A “Stunning Drop” In Housing Starts
Some housing bubble news from Wall Street and Washington. “U.S. home builders started the fewest homes in nearly a decade last month, as housing starts plunged 14.3% to a seasonally adjusted annual rate of 1.408 million, the Commerce Department reported Friday. Starts were down 37.8% compared with January 2006, the largest year-over-year decline since early 1991.”
“Also, building permits dropped to 1.568 million in January, 28.6% below the same month a year ago. The stunning drop in home construction indicates that builders are scaling back their plans on a massive scale.”
“Starts fell in three of the four regions as tracked by the Commerce Department in January, as the Northeast enjoyed warmer temperatures and drier-than-normal weather in the first half of the month. Starts rose by about 9% in the region. Starts fell by 28% in the West, by 15% in the Midwest and by 12% in the South. Starts in the Midwest were at the lowest level since 1991. Starts in the West fell to the lowest level since 1996. It was the biggest drop in the West since 1979.”
“There were 1.2 million homes under construction in January, down 14% from the previous January. ‘There is still a considerable amount of new supply still hitting the market,’ said Richard Moody, chief economist for Mission Residential.”
“Two weeks ago, the Commerce Department reported that the number of vacant homes increased by 34% in 2006 to 2.1 million at the end of the year, nearly double the long-term vacancy rate. Economists said there about are 1 million excess homes.”
From CNN Money. “Wachovia economist Phil Neuhart said that the report suggests that those who believed that there was a stabilization in home building, based on the strong December report, were pre-mature. ‘We never thought we had found a bottom,’ he said.”
From Bloomberg. “In another sign of growing concern about mortgages made to high-risk borrowers, Standard & Poor’s said it would no longer wait for homes to be foreclosed on and sold at a loss before alerting investors in mortgage-backed bonds that it expects to lower ratings on the bonds.”
“S&P said Wednesday that it was considering downgrades on 18 low-rated bonds from 11 securitizations of mortgages last year amid early loan problems.”
“‘It is a watershed event’ because it means S&P is now actively considering downgrading bonds within their first year, said Daniel Nigro, a portfolio manager at Dynamic Credit Partners, a manager of about $6 billion in hedge funds and collateralized debt obligations. ‘We welcome them being more open’ about their methods.”
“S&P’s warnings Wednesday were on bonds backed by so-called sub-prime and Alt-A loans, and by home-equity loans. Alt-A loans are defined as ones that fall only slightly short of the credit standards of Fannie Mae and Freddie Mac, the two largest U.S. mortgage firms.”
“Borrowers are 60 days or more behind on payments on 11-month-old 2006 sub-prime mortgages that represent 8.2% of the loans’ total original balances, Steven Abrahams, an analyst at brokerage Bear Stearns Cos., wrote.”
“One of the bonds S&P warned about this week was backed by Alt-A mortgages. It was the company’s first warning about any of those securities sold in 2006. Alt-A loans often are made with less proof of borrowers’ pay, or are interest-only loans or ‘option’ adjustable-rate mortgages.”
“‘In terms of performance, I’d say there are equal concerns’ about Alt-A loans and sub-prime loans at S&P based on early delinquencies, said Ernestine Warner, an S&P analyst. The Alt-A bond S&P warned about was issued by Calabasas-based Countrywide Financial Corp., the largest U.S. mortgage lender. Newport Beach-based Impac Mortgage Holdings Inc. made the loans.”
From Business Week. “Countrywide and Washington Mutual face some risks from so-called ‘recastings’ of pay-option ARMs. Unlike fixed-rate loans, which have decades of underwriting data behind them, pay-option ARMs haven’t been stress-tested in an environment where home-price appreciation is slowing, and even falling in some regions of the country.”
“Roughly 28% of Washington Mutual’s loans held are in these riskier option-ARM mortgage products, according to S&P analyst Stuart Plesser. By contrast, pay-option loans comprise more than 40% of Countrywide’s interest-earning assets.”
From MarketWatch. “A credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big banks like Merrill Lynch & Co. and J.P. Morgan Chase.”
“In recent weeks, warnings from banking giant HSBC Holdingsand New Century have shaken subprime confidence further, sparking speculation that a major bank is aggressively making margin calls. Accredited Home Lendershas had to come up with more cash after getting margin calls from some of its warehouse lenders, Stuart Marvin, executive vice president at the subprime specialist told analysts during a conference call on Wednesday.”
“‘We have eight different warehouse lenders; I would say the majority of them are acting very rationally,’ Marvin said. ‘There is one that is acting somewhat irrationally, although I won’t mention them by name.”
“Industry publication National Mortgage News said this week that Merrill Lynch has been making margins calls. A Merrill spokesman declined to comment. In late January, J.P. Morgan CEO Jamie Dimon noted rising defaults in some of its riskiest home loans and said the bank had largely exited the subprime business.”
The Wall Street Journal. “In recent months, as home-price appreciation fell and borrowers faced rising interest rates, more people defaulted on their mortgages. Under mortgage contracts, mortgage originators must often repurchase loans that default very early in their term or that come with underwriting mistakes, such as flawed property appraisals.”
“‘Following early payment defaults, we exercised our contractual rights to return loans to ResMae and protect our financial interests,’ a Merrill spokesman said.”
“A decline in the subprime housing loan market may force General Motors Corp. to refund its former financing arm, GMAC LLC, as much as $950 million, according to a Reuters story. A report by investment bank Lehman Brothers Inc. said the rebate is needed to ’shore up’ GMAC.”
“GM, which retained 49% ownership of GMAC, delayed the filing of fourth-quarter financial results because of unresolved issues concerning the balance sheet of GMAC’s mortgage unit at the end of November, ResCap unit.”
The Economist. “Mortgages were written for a fee, sold to investment banks for a fee, then packaged and floated for another fee. At each link in the chain, the fees mattered more than the quality of the loans, which could always be passed on.”
“‘This was classic market failure,’ says Anthony Sanders, a mortgage expert at Ohio State University’s Fisher College of Business. ‘The private sector wanted fees and got them, and they did not much care what happened afterwards.’”
From theStreet.com. “Many in the media 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.’”
“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.”
“There is an emerging credit crisis and it will lead to rapidly rising charge-offs. Construction lending on land and condominium loans are the next area to implode. As night follows day, the enormous securitization markets will shortly begin to demonstrate the same sort of delinquencies we have witnessed in subprime mortgage lending.”
“Restrictive credit practices are just beginning to unfold as a consequence of the poor underwriting standards applied over the last decade.”
How much longer can the dam hold? The house I’m renting in north Fontana has dropped about 140k in the last two months (according to zillow) since we started renting here. I can’t wait until our one year lease agreement is up to threaten our landlord with our imminent departure if he doesn’t significantly lower our rent. What is the proper etiquette to go about doing such a thing?
If your landlord’s an FB, I think that your rent reduction threat will fall on deaf ears. But, OTOH, if the landlord knows what the local market is like (lots of available properties, but few decent tenants), he/she may have no choice but to lower your rent.
In short, it’s not a fun time to be a landlord in the SFH rental market.
It’s never a fun time to be a landlord in the SFH rental market. Unless you’re into S & M of course.
“… think that your rent reduction threat will fall on deaf ears.”
Figure out your best alternative to paying above-market rent, and also what the landlord has to lose if you move elsewhere (e.g., has to find another tenant when there may be many places on the market of comparable or better quality renting for less). If you are in an area where lots of vacant homes are reverting to the rental market, you may have more bargaining power than you think…
Proper etiquette: That would be: “Lower my f-ing rent a$$hole, or I’m blowin’ this dump!”.
The key to bluffing is to never bluff. Make sure you have a cheaper place lined up before you make your pitch. Also, I would make sure the next place is cheap enough to compensate for having to move. Personally I’d want $2000 a year or better in savings for it to be worth moving. If it’s just you and your dog less might work for you.
Always remember, you can’t do a deal unless you are willing to walk.
“… unless you are willing to walk.”
And you can’t (rationally) be willing to walk unless you know what it will cost both you and the landlord if you do so.
“Also, I would make sure the next place is cheap enough to compensate for having to move.”
Yes and no. If your landlord stands to lose a great deal if you move, that gives you additional bargaining power over and above any gain you could unilaterally achieve by moving.
Ask for a specific rate, not just to “lower it”. Gather comparable information on what are competive rental rates. Present that information tactfully and matter of factly to back up your request. Show some empathy for his situation, but be firm about your need to pay a fair price or you will find something more competitive. Remind him that the search costs of finding a new renter and the vacancy costs could be more than you are asking for. Keep your emotions in check, be business-like.
Best advice. Nice post.
agree. In the past i have looked for the competitive prices, and approached the landlord to split the difference. It has worked out well.
And remember that higher housing values did not necessarily mean higher rents, and lower home values do not necessarily imply that rents wil go down. You can’t argue for lower rent because the house is worth less. You CAN argue for lower rent if similar rental units are now renting for less.
In our area, the housing/creative financing boom caused many rental values to go down. As higher income people found it possible to get loans to buy homes, they abandoned renting for owning and renters of nicer homes had to deal with high vacancies by dropping the rent. It’s possible that as home values drop and subprime borrowers lose their homes and return to renting, the opposite will happen. Or it may not, but the reality is that rents don’t necessarily go up or down based on housing values (which is one of the reasons that buying property for the purpose of renting is a risky proposition).
Diane, your comment that rental cost does not correlate to rising and/or falling housing costs is somewhat correct. Rent is mostly a factor of supply and demand. With millions of empty houses around, there is too much supply. Rates in most areas will fall. They already are falling in many places.
In 1994-1995, apartment owners in many areas of northern California, who bought in the “heady” 1998-1990 period, were turning their complexes over to the lenders. At the end of the housing boom in the late 80’s, apartments were running near 95% occupancy and buyers ignored fundamentals (rent growth, expense growth, sustainable occupancy) when arriving at their purchase prices (similar to now). Then the housing boom busted and we were oversupplied with “net bedrooms”. People could not sell their homes, so they rented them out. Six years later, apartment occupancies had dropped to 84%, rents dropped another 12%, and expenses had climed 22% (utilities, taxes, insurance, maintenance). These savvy buyers found the net operating income suddenly did not provide enough money to make the debt service. They simply turned the complexes over to the lender.
There are some fundamental differences today: No net out migration as we had in 1991-95 (yet), and the housing bubble value was not so imbalanced then, as it is now. It is hard to tell where this is all going, but the odds are much stronger this market will remain declining for many years, just as it did from 1990 to 1997. We have entered the second inning. It may go to extra innings.
correction…..”heady” 1988-1990 period….not …1998-1990
The MORE IMPORTANT Question is how safe is your security deposit?
Did the landlord spend it already? Or did he put it in a seperate account?……….Some places want first last plus securty..so it can make a big difference wether to move, or if the landlord goes into foreclosure….and how you can play this so you dont lose it.
The fact is NO state allows a tenant to use the security as last months rent..NONE…it is stricly a landlord’s decision and you should get it in writing to CYA.
If the landlord goes into foreclosure, stop paying the rent, but of course dont spend it….the landlord might try to evict you, but this is what court is for, you can negotiate with the judge to use the secuity as rent. Remember YOU cannot make this decision as a renter.
And the landlord cannot cut off any utilities or else you can have him arrested. And you can use your rent money to get the utilities turned back on (water, gas) if he didnt pay the bills. just keep accurate records and always pay by check in PERSON.. never by Mail.
Wrong,
In CA you can only get deposit and last months.
As far as using the deposit for last months, FUK em. Call up and say your gone next month and don’t pay next rent, if he asks say he has it with your deposit “the house is fine”. His only recourse is going to small claims after your gone to argue that you trashed the rental.
If you did’t take picture before moving in and after moving out your a dope. There will have to be a considerable ammount of dammage for the courts to put you on the hook.
Another thing is to watch the papers for your FB LL to go into foreclosure. If you see the property in the paper quit paying rent and SAVE IT! If he takes you to court you give the judge the rent till he rules, by the time it washes out he will not own the home and you will not owe him rent. The judges tend to protect the renters and will not like Mr. FB crying about the rent on a home he is not making payments on.
Isn’t there some sort of blacklist of bad tenants that landlords can refer to?
I know doctors have one called the MIB for patients who sue for malpractice.
Why is there always a wannabe Jello Biafra screaming LET’S LYNCH THE LANDLORD? Screwing your landlord is almost ALWAYS a bad idea. Do not, I repeat DO NOT, tell the landlord to keep your deposit as rent. Pay the last month’s rent and then worry about the deposit. If you do otherwise, the landlord can sue you or make your life hell, and some will do it on principle alone regardless of the amount. Is your security deposit (almost never more than 1 month’s rent) really worth that kind of hassle?
Since you’re considering staying there, I assume you like the house and your landlord is a reasonable person. Always be polite; you will get nowhere with threats. Make sure he/she understands what you want. And before you even start, you’d better have a fallback position, and you’d better be prepared to take it if it comes to that.
I meant a higher “duty” to protect your money
PLEASE PLEASE PLEASE RE-READ WHAT I WROTE………..
What i am saying as a paralegal, is to only withold the rent if the landlord goes into foreclosure or bankruptcy.
No judge is going to hold this against a tenant, It is a just defense against the landlord. The landlord has a Higher right to protect your deposit then to pay the mortgage.
So be careful……..yes take pictures when you leave to CYA, but ultimately if he is foreclosed on or files chapeter 7 …you are screwed as a tenant
I wouldn’t be overly concerned about getting sued. Landlords (especially good landlords) are in business. Lawyers cost money. They won’t sue unless the amount involved is worth the cost of the lawyer. They may turn you over to collection, but unless you have trashed the place, they are likely in most places to keep your deposit and call it a day.
Fran you are confusing the two issues……
I am concered about tenants getting screwed out of their deposit and last months rent if they keep paying the landlord once they know the landlord is in foreclosure or bankruptcy, or one day the water gas electrictiy gets turned off becuuase the deabeat landlord didnt pay the bill.
AND IT’S NOT JUST THE REAL ESTATE THAT IS CRASHING…….
Bad Data Begins To Mount…
Good day… And a Happy Friday to one and all! 9 degrees on my car’s thermostat this morning… You would think that with it being that cold, it would have helped to wake me up when I stepped outside this morning… But, no… My motor just won’t get started this morning…
But it’s Friday, and a 3-day weekend for yours truly, so maybe I can muster up enough energy to get through the day on that thought! There was some very important data that printed yesterday in the U.S. and the outcome wasn’t dollar friendly… But for the most part, we saw the currencies go right back to a tight trading range, with the euro on terra firma above 1.31.
Front and Center on the data yesterday was the awful showing of the TIC Data… Recall, I’ve talked about how this data, which measures the ability of the U.S. to attract investment to finance the Current Account Deficit, had been trending down for the past year. Well… While I’m skeptical of this printing of the TIC Data, it does show that the investment flow went NEGATIVE in December… That’s right! NEGATIVE! Obviously, there could have been some year-end “Window Dressing” by money managers… But still, NEGATIVE? That’s pretty ugly stuff for the U.S.’ ability to attract financing…
Not only did the buying stop by foreigners in December, but the outflows were huge! Domestic investors increased their buying of long-term overseas securities from $37 billion to a record $46 billion. This is a classic illustration of a “lack of funding”… So, the question I asked the desk was… “Why isn’t the euro skyrocketing to 1.35?”
Well… The severity of the drop was such that it had to leave a lot of traders scratching their heads and wondering if this is just a rogue printing of this data, or what? Obviously, traders are taking the approach that this will be reversed next month… I’m not so certain of that, though… Look at the previous month’s revision… Overall flows showed that the prior month was revised lower from $74.9 billion to $70.5 billion. Uh-Oh…
Capacity Utilization didn’t lend a hand to the dollar either, falling to the lowest level since last February… And Industrial Production? Don’t look for any help here, either! Industrial Production fell .5%, and marks the 4th monthly decline in the last 5 months… The Philly Fed Index collapsed… And then… The trap door sprung on the Weekly Initial Jobless Claims as they rose to 357K last week… Poor weather was blamed for this rise… But I’m not buying it… Look around at the data this week… Poor this, bad that… It’s beginning to look a lot like Christmas… Really… Recall December? The data began to look bad, and the negative Nellies all came out of the woodwork, calling for a rate cut from the Fed, and the dollar suffered.
We end the week today with PPI, Housing Starts, and the U. of Michigan Consumer Confidence… Should be more dollar negative stuff…
OK… Enough on that bad data in the U.S.! That stuff can get quite boring, don’t you agree? Anyway… After seeing the mistake the Riksbank (Sweden’s Central Bank) made yesterday talking about an end to rate hikes… The Norges Bank (Norway) Gov. decided he would show the Riksbank how it’s supposed to be done! Norway’s Central Bank Gov. Svein Gjedrem said on Thursday he envisaged raising interest rates gradually to more than 5 percent from 3.75 percent now to calm a booming economy and curb a pick-up in inflation.
That comment put some major wind in the Krone’s sails, and it set sail to a very nice performance vs. the dollar on the day. That’s the way I like it… Money for nothing and the… No wait… I love it when a plan comes together! This is what I’ve been telling people about Norway for over a year now…
That strong Japanese GDP that posted on Wednesday helped the yen to a strong performance vs. the dollar yesterday… And believe or not, there wasn’t any profit taking overnight! WOW! Of course the recent trend with yen is that it strengthens and then gives it back… So, today’s performance should give us some indication on whether this rally is going to continue of fizzle out.
Well… Big Ben Bernanke was back on the docket for the “boys” on the “hill” yesterday… Recall, the day before he said that “inflation risks diminish”… Well, I guess he got a memo after the markets took the dollar to the woodshed because of that statement… Because yesterday he reminded the “boys” that inflation rises, the Fed is prepared to raise rates… Just a little band-aid, eh, Big Ben?
Big Ben also gave the Democrat-controlled “hill” a little fuel for their fire when he said that the Chinese renminbi remains undervalued… No Duh! Now, there’s a bon-a-fide genius! OK… I better back off, I don’t want to hear from June that I was a little hard on the Beaver! Anyway… The renminbi did gain on those words, so it wasn’t wasted away again in Margaritaville!
The renminbi now trades at the highest level since breaking the peg in July of 2005… I said last year that I believed that we would see 7.50 from the renminbi before this year ended… It now sits at 7.7445…
Currencies today: A$ .7850, kiwi .6955, C$ .86, euro 1.3130, sterling 1.95, Swiss .81, ISK 67.15, rand 7.18, krone 6.1275, SEK 7.0650, forint 192.44, zloty 2.98, koruna 21.54, yen 119.20, baht 33.05, sing 1.5320, HKD 7.8130, INR 44.04, China 7.7445, pesos 10.9660, dollar index 84.21, silver $13.93, and gold… $666.20
That’s it for today… Mardi Gras in St. Louis tomorrow… It’s going to be a cold one! Monday is a national holiday called Presidents’ Day… Isn’t it a shame that we don’t celebrate the great presidents with individual holidays? They are all just lumped together in one day that has come down to a 3-day weekend that is known for great mattress sales… UGH! Just two weeks before I head to Jupiter, Florida, for my first trip there of the spring! YAHOO! Have a great Friday, and 3-day weekend!
Chuck Butler
Most states used to have separate holidays for Washington and Lincoln (the post office still does). When MLK day was added to the calendar people (companies and state governments) just rolled all the presidents into Washington’s birthday in order to keep from granting an extra day off.
Hard to complain about a day off. I’ve never had it off in my life…
They thus made it so that Martin Luther King is the sole American citizen who is honored with his (her) own holiday. Personally, I think George Washington was much more important and am unhappy that the “Washingtons’ Birthday” (Feb.22) holiday was eliminated to make way for King’s. There may be those who believe MLK did more for this country than did George Washington, but I am not one among them. As for the touchy-feely “Presidents’ Day,” that was just political pap to grease the MLK switch and anyone who doesn’t know that much should switch back to “Desperate Housewives,” IMO.
Someone who knows told me on the subway this morning the flows probably turned positive again in January. Good thing — the U.S. economy is based on loans that can’t be repayed!
Hope so. But every industry seems to have been infected with the REIC perfected “Wish fulfillment Strategy,” recently.
Delightful post! You make it enjoyable to stay informed.
Apply the Game Theory concept.
The proper use of the “bogey” is quiet powerful. I used it several times to get a 10% raise, every couple of years, wouldn’t stand for the measly 3%. It worked like a charm. Just be serious in your approach, and be willing to walk.
It’s a hard rain gonna fall. NYC market is in for a rude shock . . . very little (if anything) has been internalized here so far.
Must be awfully hard to pay attention to what is happening to all the little people who reside outside of Manhattan when you are preoccupied with counting up those multi-million dollar Wall Street bonuses.
A “Stunning Drop” In Housing Starts
I fail to see how anyone paying attention could be stunned by this month’s number. But these data series are so volatile and subject to revision it’s amazing how many people hang their hat on one number.
For once the number is so big it swamps any expected revision. Plus, it could be revised down.
You’re right. The monthly data from this series and others (including even the NAR’s own data) paints a very negative picture for housing.
The higher Dec numbers were partyly weather related, where mild weather advanced starts in the NE. Jan was just the opposite, with a brutal cold snap. It’s a nasty drop but when they smooth out the numbers the seasonally ajjusted annual number will improve next month, in time to pump the spring euphoria…
And the Michigan Consumer index decline was greater than anticipated.
Yeah and it does not count cancellations.
LOL.
From the Commerce Dept website, PDF can be found in upper left corner:
‘Privately-owned housing starts in January were at a seasonally adjusted annual rate of 1,408,000. This is 14.3 percent
(±7.1%) below the revised December estimate of 1,643,000 and is 37.8 percent (±5.2%) below the January 2006 rate of
2,265,000. Single-family housing starts in January were at a rate of 1,108,000; this is 11.2 percent (±6.8%) below the December figure of 1,248,000.’
The elephant under the rug has really started to stink up the living room. It is hard to tell at this point if it died or just defecated.
GS……….
You certainly have a way with words.
I owe it all to the folks who bring me this lovely radio program:
http://www.kpbs.org/words/
LOL
Probably both!
It did it in Gary’s bag.
LOL!
“Wachovia economist Phil Newhart said that the report suggests that those who believed that there was stabilzation in home building, based on the strong December report, were pre-mature”
Just to remind everyone what Alan Greenspan had to say yesterday:
From Bloomberg: “citing new home sales, Greenspan said ‘I think the worst is behind us’ “.
I didn’t know much about Greenspan until I started reading this site. Now I know the guy’s a fraud. When lenders were handing out suicide loans Greenspan did nothing, even though he had the power to act. He’s now getting paid to spew crap on the lecture circuit.
Big fees. No liability if you lie…
“I didn’t know much about Greenspan until I started reading this site.”
Hopefully you didn’t put any money into real estate in the few years preceding.
The Economist. “Mortgages were written for a fee, sold to investment banks for a fee, then packaged and floated for another fee. At each link in the chain, the fees mattered more than the quality of the loans, which could always be passed on.”
“‘This was classic market failure,’ says Anthony Sanders, a mortgage expert at Ohio State University’s Fisher College of Business. ‘The private sector wanted fees and got them, and they did not much care what happened afterwards.’”
Perfect summation of the massive, systemic under-pricing of risk in a relatively inefficient and non-transparent market (real estate) and the total failure of checks and balances to correct this imbalance under the current MBS/CDO system.
That’s a good summary of how the mess got created. What I don’t know about is the huge prepayment penalty was rewarded with a nice up front commission to the LO that signed the FB which presumably got buried in a higher overall yield.
I would assume that money is long gone. When the loan comes back as an EPD you would assume the huge prepayment penaly would not be paid so that’s a big bite out of some pocket, perhaps the originator if the loan finds its way back. Does the LO owe any $$$$ to his Lexus driving broker?
Sounds remarkably like flippers. They didn’t care about fundamentals, just making money as they passed the house/condo onto the next GF. In the end, though, someone gets caught holding the bag.
Gee, I just found an article from a couple days ago that said there is no bubble and it cited actual market data. http://biz.yahoo.com/seekingalpha/070205/25947_id.html?.v=1
Well, so much for that. The latest news comes from the National Association of Realtors and it doesn’t look too positive to me. Not for a recent homebuyer, anyway. Most of the time, it seems that people say there is no bubble and start referring to the dictionary as proof. Why get all tangled in semantics. It’s a serious decline, can we all agree on that?
Click on “Clay Kime” the article’s author, and prepare to vomit.
a Fairfax, VA realtor?!
Yep, you are right, he’s vomit material.
I like this:
RealtyMetrics™
Real Estate Center
I guess it gives them creds, in the minds of the non-HBBers.
Oh and don’t forget his lovely and talented better half, Miss Kathie.
Andrew: that link is a scream!! All you guys gotta read this article!!!
Heres a quote: “Northern Virginia home prices appreciated at an unprecedented rate during this period. Single Family Home prices appreciated 33.2% in 2004 & 2005 before the 2006 adjustment of -7.03% for an average net increase of 26.2%. (Average Sold Price difference Q1-04:$552,985 to Q4-06:$697,839.)
What an idiot!
“Hey, I made 100K a year in 2004 and 2005, got laid off in jan of 2006 (my adjustment year), have been unemployed since, lost my house, my wife left me (wait, that was a good thing) and I’ve been staying in my Mother’s laundry room. The good news is, in the past three years I’ve averaged $66,666.00 per year! What problems?? I ain’t got no problems!! Hey, can you give me a ride to the liquor store? My car was repo’d….and can you spot me a twenty?”
Everyones got to read this link!! I want what this guy is smoking!!
Does it ever end????????
have been unemployed since, lost my house, my wife left me (wait, that was a good thing) and I’ve been staying in my Mother’s laundry room. The good news is, in the past three years I’ve averaged $66,666.00 per year! What problems?? I ain’t got no problems!! Hey, can you give me a ride to the liquor store? My car was repo’d….and can you spot me a twenty?”
Thats a great country song
close bold
bold off
Wow…Pretty bad economic news yesterday and today.
Jobless Claims at 357K, 47K above the consensus
Industrial production down 1/2%
Philly Fed way below expectations at .6
Housing starts down
Consumer sentiment down
We have gone from grim to grimmer.
Dont’ worry about all that stuff. The Dow is at a record high and that is all we care about. Time2Buy.
LOL!! Yes, it’s a lovely day in this Goldilocks economy!
Goldilocks you are talking about Mary Meeker or Abby Joseph Cohen ? Who invented this expression ? Funny because Goldilocks in the story ends up eaten by Papa Bear. That’s what happens when you sleep around too much.
Naughty, naughty bear.
Maven: I always wondered how that too hot and too cold thing worked! I never thought of that!
As we used to say in the Marine Corps. “The sh#t is going to get wide, deep and continous.”
http://www.salon.com/tech/htww/?last_story=/tech/htww/2007/02/16/housing_starts_plunge/
“As soon as I saw that housing starts had plummeted in January, to their lowest level in 10 years, wiping out the modest gains from November and December, I wondered what economist Dean Baker would say. Some analysts have been quick to cite recent upticks in housing economic indicators as signs that the bust has finally bottomed out, but Baker had been cautioning against getting carried away.”
Here is the best quote from the article:
“The reporters who write up this release will no doubt speak with many analysts who will express their surprise at this sharp downturn. It would be helpful if they also sought out the views of analysts who were not surprised. Presumably being right does not disqualify someone from being cited in news reporting.”
Economists are hookers. These people are bastards and have no credibility. Does this bastard work for a sub prime lender or sh*t bank or government ?
Hey Marc:
GFE
Google Dean Baker and you will notice he was the earliest and most vocal housing bears.
And longest public bubble sitter.
He has a great blog: Beat the Press
http://www.prospect.org/deanbaker/
I love Doug Kass. Sometimes early but rarely wrong.
That guy is great.
Corus has already taken a pounding, from 37 to 20. you can click through their site and look up all the condos they’ve financed (is “under-written” the proper term here), a real who’s who of glutted markets.
F$*%&^G MSM business news!
“Maybe housing hasn’t bottemed yet.”
1.4 mill starts, 1.2 mill/yr household formations (from memory) and 2 mill vacant homes.
A few posts ago I noted that at this rate of new household formations even if builders cut back to 800k/yr (absolute death for the markets) it will be a buyers market for 5yrs (strickly looking at over supply). The builders will ruthlessley undercut the exisisting inventory absoluteley killing anyone that has bought since 2000 and has to sell.
As prices drop like a stone many more “have to sells” will emerge and push that 5 years of excess inventory much higher (twice? to 10 years). Along with this will be the public perception that RE is the WORST thing to get involved with.
As the public sours on RE how many of those 1.2 mill formations will not even think of buying.
LMAO, all this is assuming that all 1.2 mill new formations (young and broke) are chosing to buy. Even if you assume that 1/2 (600k) will buy (high I think) and builders cut back to 800k their are now 10yrs worth of excess housing now vacant and to be built. When you throw in the “Must sells” this will approach the Japanese model of falling housing for more than a decade!
The differance here is that we Americans have
0% (LMAO, less than 0%) savings rates), where as the Japanese were mad savers!!!!
GMAC loss of 950$ million on its sub prime loan portfolio. Ah General Motors ! What a well runned to ruin company!
Nah! It’s the union’s fault!
Could be both ?
Nope, it’s the Japanese’s fault.
Its the United States Governments fault. We cant compete with people that are making 1/2 our wages. Just wait until Chinese Cars make it to market. You havent seen anything yet. Americans are being screwed by their own government. They are supporting Communist nations that give a damn about their people. Forget pensions, health care, and everything are fore fathers worked hard for, now we are giving our corporations the right to move to these lands, layoff americans and bring down our standard of living.
Its too late now, these globalist politicians have sold us out. The Fed which is not even an american owned entity but is part of a global bank, doesnt give a damn about us. Now the Gig is up, good luck to us all.
“…assuming that all 1.2 mill new formations (young and broke) are chosing to buy.”
Also, assuming household formation remains at the 1.2 mil annual rate because when people get divorced some usually rent rooms, move in with friends or family, or live in their cars/suvs/rvs and so on.
Ohh! This is classic. I’ve been there when the margin calls come (Latin/Russian debt crisis) I can tell you from what I read the last week that the train has left the station. I’ve been expecting an unseamly unwinding for 2-3 years now. I believe it is NOW in progress. I think a lot of people will be surprised how fast it will happen. The line from the guy at AHL is classic
“We have eight different warehouse lenders; I would say the majority of them are acting very rationally,’ Marvin said. ‘There is one that is acting somewhat irrationally, although I won’t mention them by name.”
There’s a fire in the building and seven guys are sitting in their seats shaking . . . one from guy from Merrill is up running for the exit, screaming with a wet spot on his trousers”
Been there and seen it before. It won’t be long before the other seven are up running (frantic margin calls).
I loaded up on puts last week . . . I could be wrong, but I think the music has stopped . It will be interesting to see what happens now. What happens to all the loan buyback that can’t be bought back by defunct originators? How long till the big boys mark the defaulted inventory to market? Or take the FMV haircuts on sub-prime, alt-a and prime? How long till the institutional investors start running for the exits all at once knowing that these co’s at FMV are insolvent and most if not all of their net income the last year is accrued (non-cash) neg amort from insolvent customers?
Although the crisis will probably happen fast the questions could take awhile to resolve. Adding to the mix I see some substantial rate cuts coming - just like the Long Term Capital Mgmt fiasco
And take the 950$ million haircut by GMAC too. The beauty of modern finance dementia. Meanwhile that piece of $hit called Fannie Mae is going up. I suppose it will be the same for Ford and General Motors. Their financial company affiliates are heavily invester in real estate loans. The two car companies are as worhtless as ENRON.
What puts do you have? I have a variety of long and short dated index puts.
cfc, dsl, fed, fmt one year out. You never know how long it can take for the market to recognize something out of whack. I’ve been trying to focus on lenders in the frothy areas who retain a good portion of their originations and who’s income is largely neg am interest.
One thing I’ve learned over the years is the truth of the saying . . . “the market can remain irrational longer than you can remain solvent”
Another good one is to never bet against the Fed. And as unlikely as it seems, it’s not out of the question that they somehow smooth this one out or at least postpone it
I won’t bet agaisnst the FED, but I’ll bet that all the countries that keep giving us money will take a hike.
It’s in those countries interest to keep this ponzi scheme from defalting.
I dunno. Think there’s a trillion dollars worth of silver on the planet? I’ll bet there could be.
So Gerry, how is it that your long range puts ar not betting against the Fed? I am interested because I too was considering puts on some of the very same outfits for the same reason but a little hesitant because presumably if the short rates plunge their performing loans get more profitable and their business could pick up, perhaps increased margins?
AZ
I tend to look at it as not so much a bet against the Fed but a bet that for these companies what the Fed does will not matter. Originations are shot, credit standards have to tighten because the lending warehouses are no longer going to buy the crap that they once did . . . even if rates are lowered . . . and because of falling equity values the consumer is tapped out. I would not bet against the Fed providing somehow managing a “soft landing” (limited stock damage and bad but not negative GDP) But even if they do manage that I think these co’s have a long way to go on the downside
If the FED eases too much they will blow another bubble
“As night follows day, the enormous securitization markets will shortly begin to demonstrate the same sort of delinquencies we have witnessed in subprime mortgage lending. Then a continued acceleration of subprime loan problems will creep into the prime market (where equally creative mortgage loans have been made to prime borrowers). ”
I mentioned this on a thread here about 2 weeks ago. This statement is not only true but is happening right now. I have a buddy who is the business guy for 2 very wealthy brothers here in SoCal. These guys have forged a direct pipeline with BofA and their “special assets group”. Now keep in mind BofA does not do sub-prime, Alt A, crap loans. From what I understand they only do prime loans. Well, they know the sh*t is coming and have begun to sell residential traunches ($30 - $100m) at 50-60% on the $. These guys buy these traunches, contact the owner, refi the property (in most cases), and pocket the spread. Most interesting for me anyway is the fact that many of these properties are located in prime areas such as the South Bay, West Side and coastal OC.
Game is over though most don’t know it. It’s going to be a very brutal 3-5 years for a lot of people here in SoCali. Of course no one thinks it will happen to them because their city is different.
“As night follows day,…”
Neither a borrower nor a lender be, for loan oft loses itself and friend, and borrowing dulls the edge of husbandry. This above all — to thine own self be true, and as follows the night the day, thou canst not then be false to any man.
neither borrower nor lender be? I don’t know, GS, When prices take a big drop and rates are really low, I may take out the biggest mortgage I can….
That’s freakin’ scary…
Yea, Im headed out back to reinforce my constantine wire around my bunker…And make sure no moisture got in to my stash of beans and weanies.
That’s the same thing I was suggesting the lucky inhabitants of Briny Breezes do. Find a sucker now and take a 25-30% “discount” for the option to sell to this alleged buyer. Bet none of them do it.
“Game is over though most don’t know it.”
I give the MSM six months to connect the dots between the subprime subsidence and falling home prices…
I was sitting at Peet’s coffee in Santa Monica today, minding my own business, reading the paper, when a woman sat down with a pair of women and mentioned that she’s looking for a house in Westchester. I leaned in and said, “Lady, don’t even think about buying right now. The market is going to implode.” She nodded but I noticed the other two were giving me the evil eye. I realized immediately what had happened. “Realtors?” I asked. They nodded. One said in an impossbly snippy tone, “Well, everyone is entitled to their opinion.” I upped the ante by saying “well as long as I’m entitled to my opinion, I think it’s going to be the largest real estate crash in the history of CA.” They responded that the market had stabilized. I smiled and went back to my paper. After the other woman went away the two realtors went back to doing sedoku puzzles and surfing the Net at their “office”. They’re the kind of early 40’s women who litter LA, ex actresses, no real skills, desperately trying to find a profession - one was wearing a gossamer thin white skirt and a thong - which ordinarily might be intriguing, but the fact that she was a realtor made it unseemly. Yuck.
Doing sudokus and surfing the ‘Net in a Peet’s coffee? Sounds like a VERY productive couple of Real-a-tors.
The sad aspect of it is that I realized they buy into Lereah and his numbers completely. They’re not lying to their clients, they’re telling what they believe to be true. It’s like a religion.
remove the “like”
double lol
isn’t wells fargo owned by bank of america? i am not 100 percent sure if it was bofa who gobbled up wf or somebody else.
“‘This was classic market failure,’ says Anthony Sanders, a mortgage expert at Ohio State University’s Fisher College of Business. ‘The private sector wanted fees and got them, and they did not much care what happened afterwards.’”
Is he suggesting that greed ain’t so good anymore?
Did anyone else catch Steve Lies-man on CNBC this morning. Prior to the housing data release, he was waxing on about the market bottoming. After the news hit the wire, he was soooo embarassed it looked like he shat himself.
Prime rib for all my fellow bloggers/posters/readers. The bulls are getting slaugthered.
I take a T bone and a filet mignon.
If it ain’t Kobe, it’s crap.
Steve Lisman is covered under my “Don’t take advice from someone who looks like they’ve never been laid.” rule
lol
For a reporter he is a show off. He should have become an ANALyst they really like to show off.
A freudian slip of the tongue? An ANALyst is a person getting paid big bucks to say the opposite of what he really thinks or believes. It’s called anal retention.
I hate to make this sound like a conspiracy, but I do not see any better explanation, and I welcome any thoughts.
The major banks are now buying up many subprime mortgage companies at 25% of the value. You got to ask why they are buying it now knowing the mortgages are going bad?
Anyone? I think the Fed Bernanke, together with his elite bankers knows the problem too well, and are ready to give out free liquidity a second time to save the housing market when the stock market looks toppy now (high P/E and lower future earnings). But before that, the bankers want big profit, so they pull the financing plug to the sub-prime mortgage lenders, force them under, buy their assets over at cheap deep value, then Bernanke is ready to slash rates and lending standards come down again to save the fuxk borrowers.
Remember, housing is the last pillar of economy, driving the consumption and stock market to new highs now. So, now when stock looks toppy, they got to revert to housing to save the world. I mention this many times — it’s bankers and Fed’s best interest to pump the 2 largest asset classes to support the economy — stock and housing, and soft landing can be achieved when you pump one higher and slowly brake on the other.
Housing is not affordable by any American standard. But beware when Bernanke and the bankers start pushing the subordinate media to start pumping stories like American housing is still way too cheap compared to foreign housing which has a lot less land and higher unit price. Example is Netherland, or Europe.
Remember, A lie is a lie when told one time. A lie become a Truth when it is repeated 3 times from different sources.
Housing could be jump-started again! Any thoughts?
“The major banks are now buying up many subprime mortgage companies at 25% of the value. You got to ask why they are buying it now knowing the mortgages are going bad?”
See my Weekend Topics suggestion on preemptive bailout strategies.
“If you repeat long enough a lie, it becomes a truth.” Adolf Hitler. That’s about it in politics, at the FED and on Wall Street.
hey marc please do not compare greedy wall street types and the fed with adolf hitler it is insulting to some people to have that name mentioned, but i forgot you are french right?
nuff said
Nobody is above using this dirty trick. Nobody. Why should be insulting. Lying is lying. You are fixated because of the name. But he was right on the lying part. A lie that is repeated long enough, becomes a truth. That’s the ultimate way you create bubbles and hysteric behaviour.
Greedy types use the same strategy of lies and deception as politicians. Ok you don’t like Adolf. It’s not because somebody quotes a bastard, that he shares his beliefs ? Bush and his big fat lies on arms of mass destruction in Irak fits the bill too.
Please keep the anti-French bigotry to yourself, unless you personally landed at Normandy.
The french swipe is low. Learn some blog etiquette (french word for refined manners).
No such jump start. It will be the Japanese model if any. Gradually lowering Fed rates and a slow bleed with GDP constrained by zombie companies (Fannie, Freddi and all other lenders who would be basically insolvent but living on life support through unnaturally low rates for ten years until they slowly recover). I think at this point the Fed is going to view this as the lesser of two evils. The other being a natural recognition of the excesses of the past many years and a natural market correction with lots of blood and gore
I’m convinced they will do anything and everything possible to keep this going. I’m not sure they can stop it now.
From the 2nd MarketWatch link:
‘This distress in the subprime area is a significant concern,’ Ben Bernanke said on Wednesday. ‘There are some loans that have been made that are not turning out well, and to the detriment of both the lenders and the borrowers,’ he said. ‘We will certainly be watching that carefully and trying to provide guidance and oversight to minimize that risk going forward.’
It could be that the Fed is pushing for these credits to be withdrawn. If you read the piece, Merrills actions are seen as death sentences for these firms, as they can’t possibly find alternatives in time.
Also, I don’t have a link to this, but I understand this was in the WSJ:
‘WASHINGTON (Dow Jones)–Federal Reserve Chairman Ben Bernanke said Thursday that portfolios of government sponsored enterprises like Fannie Mae should be more closely tied to affordable housing.’
‘Our concern is about (GSE portfolios) and their enormous size,” Bernanke said in response to questions from the House Financial Services Committee, where he presented the second leg of his semiannual monetary policy testimony.’
‘He reiterated the notion that those massive GSE portfolios may pose a systemic risk to the financial system. He said one way to limit portfolios would be to ‘anchor’ them to the mission of the GSE’s - affordable housing. ‘What I would like to see is the portfolios more directly connected’ to that mandate, ‘perhaps only affordable housing’ mortgages, Bernanke said.’
Keep in mind that the US dollar is at risk, which could be seen as the Fed’s anchor of power.
“‘What I would like to see is the portfolios more directly connected’ to that mandate, ‘perhaps only affordable housing’ mortgages, Bernanke said.’”
What’s not affordable if you allow no doc, zero down, payment option ARM financing with a 1% teaser rate to boot?
“You got to ask why they are buying it now knowing the mortgages are going bad?”
Too bury the bodies and keep their poor decision making in the dark while they spin it off to some other unsuspecting sap.
The only thing the FED can hope for is an orderly movement up or down.
They can’t set prices for anything including gold and oil. Because if they do that the FB’s realizing they were someones GF will be first one to hand keys to FED backed investors.
Shawn: “The major banks are now buying up many subprime mortgage companies at 25% of the value. You got to ask why they are buying it now knowing the mortgages are going bad”
Not all the mort’s are going bad. Enough are going bad to bust these “lenders” who are working on very small margins. Most of the subprimes couldn’t survive a 5% default rate, not to mention a 10 to 20% default rate.
As far as the Banks buying them, if as much as half of the mortgages go bad, they’ve still doubled their money. Also, they write off the bad loans, creativly of course and if they sell each repo’d house for a dollar over the repo expenses (lawyers, etc), they make money there also. You know that ain’t gonna happen. They’ll sell the property at or just below the prevailing market, and considering their investment at a hefty profit.
I doubt seriously if more than 50% of the subprime loans will go bad. I may be wrong but I would buy a subprime lender for 25% of their booked assets.
Mike
I think you may be wrong. I don’t think anyones paying 25% of booked assets. The loans booked as assets have offsetting liabilities. Most of these companies are leveraged 15 to 1 or more. In good times their “net” assets were worth par and provided a good income stream. If you’re leveraged 15 to 1 and you mark your assets to market correctly and they have taken a 5% hit you’re pretty much insolvent. You may have a good income stream but if you had to unwind your liabilities would exceed your assets. Your only salvation would be if the properties that you now hold instead of a loan increased in value - not going to happen.
Let’s say you throw in $10 to start a mortgage co
then you borrow $100 from Merrill and have $110 in the bank
then you make a sub-prime loan for $110
You now have $110 in assets
you have $100 in liabilities
and you have $10 in equity
and you are leveraged 11 to one
If the value of your booked loan goes down 10% to $99 you’re insolvent. Your income stream may be good but your insolvent.
Whether they’re paying 25% of booked assets or 25% of “net” assets I smell a fish.
Gerry;
I think you are over simplifying the deal. There are a lot of other factors.
Look at what we know. The bought the sub prime (why do I want to say sub-human?) at 25 cents on the dollar. That would most likely be the loan portfolio, as what other assets do they have, other than cash flow? If Merrill had lent them $100 and they added their $10 than this $110 loan got bought for 25% or $27.50. Merrill got knocked down.
If these guys were chap 11, a lot of debt gets written down. Also, there are many ways to start this type of company. Usually, you have to start with some capital, but to keep cash flowing they usually bundle some of the notes into “Securities” or some other type of vehicle and sell them, giving them cash back to re-loan and they loan a combo of borrowed money, cash from the sale of notes and cash flow.
When you sell the notes, you sometimes have a buy back requirement if the note goes bad. Well if your busted and the note goes bad, what does the owner of the note do? Sells it at a discount or repo’s the house himself (not likely). At some point 25% looks good. What recourse does he have? Not much. It’s a cluster f**k. There are a million angles to this.
Bottom line is, someone lost their a** and the Buyer here is picking up the pieces for pennies on the dollar…..unless the Buyer is now the greater fool. I thought we ran out of GF’s but nothing surprises me anymore.
The big guys, i.e. Merrill have their toe in the Sub Prime swamp. Their risk is so small compared to their overall size. They get a little mud on their wingtips.
I am expecting some really super deals in actual properties as this thing tanks, but if you can pick the bones of a belly up lender there might be serious cash to be had in some situations.
I bought a company once that was chapter 11 just for the lose carry forwards. In fact I’ve done two chap 11 deals. One was good and the other was great. I have a great CPA and tax Attorney. Incidentally, those types of opportunities always exist and will most likely be more prevalent as the economy slows. I’m expecting a GDP for 2007 and possibly 2008 to be 1 or lower and possibly a slight recession. And before anyone jumps on me here, there are a lot of ways to buy or acquire chap 11 companies. Just do your homework. Bankrupt companies are usually bankrupt because they are…well, bankrupt and worthless. Not always the case.
Good hunting
“A credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big banks like Merrill Lynch & Co. and J.P. Morgan Chase.
Too bad it is cheaper for subprime operations to file bankruptcy than pay the piper. Is that a crunchy ripple I see on the horizon?
Do I see a wave of subprime lending industry consolidation ahead in my foggy crystal ball?
Or will they go the way of the S&Ls after the 1980s?
….something like that…only worse.
“GM …. delayed the filing of fourth-quarter financial results because of unresolved issues concerning the balance sheet of GMAC’s mortgage unit at the end of November, ResCap unit.”
Like my 2 year old son likes to say, “Cocka dedl-dee!”
30-year fixed-rate mortgages rise to 6.3%
From the Associated Press
February 16, 2007
Mortgage company Freddie Mac said 30-year fixed-rate mortgages averaged 6.3% this week, up from 6.28% last week.
Rates on 15-year fixed-rate mortgages, a popular choice for refinancing, edged up to 6.03%, compared with 6.02% last week. Five-year adjustable-rate mortgages rose to 6.01%, up from 5.99% last week. One-year ARMs increased to 5.52%, up from 5.49% last week.
The mortgage rates do not include add-on fees known as points. Thirty-year and 15-year mortgages each carried a nationwide average fee of 0.4 of a point. Five-year mortgages carried an average fee of 0.5 of a point while one-year mortgages carried a fee of 0.6 of a point.
“30-year fixed-rate mortgages rise to 6.3%”
Luckily Californians don’t use 30-year fixed-rate financing, as it tends to make homes unaffordable.
Except when resets…6.3%…oh, that’s gonna leave a mark…
“Except when resets”
That’s different — resets typically amortize over 25 years, not 30
I got a flyer in the mail for a new condo comple in SF Bay Area. It was sold as 1250 / month for a 1 bedroom or 250 more for 2 bedrooms. Competetive with rental rates.
I read the financing info: 40 Yrs, 4 % 1st yr, 5 % 2 nd yr, 6 % 3 rd yr.
That’s still low.
Starts in the Midwest were at the lowest level since 1991.
It may be fashionable to blame this on the weather, but we’ve had several winters since then that have been as bad or worse. 1994, 1996, 1999 and 2001 come to mind (I’m referring to the Jan/Feb of those years). Jan 1994 was awful awful awful awful awful awful, FAR worse than this year and in the middle of the last housing slump, and 2007 was STILL worse.
“Mortgages were written for a fee, sold to investment banks for a fee, then packaged and floated for another fee….”
In a time when risk as we know it ceased to exist.
Hey Guys, just a wild thought on the foreclosure situation.
The Dot Com bubble was just a few years ago and pretty much driven by “get rich with no work”. The American Public has collective attention deficit disorder. Here we are at another bubble.
From the movie Men in Black: A person is rational, people are not. The herd mentality. It was Real Estate in the past few years, it’ll be something else down the road.
Unfortunately, real estate is so critical to the economy, the damage may be deep and painful. If the Beanie Baby market crashes, (it did), who cares. If you loose your house and ruin your credit, it takes years to recover. Multiply that and we have serious problems.
The trick is to stay a rational ”person‘ and not be mesmerized like the “people”. After the slaughter, pick up the pieces.
The lemmings are assembling for the last charge. I’m waiting at the bottom of the cliff. I wonder what the market is for Lemming pelts?
Casey?
Careful, you could “loose” your life buried under a pile of lemmings this big.
Sorry, I meant to spell it “luse”
The problem with trying to save lemmings (friends and family) is that they get you sooo bloody pissed and irrational you get the urge to either throw them off the cliff yourself OR be the first to jump just to stop the insanity.
Maven: I hear ya’. I was at dinner with some friends the other night and they were spun up about this local condo developer who was selling “$179,000 condos for $135,000 if you bought two.”
Honestly, I got tired of pointing out that:
A) If they were $179,000 condos, he’d be selling them for $179,000 and
B) I did a comp and the comp price was $115,000.
The fact that I am a RE Broker, Mortgage Broker and have 30 plus years of RE investing under my belt, you’d think that my opinion would at least count more than the school teacher.
She was doing the most of the crowing and the Lemmings were doing the listening and salivating.
The best thing that could have happened was a 747 crashing on the house mercifully killing me so I didn’t have to listen to these idiots anymore.
And you wonder where the stupid money comes from!
With housing it’s not only the specualtor (like the Donald) , but the family which wishes to nest but can’t because the speculator got between them and their dream.
Speculator can damage in both directions over shoot and under shoot. Many responsible people who put put 20 % down may find hard to refi if value deflates more tha 10 % because little or no equity will be left.
2 of my cousins bought RE in CA in 2005 & 2006. They are FB’s but they can afford the payments so they won’t FB’s on the pavement.
Anyone who bought at the insane prices of the past few years was a speculator, pure and simple. No one would buy a $600k to $800k piece of crap in California when they could rent the same thing for $2k per month, unless they expected double-digit annual appreciation to continue indefinitely. As there is no rational basis for such an expectation, they were speculating.
Speculating is just a euphemism for gambling. Why should we feel any sympathy if a gambler ends up losing his house and wrecking his credit report? Even if there are millions of such people, it doesn’t make them individually less stupid or deserving of their fate. I’m with the invisible hand on this one.
“Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Keynes
I do not feel most people were trying to make a killing, I feel most were trying to save for the future because they saw the future running away from them. When the Fed lowered interest rates in response to the dot-com bust they were manipulating peoples propensity to save. I have friends who bought in the last two years who still are convinced they did the prudent thing. I will not be glad to see them suffer pain.
I’m sure many people thought they were doing the prudent thing by sinking their retirement savings into pets.com in 1999. It doesn’t make them any less stupid or less deserving of the decimation that ensued. If it’s any consolation to them, they served as very instructive admonishments against the peril of hubris.
The question I am asking if we had a far more restrictive & prudent monetary policy would these bubbles happen. If you cannot save and get ahead you are forced to speculate.
T.G.: Greed and Stupidity were the dominant emotions driving this madness. Sure some people were just trying to secure their future and innocently have been or will get whacked.
Sorry but I enjoy when the greedy and stupid get whacked. It’s like passing a car wreck. You can’t help but look. Like I say, I’m greedy, but I’m not stupid.
It was John Wayne who said “Life stinks if you’re stupid”
“A person is rational, people are not” This makes no sense. ‘People’ is the collective behavior of individuals: the summation of the rational and the irrational. Unless you stuff your money in a mattress, everyone will wind up on the wrong end of a trade someday. Why are many on this site so self-righteous?
NEWSFLASH -
INTERNAL MEMO FROM MAJOR LENDER
Update
Due to the continued volatility in the subprime marketplace it is necessary to make rate changes to our rate sheets and adjustments to our scorecard sellers. The transactions most affected by the model change are 1st lien purchases and all 2nd liens.
In addition you will see a reduced number of approvals especially on high LTV/CLTV purchase transactions.
Nice. Any link or lender name?
Thanks!
“volatility”
I thought volatility had been outlawed.
Lender?
This is from a lender we sell loans to. I was looking at their rates and the subprime rates were missing. They didn’t do much subprime to begin with, mainly alt-A, but here is why they are temporarily out of the subprime business. Can you say subprime liquidity crunch?
In recent weeks there have been industry wide announcements regarding increased delinquencies and loan payment defaults with certain mortgage products. Accordingly, many investors who provide secondary marketing liquidity for ****** have modified
their buying behaviors and have made significant changes to offered loan programs. Subprime loans fall into this classification.
In response to market demands, we are temporarily suspending our proprietary subprime product offering, effective immediately.
NYSE Traders Face Uncertain Future
http://tinyurl.com/ytuv67
Further thoughts on foreclosures. There are other looming factors that most likely help those in foreclosure. The sheer volume of foreclosures will clog the courts and slow the process. If your sub-prime lender or your bank goes under, there will be a lot of time consuming head scratching before the trustee, whoever figures out who owes what. Also, the bankruptcy system will be clogged and move glacially. Add in the fraud element that will swamp law enforcement and this whole ball of wax could be one huge gridlock. I bet a lot of people will sit in there houses not making payments for two years before their loan gets sorted out.
I am a Real Estate broker dealing in some foreclosures and most of the homeowners have not made payments for 6 to 9 months, one for over a year. The big problem is that these homes are in Florida and the lenders are from Maryland, Illinois, New York etc. Local banks have a big advantage being ..well local. If you’re in New York, holding paper on a house in Florida, foreclosure is a major problem.
Go back to Oct 17, 2005 when the bankruptcy law changed and look at the previous 3 to 6 months. There were so many chapter 7’s filed to beat the deadline, a whole lot of stuff fell through the cracks. The trustees were buried. I’m sure a lot of stuff wouldn’t have past them by, if they had had the time.
A word of caution. If you plan to invest after this market bottoms, like I do make sure the house you buy has a clear title. Obviously you do this by buying title insurance. A little undercurrent here is that with all the fraud, title insurance companies will be paying off more than they have been and if it taxes that segment of the insurance industry, it’s conceivable that your title policy would be worthless. If your title is not clear you got a big problem. I plan to thoroughly check out the title insurance company, making sure they’re solid before I buy anything.
I think the bottom will come, at the earliest 4th Q of 2007, 1st Q of 2008. Could be 08 or 09 as posted earlier. We are facing some interesting time, my friends.
Florida is toast. Also Cal, Az, Vegas and a hundred other places.
NFW this bottoms in 2007. If housing existed in an economic vacuum, maybe, but once the “vicious cycle” takes hold all bets are off.
tj: 2007 will be interesting, but you may be right.
“‘This was classic market failure,’ says Anthony Sanders, a mortgage expert at Ohio State University’s Fisher College of Business. ‘The private sector wanted fees and got them, and they did not much care what happened afterwards.’”
Hey Anthony, just because somebody loses money doesn’t mean it’s a “market failure”. The market is doing exactly what it has always done.
I think he meant to say “market triumph over mass stupidity.”
A further thought on the foreclosure situation.
There are other looming factors here that most likely help those in foreclosure. The sheer volume of foreclosures will clog the courts and slow the process. If your sub-prime lender or your bank goes under, there will be a lot of time consuming head scratching before the trustee, whoever figures out who owes what. Also, the bankruptcy system will be clogged and move glacially. Add in the fraud element that will swamp law enforcement and this whole ball of wax could be one huge gridlock. I bet a lot of people will sit in their houses not making payments for two years before their loan gets sorted out.
I am a Real Estate broker dealing in some foreclosures and most of the homeowners have not made payments for 6 to 9 months, one for over a year. The big problem is that these homes are in Florida and the lenders are from Maryland, Illinois, New York etc. Local banks have a big advantage being ..well local. If you’re in New York, holding paper on a house in Florida, foreclosure is a major problem.
Go back to Oct 17, 2005 when the bankruptcy law changed and look at the previous 3 to 6 months. There were so many chapter 7’s filed to beat the deadline, a whole lot of stuff fell through the cracks. The trustees were buried. I bet a whole lot of stuff avoided scutiny because the trustees didn’t have the time.
A word of caution. If you plan to invest after this market bottoms, make sure the house you buy has a clear title. If there was a previously fraudulent sale of the property you’re buying, there could be a undetectable title defect.
The standard way to cover your butt is by using a title company to do a title search and getting a title insurance policy. A little undercurrent here is that with all the fraud, title insurance companies will be paying off more than they have been and if it taxes that segment of the insurance industry, it’s conceivable that your title insurance company could go broke and thus your title policy would be worthless. Also, it’s possible that the title insurance company could refuse to pay if they have weasel clauses in the policy (they do) OR if the title company screwed up.
Title companies are going broke at the same rate that lenders and Realtors are, so if a defect turns up, you may have no one to sue. If your title is not clear you got a big problem.
I usually use my lawyer to close. In Florida they can buy title insurance and if they screw up they have E & O, plus malpractice ins. Actually, usually it’s cheaper and better to have a lawyer do it.
I can tell you title company horror stories. Of course, lawyers aren’t perfect and if yours gets hit by a bus, you’re on your own.
I think the bottom will come, at the earliest 4th Q of 2007, 1st Q of 2008. Could be 08 or 09 as posted earlier. We are facing some interesting time, my friends. Lots of opportunities, just be careful!!
“The sheer volume of foreclosures will clog the courts and slow the process….”
Sounds like a job for the RTC. Good advice, however. I agree, there are a lot of grenade like liens out there and then some.
Who would be dumb enough to buy property without a title policy?
As for trustees letting things fall through the cracks, I doubt it. There might be some inadvertent stuff but the UST’s office is all over that and there are routine audits.
Chick;
My brother in law (a complete idiot) paid cash for a commercial building that had two mechanics leins on it and encroached on the lot next door by 8 feet. You don’t have to have a survey or title search unless the lender requires it. With a cash deal no lender requirements and you save a few hundred bucks.
There are a lot of people stupid enough, or just plain not knowledgeble enough to not buy title ins or a survey. Some of the subprimes did not require a survey if the house was in a subdivision. Why spend the money.
There were not enough trustees to handle the 2005 chap 7 crunch properly. A little know and conveniently not reported fact. Told to me by a trustee. Who can you trust if you can’t trust a trustee?
I also count Ch. 7 trustee(s) among my friends and even do a little trading for one or two. They’re swamped, won’t argue that, but most at least try to meet their obligations.
Why spend the money? A couple hundred bucks to save thousands in litigation, headaches and losses? Yeah, I get that one. Not. Of course these same people think nothing of dropping $300 at a strip bar after the property closing.
Chick, Hey, no disrespect meant to anyone, trustees or otherwise. The Trustees I know are straight up, as I am sure most are. If your work load increases by 10, you do your best.
As far as the “saving a couple hundred bucks”, you are correct.
I’m bullish on pharmaceuticals and distilled spirits. Imagine the amount of flippers, mortgage brokers, and Realtors that will be hitting the bottle and taking antidepressants like Zoloft, Paxil, etc.
i’ve heard the vices are a good investment during down times… Altria, perhaps?
“i’ve heard the vices are a good investment during down times… Altria, perhaps?”
The vices are always a good investment.
Strat: Good call!! When times are good, booze sales are good, when times are bad, booze sales are better.
As a flipper (in sane markets), Real Estate Broker and Mortgage Broker for many years, let me modify your comments by saying the “inexperienced” who didn’t see this coming. Us oldtimers have lived this several times before. this is my fourth cycle, bubble, whatever. All markets are cyclical.
When it rains you sell umbrellas. When the sun comes out you switch to sunglasses. You can make money in all markets if you’re smart.
I know you guys blame Realtors for a lot of this and you are correct, no doubt. Good and Bad in all businesses. Frankly, this industry needs a house cleaning. Membership in our local board is down approx 30% yoy. I’m hoping for 50% plus by year end.
I am a member of NAR because you have to be to be a member of MLS. MLS is a useful tool for residential.
I think NAR and their hand puppet, Lereah are the biggest bulls**ters. When I attend the rare chapter meeting, I want to throw up. Afterward, I feel so dirty, I have to go home and scrub myself with mineral spirits and a wire brush.
I will say, with some pride that a few of us “Bubble-ites” are shall we say controversial. Although, as this trainwreck unfolds, the jeers seem to be subsiding. Maybe it’s because there are 30% less jeerers.
“In terms of performance, I’d say there are equal concerns’ about Alt-A-loans and sub-prime loans at S&P based on early delinquencies”
Thats’ because those who were broke before the mortgages are no more broke than those going broke because of the mortgages.
“Wachovia economist Phil Neuhart said that the report suggests that those who believed that there was a stabilization in home building, based on the strong December report, were pre-mature. ‘We never thought we had found a bottom,’ he said.”
Who claimed we had found a bottom? I thought the mantra was that the market would rebound after finding a bottom later in 2007?
Bottom or no bottom, the Dow trots along sideways, discounting all the doom and gloom the numbers can muster. BTW, CNBC’s Lies-man calmed the markets today by, again, assuring us the bottom is in THIS time.
I’m telling all you who care to listen that housing starts can annualize at zero and still the S&P, Dow and NASDAQ will be shootin to the stars. Don’t forget, it’s a GLOBAL economy, stupid.
Watch em run and the bids disappear when the time finally comes. Bet you see 8 months worth of gains vaporized in less than a quarter of that time.
Watch em run and the bids disappear when the time finally comes. Bet you see 8 months worth of gains vaporized in less than a quarter of that time.
That’s not very Goldilocks of you to mention that. Don’t you understand that the parabolic rise in equities is the greatest story never told? If you don’t believe me then go ask Kudblow. Housing is merely a blip on the economic radar. If you don’t believe me then go ask Stephen Moore. The markets have decoupled from middle America reality. If you don’t believe me then go ask an auto assembler at Chrysler or an upside down home loaned to’er in OC. Scratch the last sentence, it doesn’t fit the Wall Slut script.
Stucco;
Lereah has “found the bottom” every month since Jan of 2006. So have a lot of other “economists, realtors, bankers etc.” A lot of those guys seized on the December Numbers. I bet that Wachovia jack a** did too.
If you heard the 2007 mantra you probably read it on this or another bubble blog. I’m thinking the end of 2007, first of 2008 but
I don’t know anymore than anyone else. In fact, each day brings new levels of absurdity. Is anyone getting burned out on this stuff??
I’m looking for some signs of intelligence from the guys who should know, Brenake, etc. I don’t see how they could not know.
We know and they have access to more info than we do.
We’re all being played.
Hoo-wee, don’t we feel protected by these exceptional professionals? We are talking about geniuses packing guns:
WSJ: “Mr. Hussain’s rise and fall illustrates one of the hazards of a frothy property market: inexperienced developers get in over their heads and drag unsophisticated investors down with them. “Schoolteachers, cops, doctors, priests, everyone thought they were Donald Trump,” says Lewis Freeman, the court-appointed trustee administering Main Street’s bankruptcy proceeding. Mr. Hussain’s company, he contends, was a “microcosm of the total market. You had a lot of unqualified people getting easy money and able to go into businesses in which they didn’t know what they were doing.”
Mr. Hussain’s 300 or so investors face potential losses of up to $400,000 apiece. Alan Cayo, 76, a retired Army officer who says he invested his “entire life savings” of $280,000 with Mr. Hussain, conjectures that the developer crossed the legal line only after financial problems began mounting. “It was incompetence, fraud, plus the market going down — a triple whammy,” he says.
In early 2005, he recruited Bernard Presha, who was retiring as public-information officer for the Orange County Sheriff’s Department, to join as a vice president in charge of recruiting investors. Mr. Presha and others persuaded at least 10 sheriff’s deputies to invest, according to bankruptcy-court documents. Jim Hanton, one of the deputies who invested, was put on a $25,000-a-year retainer. Bryan Margeson, a sheriff’s department employee who taught criminal justice at a local community college, introduced Mr. Hussain at investment seminars and talked about how he thought Orlando’s boom would continue for years.
Mr. Presha, who has filed a bankruptcy-court claim to recoup $305,000 he invested, says he quit after a couple of months because he wasn’t good at persuading investors. Mr. Margeson, who says he lost $100,000, says Mr. Hussain “used me for some credibility, which I didn’t realize they lacked.”
“Jim [Hanton] said being a drug-enforcement cop, he was super skeptical when his wife suggested they invest,” says Mr. Cayo, the retired Army man. “But after a luncheon with Aleem, he was convinced.” Mr. Cayo says Mr. Hanton’s involvement reassured him. “He was Anglo — excuse me, but Aleem Hussain could be cousins with Saddam Hussein, so having Jim involved” was comforting.
Mr. Hanton, Main Street’s vice president of operations, says he wasn’t involved in condo sales or in company finances. He says he lost $130,000, and calls the situation “embarrassing.”
That summer, Mr. Hussain cut a deal with the Orlando Magic, the National Basketball Association franchise. For $350,000, Main Street secured the right to use the team’s name in advertising, and to use head coach Brian Hill in a marketing video. Fans could register on the Magic’s Web site to attend Main Street investment seminars at the team’s practice facility. Attendees could spin a raffle wheel for a shot at free game tickets.
Mark Pilkington, a counterterrorism official at the sheriff’s department who invested $300,000, says the Magic marketing deal reassured him. “We realized there was a frenzy in condos. They were selling like crazy,” he says. “I figure, why would he rip me off for $300,000 if he’s involved with the Magic?” “
“inexperienced developers get in over their heads and drag unsophisticated investors down with them. “Schoolteachers, cops, doctors, priests, everyone thought they were Donald Trump,” says Lewis Freeman, the court-appointed trustee”
Any experienced investor diversifies his portfolio. When I hear about Morons who put “everything” into any deal with scant knowledge, research or compentant advice, I find it hard to be sympathetic.
The Orlando Majic thing was brilliant, by the way. Mr. Hussain sliced, diced and fleeced them there rubes.
The article doesn’t seem to mention Mr Hussain’s whereabouts. Hmmmm. I bet he is from one of them there countries with no extradition treaty. I’ll bet his name isn’t even Hussain…..but who would claim to be named Hussain if they weren’t…..ouch, my head is spinning..can’t think….just tell me where to send my life savings.
You can’t con anyone who isn’t greedy. Greed blinds people, sometimes to the obvious. I’m sure I can rent the Magic’s practice facility for a meeting. God, are those people stupid.
And now they want there money back so they can jump on the next stupid bus.
I am definitly getting burned out. This is over the top. I’m on stupidity overload.
Oops. No more EZ credit?
http://dallas.craigslist.org/rts/279815032.html
“I am a custom home builder looking for some investors to provide financing on spec homes.”
Since we’re at bottom, that sure is a tempting offer.
….here comes the next stupid bus….He needs to contact them there Orange County Sheriffs. When they get there money back, they’ll be lookin’ for a safe place to put it.
When they get there money back, “monkeys will fly out of my butt”.
As negative as everyone is about housing, I believe that lower prices are good thing. As a 55 year old, I am hoping that prices fall so that my children can afford housing.
PG: Us Bubble-ites are not negative on housing. Just the presant state of the market. Lower prices are a darn good thing!! They will fall. I’m also 55. You and I will be able to buy a very nice house at a very decent price…real soon, so will your kids. Thats really what this blog is all about.
In fact the best opportunity you and I will ever see in our lifetimes to make money on real estate is approaching.
It’s all good.
Things smellin kinda bad in the Silver State.
http://news.rgj.com/apps/pbcs.dll/article?AID=/20070216/NEWS18/702160502&oaso=news.rgj.com/breakingnews