze.
http://washingtontimes.com/business/20070215-105533-7042r.htm
S&P agrees with me about PMI’s rising star as 80/20 leaves the stage.
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Industry in Focus February 16, 2007, 12:15PM EST text size: TT
Subprime Woes Subdue Some Winners
Worries about defaults have led investors to shun lenders, but S&P thinks mortgage insurers deserve a closer look
by Joe Niedzielski From Standard & Poor’s Equity Research
When news of deteriorating credit quality hurting subprime lenders made headlines late last week, investors punished the good, the bad, and the ugly indiscriminately. Standard & Poor’s Equity Research believes there’s an opportunity to pick up good names that were sold off unfairly last week. But investors should be forewarned: There are still potential pitfalls for many financial firms, as S&P thinks their holdings of new-fangled mortgage products with adjustable rates and flexible payment options could face some hurdles in the coming months (see BusinessWeek.com, 2/14/07, “A Sinking Sensation for Subprime Loans”).
Warnings last week from New Century Financial (NEW; not followed by S&P Equity Research) and HSBC Holdings (HBC; ranked 3 STARS, hold) about credit deterioration in their subprime mortgage books sent the S&P Thrifts & Mortgage Finance sub-industry index down more than 2% in the four trading days to Feb. 9’s close. Shares of financial-services firms with exposure to the subprime market—including Countrywide Financial (CFC; ranked 1 STAR, strong sell) and Washington Mutual (WM; ranked 3 STARS, hold)—also fell. S&P Equity Research downgraded Washington Mutual to hold from buy on Feb. 12.
The negative sentiment extended to mortgage insurers. PMI Group (PMI; ranked 5 STARS, strong buy) and MGIC Investment (MTG; ranked 4 STARS, buy) also fell.
http://www.businessweek.com/investor/content/feb2007/pi20070216_809773.htm?chan=top+news_top+news+index_investing
News flash: Goldilocks raped by subprime lenders.
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Kass: Subprime Fungus Will Spread
By Doug Kass
Street Insight Contributor
2/15/2007 11:58 AM EST
Click here for more stories by Doug Kass
Wednesday saw another large mortgage bank, Silver State Mortgage, cease originating subprime loans. Silver State Mortgage was, according to National Mortgage News, one of the fastest-growing wholesale lenders in the country.
The relatively healthy subprime originators, like Washington Mutual’s (WM - Cramer’s Take - Stockpickr - Rating) Long Beach Mortgage, are downsizing around the country faster than you can say BBB-minus.
In a related note, Standard & Poor’s might have been reading my story from last week as they downgraded ratings on 18 securities from 11 mortgage-backed bond issues and put on review a number of other bonds sold by units of Goldman Sachs (GS - Cramer’s Take - Stockpickr - Rating), Lehman Brothers (LEH - Cramer’s Take - Stockpickr - Rating), Barclays Capital, Countrywide Financial (CFC - Cramer’s Take - Stockpickr - Rating) and New Century Financial (NEW - Cramer’s Take - Stockpickr - Rating) on Wednesday.
Many in the media (from Jim “El Capitan” Cramer to Sir Larry Kudlow to Bob Pisani) have opined that the bears “don’t understand the conditions under which real estate markets collapse, and these conditions (suggestive of a broadening credit problem) are not present.” And, in a series of perfunctory conference calls over the last week, the leading brokerages have supported their case that there will not be a credit contagion emanating from subprime lending and that the brokerage exposure will be contained and limited, even though none of the banks disclosed their involvement in the subprime market (as agents and as principals).
It appears that the principal reason these observers are ignoring the subprime problem and its ramifications is that the equity markets are ignoring them. Ergo, it must not be a problem. This is the definition of a Goldilocks mindset (see no evil, hear no evil), not a Goldilocks scenario.
http://www.thestreet.com/_googlen/newsanalysis/investing/10339147.html?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA