The Housing Bubble

today something ot

one toughtfull piece and one funny post

http://immobilienblasen.blogspot.com/

N VA
are sales picking up in your county ?
looks like more activity here - sellers are accepting 2005 pricing w inventory building slightly
several refurbed homes are sitting as the upgrade are not fetching more money

There was a long bits bucket thread on Starbucks yesterday. One post that caught my eye was the following:

“I like Peet’s,” with the follow-on comment, “Me too. One opened up next door to us. And then, of course, Starbucks had to open a store right across the way. I guess they are afraid of a little competition.”

FYI, Starbucks’ founders took their inspiration from Alfred Peet. Here is an account of this fascinating history:

http://en.wikipedia.org/wiki/Peet’s_Coffee_&_Tea

I saw this morning on Good Morning America that housing prices were ‘down 3%’ nationwide, and they talked about regional bubbles fueled by investors. MSM is in on it, so it must have already happened.

Fallout shelters for everyone!
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NATION’S HOUSING
KENNETH HARNEY
Prepare for fallout over lax subprime underwriting
February 18, 2007

WASHINGTON – Is a blowout taking shape in the impaired-credit mortgage market? Could lax underwriting standards during the housing boom years – no verification of applicants’ incomes or assets, low or no down payments, and big mortgages to people already saddled with heavy consumer debts – finally be coming home to roost?

The omens are unmistakable:

Delinquencies in the $1.3 trillion impaired-credit mortgage market hit 12.6 percent in the latest quarter, up from 11.7 percent. Delinquencies exceeded 13 percent among borrowers with subprime adjustable-rate loans.

Growing numbers of the companies that make or invest in subprime mortgages are themselves facing financial distress, and some have shut their doors or filed for bankruptcy protection. HSBC Holdings PLC, Europe’s largest bank and a major subprime lender in this country, shocked Wall Street recently by announcing that home-loan delinquencies have gotten so bad that it has set aside $10.6 billion to cover potential losses.

New Century Financial Corp., a subprime lender based in Irvine, saw its stock plunge 36 percent in a single day when it announced that “buybacks” of delinquent loans have been more numerous – and more costly – than anticipated. Subprime lenders are required by Wall Street bond investors to repurchase loans that go into serious default early in their terms, suggesting poor underwriting, bad appraisals or other issues.

Ownit Mortgage Solutions, another high-profile California subprime mortgage lender that was based in Agoura Hills, abruptly went out of business when buyback demands reached a reported $100 million. Ownit’s CEO, William D. Dallas, acknowledged problems in underwriting, but also blamed bond investors’ voracious demands for high-yielding no-income verification loans.

Dozens of smaller subprime originators have ceased operations or are scaling back on new lending. One of the mortgage industry’s top executives, Angelo Mozilo, CEO of Countrywide Financial, was quoted as saying “there’s probably 40 or 50 (subprime loan originators) a day throughout the country going down in one form or another. And I expect that to continue throughout the year.”

What’s going on here? At a recent Senate hearing, a leading consumer-protection advocate, Martin Eakes, CEO of the Center for Responsible Lending, called the subprime market “a quiet but devastating disaster.”

The “ultimate effects are very much like Hurricane Katrina,” he said, but “the difference is that this disaster … is occurring every single day across the country, house by house and neighborhood by neighborhood.”

http://www.signonsandiego.com/uniontrib/20070218/news_1h18harney.html

Housing market experts predict speediest recovery on record from a housing market bust…
—————————————————————————————————
Housing market slow to recover, experts predict
By Julie B. Hairston
COX NEWS SERVICE
February 18, 2007

ORLANDO, Fla. – Government and housing industry economists say the ailing housing market will regain a little momentum, but recovery will be slow.

Speaking at the International Builders’ Show, one of the nation’s largest conventions which attracts more than 100,000 housing professionals, the economists diverge on the pace of recovery.

While National Association of Home Builders chief economist David Seiders predicted signs of recovery are imminent, economists for government mortgage underwriters Fannie Mae and Freddie Mac said the market has further to fall.

But the three agreed that sales and prices should be well into recovery by the end of the year.

http://www.signonsandiego.com/uniontrib/20070218/news_1h18builders.html

DEAN CALBREATH
Moving up in housing not as easy as before
February 18, 2007

In his office in the upscale Kensington neighborhood of San Diego, real estate agent Rex Downing is spending much of his time these days telling clients something they don’t want to hear: Don’t ask too much for your home.

“A lot of sellers are still being unrealistic about what their property is worth,” Downing said. “When I get sellers who take my advice, I can still sell a home by the optimal day – the sixth day of listing – with an offer that’s above the asking price. But not all clients will take my advice.”

In the past month, Downing sold two homes for sellers who took his advice. But he says that most hopeful sellers still come in with prices about 10 percent higher than the market will bear.

“They’re either going to have to drop those prices or pull their home off the market,” Downing said.

And so it goes on the front lines of San Diego County’s anomalous housing market.

Most home sellers and real estate agents in the county would like to forget about 2006. The median home price had its first decline in 11 years. The volume of sales shriveled by 24 percent. Between July and September, foreclosures were three times as high as the summer of 2005.

But still the prices in many San Diego neighborhoods remain in the stratosphere. Countywide, the median home price in the third quarter was slightly less affordable than in late 2005 or 2004 and half as affordable as it was in early 2003, the California Association of Realtors says.

http://www.signonsandiego.com/uniontrib/20070218/news_1b18dean.html

“Moving up in housing not as easy as before”

Isn’t it easier? Undercut the comps by 10 percent. Rent for a couple of years and bank some interest. Then move into a better place for the same price.

Excerpt from NY Times Feb 18th article, “The Psychology of Pricing”

Buyers, in turn, parry by deconstructing the price. They aim not merely to assess a dwelling’s fair value but also to plumb a seller’s bottom line and vulnerabilities. How a price tracks with similar properties, how large and hasty any reduction is, and even how parsed or rounded a number is — all these are grist for concluding, rightly or not, whether a price is firm, desperate or a sign of painful dealings to come.

Or even a sign of delusion.

http://www.nytimes.com/2007/02/18/realestate/18cov.html?ref=realestate

Panic Selling Or Stressful Selling? Hmmm. I read yesterday’s thread about tipping point and I agree somewhat with some of the posters regarding panic selling. Panic selling conjures up the image of fast stock exchange open outcry selling. Apart from the auction house OR courthouse, we are probably not going to see that type of selling.
Sellers are under a tremendous amount of stress, however, as reflected by their behaviors which at the end of the day results in bailing out of the market — Market Bailing.

The big and medium sized builders are offering tremendous incentives and in some cases lowering prices to make a sale. As insane as it looks to us, they keep building because it provides them an exit. Some builders are walking away from land options which is another way of giving up ownership. Anyway you look at it, they are Market Bailing.

Small builders are quickly running out of cash and are looking at forced OR auction sales. Condo developers are becoming landlords and apartment converters are becoming apartments again. In sum, more Market Bailing.

Now to speculators and J6P, the least rational players. They too are under stress. Prices are not increasing as they expected. In fact, prices are flat and decreasing in some areas. As a result, they stopped buying like they did back in 2003-2005. Some are choosing to exit now as reflected in inventories. Others are waiting for the NAR data, the MSM, and Suzy Orman to tell them what to do. When they and their friends, families, and investment clubs all agree RE prices can also go down, I suspect we will see even more Market Bailing.

In other words, no matter how you choose to describe sellers’ exits (orderly v uncontrolled) sellers are indeed exiting the market. Thus far, we’ve seen the calm cool rational builders planned exits. We are currently at the tipping point for speculator and J6P’s unplanned exits. Is it going to be orderly OR uncontrolled? Hmmm… Keep reading this blog and we’ll see.

From page A7 of this weekend’s WSJ:

“The Fed’s remarkably easy monetary policy helped goose house prices over several years. In turn, a large number of first-time buyers took advantage of low mortgage rates, especially on adjustable-rate loans, to stretch their buying power in the hopes of leveraging their way up the home-buying ladder. But someone finally blew the dog whistle in late 2005, and the buying dried up.”

I’m intrigued by the use of the term “dog whistle.” Why not just “a whistle?” Since a dog whistle is only heard by dogs, who were the dogs in this case?

Please allow me to re-post the link to the documentary about our monetary system, as it is such an outstanding history lesson, for all those who are not sure what the Fed really is. One can watch it in increments, such as half hour a day for a week.

http://video.google.com/videoplay?docid=-1583154561904832383&q=money+masters

Related, a speech by Rep. Paul, about gold standard, the Opec deal, and the reason why there is such saber rattling against Iran. Was surprised to find such views by a House member - the whole thing is from one year ago; a month later, the Fed discontinued publication of M3, and today, we have the saber rattling against Iran.

http://www.house.gov/paul/congrec/congrec2006/cr021506.htm

–

Make Love, Not Debt

http://www.interest.com/includes/frames/hyperlink_icom.asp?link_address=http://www.makelovenotdebt.com?crs_id=fromicom

“but then the remote control changed the life of every man.”

The article misses the true utility of the device…the ability to make politicians SHUT UP on demand…and to shunt the message of drug companies
A national holiday / first Tuesday in November.

http://news.yahoo.com/s/ap/20070217/ap_on_re_us/obit_adler

For those that devour reading, I’d like to recommend “Boldt Castle, In Search of the Lost Story” by Paul Malo (architect and SU professor emeritus).

For those that don’t recognize the landmark, Boldt Castle ” is an international historic landmark, situated on Heart Island, among the Thousand Island of the St. Lawrence River between the Province of Ontario and New York State. More than 4 million people have visited Boldt Castle since it first opened to the public more than 80 years ago”….. it “attract(s) about a quarter-million visitors each year.”

Although people are drawn by the castle itself, George Boldt actually owned several “dream homes” on several islands, each with their own boat house, servants quarters, gardens, etc. Among his other area properties, he owned the largest farm in NY State and some of the best polo ponies in the country.

http://www.boldtcastle.com/photogal.html

The reason I recommend the book for the housing bubble crowd is that it gives incredible insight to the rise and fall of wealth at the turn of the 19th century. Especially interesting are interviews with heirs (ie Andy McNally of Rand McNally fame) of these residences and the stories of how these island properties were allowed to deteriorate over time until the families either razed them to avoid the tax burden or ended up gifting them to some state or preservation society.

(These were/are families with deep pockets but the keen observation was made that old money protects and doesn’t spend the principal!)

Especially fascinating is the suggestion that the castle’s love story has been a fabricated cover up and that Louise may have actually committed suicide when their financial situation took a downturn. The castle was never completed as all worked stopped upon her sudden death. It then was allowed to fall apart with interior furnishings still crated in the basement untouched.

The Boldts had arrived from Prussia from a bourgeious origin, yet while running the Waldorf-Astoria (and other hotels) for the Asters made a forturne in the stock market (probably due to client stock tips) .

I’m only 1/2 way thru the book myself but I’m finding it incredibly insightful….with strong parallels to the present.

More Hyperreality from Ventura County:

http://wallstreetexaminer.com/blogs/winter/?p=442

HUDSON - In the evocatively named community of Pine Ridge at Sugar Creek, recent events have not been so sweet for residents.

Built at the height of Pasco’s residential market boom nearly two years ago, homes at the development on State Road 52 used to sell for $300,000.

But when residents found out the developer sold some neighboring houses for $199,000 last month, they saw a telling signal - and it wasn’t about sagging markets or buyer’s remorse.

“They’re dumping to get out,” resident Rosalyn Fenton said.

Here’s a nice quote raided from the Appriaser’s forum, referring to the Danville/Martinsvilel area of Virginia.

———-
My family has been in the real estate business since 1960 and I have been around this circle many times.

I went to a land auction sale this morning of some of the nicest lot and acreage tracts I have seen. The auctioneer, one of richest men in the region, has been in the business 60 years and has sold more land then you can imagine. There were 15 people at the sale of 14 parcels. He offered three parcels and received three opening bids from the second richest man in the region. It was obvious the sale was going nowhere so the sale was stopped.

That has happened to me at least three in my 35 year career and I remember it happening a number of times to my dad. Just prior to recessions the same thing always happens. I subdivided large acreage tracts into nice lots, held the auction sale and it was a bust. People just stood there and looked at me. The market just stops.

But It always comes back though which is my point. The problem is not a recession but a return to a rational equilibrium. Actually the market was never really hot it was just a result of liberal money policy to stimulate the GDP. It worked so now it is time to put the fire out and get on with regular business of producing products and services instead of running a gimmick economy to create wealth without actually producing anything.

The problem with that is that is nothing but a shell game to transfer wealth from the stupid to the slick and ruthless. Kind of like CE in the appraisal industry; there is one born every minute and a never ending supply. The secret is to keep your expenses low, save for a rainy day, go fishing and wait for the next cycle to begin.

It is not a bad life if you stay ahead of the curve but if you have already spent everything you will make for the next ten years you may have a bit of a problem. They are the people that call a recession a depression.

“Subprime lending notoriously understates future Credit costs (overstating current profits/returns), a profits distortion made much more consequential by “gain on sale” accounting, “mark-to-market,” “mark-to-model,” speculator leveraging, and other nuances of contemporary finance. And as long as individual lenders and the industry overall each year expand the scope of lending, rising revenues (from new loans) can remain somewhat ahead of mounting Credit losses (from old loans). But the longer this inflationary process is allowed to proceed the greater will be the unavoidable (Ponzi) bust. Actually, it is my view that with our entire Credit system now operating as a Ponzi Finance Unit, the “prime” mortgage market functions with similar dynamics as those noted above for subprime.

We are in the midst of a unique Credit cycle. The ability for originators to sell loans and immediately book profits; for investment bankers to buy, securitize and immediately book profits; and for leveraged speculators to acquire various securitizations and other derivatives and book easy profits from various spreads and “mark-to-model” - have all made this Credit boom unlike any other. In particular, the ability to securitize loans in the highly liquid ABS/MBS marketplace, as well as insure/speculate on Credit performance in booming derivatives markets, has – or perhaps in the case of subprime, had - radically altered the capacity to prolong the Credit cycle.

Today, Subprime mortgage originator profits are collapsing – lending volumes are sinking; “gain on sale” is reversing to loss; Credit losses (especially from returned “early defaults”) are surging; and the liquidity necessary to operate is disappearing overnight. This has initiated the ugly downside of operating as a Ponzi Finance Unit. The issue of early payment defaults – where investment bankers/securitization pool operators return problem mortgages in droves back to the originator – is rapidly bankrupting this thinly-capitalized industry. And the more acute the risk of insolvency, the greater the incentive for investment banks to rush to dump problem loans while the originator still retains some liquidity (think “bank run”). Wednesday, California originator ResMae filed for bankruptcy after Merrill Lynch sought to return $520 million “worth” of mortgages.

This has enormous ramifications for the industry. Subprime Credit conditions are in the process of tightening – how tight only time will tell. Subprime borrowers this year facing payment resets will confront a changed industry. Those with second mortgages or hoping to add a home equity loan will face much tighter lending standards. Desperate borrowers stretched the truth in 2006 to get new mortgages approved. Such tactics won’t be so easy in 2007. The weakest originators are disappearing and those left will, at the end of the day, be much more prudent and disciplined. Scores of borrowers will be left in the lurch.

But like everything else associated with this most extraordinary Credit Cycle, the analysis is infinitely more complex than what meets the eye. We are undoubtedly in the midst of a major liquidity event for the subprime originators. Additionally, the riskiest CDO and securitization tranches (and related derivatives) will suffer heavy losses. This is a decisive Credit event for the subprime industry, likely marking a major reduction in new subprime loans and escalating Credit losses. Thus far, however, there is little indication that the (paramount) market for “prime” mortgages is being impacted much at all. And when it comes to the subject of overall system liquidity, the current level of tumult could prove less than significant.”

Doug Noland
on Prudent Bear.com

http://www.larouchepub.com/other/2007/3407real_est_hedges.html

Hedge funds frantically scrambling for cash to stave off blowout, with two RE-related mega-funds leading the way. This is going to be orders of magnitude worse than the 1998 LTCM meltdown that almost brought down the global financial system.

Wasco and Lamont the place to invest?

http://bakersfieldbubble.blogspot.com

Subprime subterfuge - a ban on Flipping

By TOM BELL, Staff Writer

Sunday, February 18, 2007

A mortgage broker recently left a message on Jennifer Richardson’s home answering machine suggesting it was time to refinance again.

This time, she didn’t call back.

Since she bought her one-level ranch in Lewiston six years ago for $73,000, she has refinanced five times and has incurred $58,000 in fees and penalties. She said she now understands that brokers sometimes give people advice that is not in their best interest.

“I have been misled and taken advantage of,” said Richardson, 36, who works seasonally at L.L. Bean and also as a substitute teacher. “They know it. It’s almost like they prey on people.”

http://pressherald.mainetoday.com/business/stories/070218predatory.html

Whatever happened to my hero? This guy stood up to big business in the labor strikes of the thirties and forties. He negotiated labor contracts, got medical benefits for famlies, vacations and pensions. Business thrived. GM and all the auto makers were doing well. He made things, not just paper trades, but tangible goods. He was inventive and smart. No college degree required here, just the motivation to work hard and suceed. He was very sucessful. A home was 1,000 square feet, with one bath. Never more than one car in the driveway. Mom was at home all the time. A beat cop walked the street and knew all of our family by first name. The nuns slapped us up, when we deserved it and they made responsible adults out of us. Dinner was at 5, and we kids new better than to miss beiing there. One tv set and dad decided the station. No video games, but a fishing trip in the summer at the lake. The boys club, Boy Scouts.
CYO. We had it all, thanks to my hero, my dad.
Where are those heros? It seems the boomer generation just wasted their entire legacy. Not on themselves, but on the kids of the boomers. Send the wife to work, day care, video games, no supervision, no rules. basice skills lost in school. No need to learn. Greed will suffice for everything, everything handed on a platter. no need to work…just cheat, scam and take. The more taken, the less guilt. Marry, hell divorce at the first sign of touble. Extended famlies.. the joke of the century. Womens lib…you got what you asked for…
I would like to personally thank my generation for the America we have today. What our parents worked so hard to instill in us seems to be lost.
End of rant!

Arrrg. Now the FHA is trying to become more “relevant” by loaning at inflated values.

From the LA Times.

I guess folks might inform kathy.kristof@latimes.com that this is a really bad idea…

With the deteriorating housing market and public markets likely to follow, where are you all investing? I was thinking about European ETFs but Europe may be right behind us in terms of a meltdown. I could park it all in CDs, but I would love to profit from the meltdown if possible.

A few days back I read an article about how much people with a net worth of $1,000,000 put into their primary residence, and how much those with a net worth of $10,000,000 put into their primary residence. The article took statistics out of the book “The Millionaire Next Door,” by Stanley and Danko. Then I look at one of those ads on Yahoo that pop up on the side. A chubby pre-middle aged man in a sweater (Mr. Average) dancing a jig over a $500,000 mortgage. The article says people with a net worth of $1,000,000 or more have less than 10% of their net worth in real estate. The dancing man obviously is no millionaire. The ad is marketed at the average American, who earns $50,000 to $85,000. Whatever happened to the rule that you should never buy more than 2 and a half times your income?

FAMILY FINANCES
The Wall Street Journal Sunday
‘Short Sales’ Rise
As Housing Market Cools
By RUTH SIMON
February 18, 2007

As the number of borrowers falling behind on their mortgage payments climbs to the highest level in five years, the number of “short sales” is increasing.

In a short sale of a home, a lender allows the property to be sold for less than the total amount due. In many cases, the lender forgives the remaining debt.

Short sales fell out of favor when mortgage delinquencies were low and rising home prices made it easy for borrowers who ran into trouble to sell their homes or refinance their mortgages. But as the housing market cools, interest in short sales is increasing.

Bank of America says it saw short sales of homes increase 25% last year, albeit from relatively low levels. In San Diego, the number of entries in the local multiple-listing service that include the words “short sale” has climbed to 129 from 50 a little more than a year ago, according to Sandicor, the local multiple-listing service.

http://online.wsj.com/public/article/SB117175327453912404.html?mod=sunday_journal_primary_hs

Housing bubble’s reach extends to Panama City…
————————————————————————————————-
A Booming Panama City Awaits Noriega’s Return
By José de Córdoba
Word Count: 1,466

PANAMA CITY, Panama — When Gen. Manuel Antonio Noriega gets back to this lush tropical city after a 17-year absence, the former Panamanian strongman will scarcely recognize his old haunts. I barely did.

The news that Mr. Noriega plans to come back to Panama in September after spending nearly two decades in a U.S. prison since being deposed in a 1989 invasion, is the talk of the town. His return has momentarily eclipsed the other omnipresent subject of conversation here — the real-estate boom fueled in part by American retirees, which has turned this once laid-back city, known as a …

http://users1.wsj.com/lmda/do/checkLogin?mg=wsj-users1&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB117166770175011667.html%3Fmod%3Dhome_we_banner_left

PERSONAL BUSINESS
The Wall Street Journal Sunday
Why a No-Interest Bargain Can Be a No-No
By JACLYNE BADAL
February 18, 2007

Are financing deals that promise “no money down and no interest” a good deal — or too good to be true?

These promotional loans can actually pay off if shoppers are willing to do their homework, make timely payments and read the contract’s fine print, experts say. If not, the promotions are a temptation best avoided.

Customers who aren’t careful make the mistake of overemphasizing the benefits of a free loan, says Richard Pittman, housing-services coordinator at ByDesign Financial Solutions, a nonprofit credit counselor in Los Angeles. He says stores often pay for the promotions by boosting prices or delivery fees or selling extras, such as warranties.

Financing deals are “kind of like the sleight of hand with a magician,” Mr. Pittman says. “You don’t see what’s right in front of your face.”

Consider a shopper who uses a promotion to defer payments for 12 months on a three-piece Ashley Furniture sofa set, last week listed for $2,381 at one online retailer.

If the purchase price is invested in an online savings account with a 5% yield for a year, it can earn about $120 in interest. But a second store on the Web last week listed an identical set for $1,538. The $120 gain from holding the money for 12 months pales in comparison to the $843 price difference.

And that’s assuming the shopper actually had $2,381 to park in a savings account. Many people turn to financing deals because they don’t have ready cash available. If that’s the case, consumers have the added burden of ensuring they can afford to pay the balance before the grace period ends.

http://online.wsj.com/public/article/SB117175741283012423.html?mod=sunday_journal_primary_hs

More optimism from California, via Forbes:
Housing Boom!
http://members.forbes.com/forbes/2007/0226/110.html#_top
(Requires free registration. Might be worth it for the jaw dropping analysis.)

Why 2007 won’t see soft OR hard landing: “Right now the U.S. and global economies are both accelerating.” Main evidence seems to be mostly because Home builders are up 24%. See the three home builder stocks you should buy. Apparently, the market can’t be wrong expecting earnings to improve.

Of course the San Mateo county based author might feel differently by the time his 2/26/2007 article is widely read, based on last week’s news.