Pending Sales Fall On “Frigid Air”: NAR
Some housing bubble news from Wall Street and Washington. “Fewer Americans signed contracts to buy previously owned homes in January, suggesting lingering weakness in the housing market. The index was 8.9 percent below the year-earlier level, the National Association of Realtors said today in Washington. The index of pending home resales is considered a leading indicator of sales because it tracks contract signings.”
“‘We are seeing temporary near-term weather disruptions in much of the country, but there is an underlying pattern of stabilization in the housing market,’ said David Lereah, NAR’s chief economist. ‘The rapid shift in January to frigid air in much of the country had a cooling affect on home shopping that went beyond normal seasonal factors,’ Lereah explained. ‘Weather disruptions have continued since.’”
From Bloomberg. “General Motors Corp., the world’s largest automaker, may take a charge of almost $1 billion to cover bad mortgage loans made by its former home-lending unit, according to a Lehman Brothers analyst.”
“Residential Capital LLC relies on loans to people with poor or limited credit records or high debt burdens, for more than three-quarters, or $57 billion, of its loan portfolio, Lehman analyst Brian Johnson wrote in a research report. Delinquency rates on such subprime loans made last year are at a record high.”
“GM may have to spend as much as $950 million to make up the difference between the original value of the finance unit and any losses for subprime loans made by ResCap, he said.”
“About 13 percent of the subprime loans backing bonds issued in 2006 and rated by S&P are delinquent, with 6.65 percent of the loans behind in payments by 90 days or more, according to Standard & Poor’s.”
“ResCap may have lost $160 million to $520 million in the fourth quarter because of subprime mortgages, Citigroup Inc. analyst Jon Rogers in New York said on Feb. 28. Credit-default swaps for ResCap gained 23.2 percent to $219,370 yesterday, their highest since July 2005. GMAC credit- default swaps jumped 25 percent yesterday to $204,630 and have more than doubled this year.”
“ECC Capital Corporation today announced that on March 1, 2007 it was notified by the New York Stock Exchange that it has fallen below the NYSE’s continued listing standard relating to minimum share price.”
“ECC Capital Corporation, headquartered in Irvine, Calif., is a mortgage real estate investment trust that invests in residential mortgage loans. ECC Capital is currently structured to qualify as a REIT by managing a portfolio of nonconforming loans it originates or acquires.”
National Mortgage News. “Domestic Bank of Rhode Island closed its wholesale division Monday, citing Wall Street’s reluctance to bid any higher than 97 on certain nonconforming loan types it specialized in.”
From CNN Money. “Lending to homeowners and buyers without good credit has suddenly become a very bad business, and possibly a very big problem for the U.S. economy as a whole.”
“Subprime mortgages pumped $640 billion into the economy through facilitating home purchases and refinancings in 2006, according to trade publication Inside B&C Lending. That’s nearly twice the level of this kind of lending seen as recently as 2003.”
“‘Everyone in the subprime sector this year is going to lose money,’ said analyst Bose George. ‘They’re getting squeezed on all sides. Going into the year, we were looking for a decline of 15 percent [in subprime lending], but clearly now that is far too low. It’s now looking like a 25 to 30 [percent] decline.’”
“Some economists say that choking off more than $100 billion in home financing will cause problems for real estate and home prices overall by keeping some buyers out of the market and by forcing some current homeowners to sell or face foreclosure.”
“‘People who a year ago could have purchased a house with a subprime mortgage aren’t going to be able to purchase,’ said Paul Kasriel, chief economist with Northern Trust in Chicago. ‘Increased foreclosures will mean more inventory on a market that already has a glut of homes for sale.’”
“‘Housing has played a very large role in this expansion and one of the reasons it’s played that role is there has been a change in the mortgage market,’ he said. ‘This has been a credit-induced housing boom that lifted other sectors of the economy and it’s all in reverse now.’”
“Orders to U.S. factories fell by the largest amount in 6 1/2 years in January, reflecting widespread declines across a number of industries.”
“The Commerce Department reported that total orders dropped by 5.6 percent in January, the biggest decline since July 2000, a period when the economy was slowing sharply in advance of an actual recession which began in 2001.”
The Missoulian. “The family-owned Pyramid Mountain Lumber Co. has cut wages by 10 percent across the board and plans to lay off 10 workers, company officials said. The company blames the depressed lumber market, which has caused massive layoffs and shutdowns at mills across the country.”
“‘The way prices have been for the last six to eight months, I don’t think anybody is doing well,’ said Loren Rose, the company’s controller.”
“Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. would be hardest-hit on Wall Street if the slump in subprime mortgages becomes a credit crisis like the one that followed Russia’s debt default in 1998, Sanford C. Bernstein & Co. analyst Brad Hintz said.”
“‘If we experience a crisis similar to the Russian Default/LTCM event in 1998, we can expect Goldman Sachs and Lehman Brothers to experience the largest annual decline in net revenues, net income and return on equity among the large domestic security firms,’ Hintz wrote.”
“Congress is gearing up for hearings on predatory lending, the latest chapter in its long history of barn-door-closings on already-departed horses. The subprime lending market is in trouble as borrowers who are, by definition, poor credit risks live up to their reputation.”
“‘Investors were irrationally exuberant’ at the same time ‘lenders and brokers were given incentives, a big pay package, to get customers into subprime loans,’ says Andy LaPerriere, a managing director at the ISI Group in Washington.”
“Innovation may have made it easier to mislead,’ he says. ‘But the key driver was the willingness on the part of lenders and mortgage purchasers to take on high risk, which will turn out to be a big mistake.’”
“During a bubble, be it in the stock market or real estate prices, we want the government to stay out of the way. The bust produces finger-pointing, congressional hearings and new regulations.”
“The word ‘predatory,’ with all its negative connotations, is popping up elsewhere; specifically, to describe loss- mitigation practices. There is nothing predatory about ‘improving the collectability of the loan,’ says Scott Valentin, managing director, specialty finance research, at Friedman, Billings, Ramsey & Co.”
“The problems in the subprime market may be just the tip of the iceberg, given the depth and duration of the housing bubble — and the money tied up in it. ‘We’ve created an unproductive asset,’ says Joe Carson, director of global economic research at AllianceBernstein. ‘A house doesn’t produce income.’”
“Mortgage debt rose by $4.7 trillion from the end of 2000 through the third quarter of 2006, according to the Fed’s Flow of Funds report. ‘We created as much debt in housing in the last six years as we did in the prior 50,’ Carson says.”
The Chicago Tribune. “James Bianco of Bianco Research in Chicago notes that the deterioration in the subprime mortgage market has been under way and known for months. Why, then, was the story an element in a slide in stock prices that began just a week ago, he asked.”
“‘It makes you wonder if we shouldn’t go back and say what’s really going on here,’ he said.”
The Motley Fool. “On March 2 of this year, federal banking regulators expressed their concerns that homeowners who buy or refinance using adjustable-rate mortgages may not understand these products’ associated risks.”
“They didn’t say this on March 2, 2002. Not March 2, 2003, 2004, 2005, or 2006. But in 2007.”
“It’s unbelievable to me that regulators have the gall to come out with this now. Were they not in on the little jokes about the products that mortgage banks and brokers were selling? The so-called ‘liar loans’? Appraisal fraud? Degradation of credit requirements, the 103% LTV loans, any of this?”
“Unless I’m mistaken, any and all new rules will be promulgated by the same regulators who waited until everyone on the planet knew that there was irresponsibility going on in the housing market to mention it.”
“In this case, the cow’s out of the barn, out of the paddock, and truth be told, no one remembers the last time they saw her ’round these parts. Rumor has it she’s living in a flophouse in Passaic. I hope the mortgage isn’t delinquent.”
frigid air ? warmest Jan ever ,dude
LIErah scks
also no spillover news , LUV soft bookings
http://biz.yahoo.com/rb/070306/southwestair_demand.html?.v=1
Really. It was very warm in New York in January.
February and March, on the other hand, have been unusually cold. The coldest day of the year is today!
its march 6th and its so windy and cold in nyc. I might have gotten a cold today its so cold, came home coughing just now from school. very frigid and the wind is unbearable.
Getting hot here in Phoenix already. doesn’t seem to be helping home sales though…….
cubbbbiiieesssss
Spring Training tickets! Oh yeah
Oh stop it already about the weather, it is and has been a lame ass excuse. A year and half ago it could of been 20-below with a 50-below wind chill and people would’ve been lining up to make their bid. Sell that crap somewhere else, we ain’t buying it here.
Lereah in June 2007:
‘Frigid air in much of the country had a cooling affect on home shopping that went beyond normal seasonal factors,’ Lereah explained. ‘Uh, I mean, excessive heat. Yeah, that’s the ticket’.
However, there is a never-ending stream of hot air emanating from Lereah’s office.
dontcha mean orifice
Is Lereah Casey Serin’s father?
NAR: It’s not the news, it’s the weather.
These sales declines are because no one is staging their property properly.
Congress needs to address Staging Reform.
Lax staging standards are to blame. Barney Frank will be all over it.
Lax lending standards…. To late. The big money has been made by the mortgage brokers/lenders and they “are not” going to return/refund their commissions. Dream on. It’s over. They won.
You’re wrong Jerry F. Once government cleans up the staging industry and houses can get shown tastefully furnished sales will rise again.
Yes. Just like there doing with Freddie Max, Fanny Mae. See any returns of commissions from 2002, 2003, 2004? The executives Haines and the big boys won’t return there bonus etc. Trials will last for years if it gets that far and the last time these boys testifyed they answered “soft ball” questions saying it was a large complex, complicated system to understand. If you take comfort in that so be it.
Jerru F. I’m joking about staging. The practice of renting furniture to make your house look better.
What are you talking about?
What with the “ex” in ex-nnvmtgbrkr, did you quit?
Josh
Yeah, That dog won’t hunt.
I can’t even describe how cold it was down by me at 5:45 AM waiting for my train into NYC. I huddled behind a train schedule sign and pulled my face into my coat as within 20 seconds I could no longer feel it.
I know…what a tool…”weather disruptions” more like “financial disruptions”…lol
Only “air disruptions” detected are blowing out of this Bullsh#tters A$$.
Where DL’s headed he is going to need a lot of ‘frigid air.’
There’s enough hot air spewing out of the REIC that it should bring an early spring.
http://davidlereahwatch.blogspot.com
Frigid air?
Does that phenomenon occur before or after crashing into the iceberg OR does it occur after, before, or during market meltdown. Either way and worth repeating, he is going to need a lot of it where that Lemming leading Rat Bastard is heading.
Reasons for the housing slump which will last at least the rest of the decade:
1. Global warming
2. Evil negative blogs
3. Fear of Manbearpig
Lets leave the crazy loans that were given out of the discussion, its obvious they had nothing to do with it, otherwise all these wise real estate and mortgage experts would have seen it coming.
4) Global Pandemic of Bird Flu - (that never happens)
First food analogies… souffle blah blah blah… now he is trying to segue weather and seasonal changes into his descriptions of the market? Come on! Time to start talking about toilets and circling the bowl, and getting flushed. :-/
OT - was just told about deal in Philly where appraisal came in 100k less than asking price. Second app magically came in at asking price. Buyer walked away.
Appraiser #1 is packing his bags and leaving town by now, I’m sure. No way an honest appraiser survives the next 18 - 24 months. It’s either bend every rule in the book, or adios.
The appraisal system of today needs a major overhaul. I did a purchase loan 2 months ago of a home that had been on the market for over a year. The final price was 629,000. It had been listed for 659K, before that; 689k, when it first listed; 729K. The appraisal used for financing came in at 680K. Now, does this make sense to you? We all know that a house is only worth what you can sell it for. The owner went through the process of figuring out for themselves that the property wasn’t worth 729K, and nope, it wasn’t worth 689K, jeeze, it’s not even worth 659K! Through the process of price elimination they discovered what the worth of their home was - 629K. But, the appraiser, using the system in place, comes in at 680K using yesteryears comps. Sorry, doesn’t work anymore.
We call it as we see it and use only comps less that 3 mos old. Also, we are checking the box “declining values and over supply”. The lenders know all this and accept values well below contract price without a whimper.
They are all shaking in their boots about making bad loans.
I actually had a lender tell me to make sure a home did not appraise for more than a certain number. I told him it is fraudulent for a lender to say that just as it is for him to tell an appraiser to up the number.
For 35 years I have never worked with a lender but I have worked for them. I starved over the past 4 years and now I am busier than ever working for law firms in fraud investigation and forensic appraising.
These idiots who ran the numbers are going to be caught as there is a paper trail from here to there and heads will roll. It is far to easy to be found out.
dimedropped: I starved over the past 4 years and now I am busier than ever working for law firms in fraud investigation and forensic appraising. I am interested in the home appraisal busines in Canada, do you have any comments?
I wouldn’t get into it now. Frankly, it takes many years to become a real appraiser. It is all about living with it over extended periods of time and living through cycles.
Most people think it is a matter of pulling sales and making a comparison of the here and now. It is much more than that such as understanding demographics and patterns of behavior in the market. You need to understand financing and the impact of various types of financing on the market.
The present nightmare is like nothing any of us has lived before. The S and L crisis was a pimple on the butt of an elephant as opposed to this pending “China syndrome”. No pun intended.
What do I really see coming? Personally, I see Armegedon in a lot of areas of the country. I cannot fathom a way out of this fiasco without major social upheaval. The financial world has no options, the homeowners have limited options most of which are not good, and the builders have limited options.
Right now, in Olrando we have stagflation and in 6 months it will be deflation. Huge inventory with no viable financing available and continuing to build homes. It is like the wildebeasts trying to cross the river. Jump and swim like hell hoping the crocs get someone else. Eventually a few builders will come out the other side but they will have nothing to do for years. Perhaps being defendants in defect lawsuits.
The dynamics are so convoluted there are 12 scenarios for each and every possible combination. The one thing you can be sure of is each and every human on the planet will be a part of the game in one way or another.
We will be paying for this irrational exuberance for generations IMHO.
Hey dimedropped I’m with you on the nothing to do for the homebuilders. In fact if it was me I’d go belly up now to avoid the trials and reappear in 5 years.
Bankruptcy and move to France. Most countries won’t extradite for civil cases.
Please hurry up with this crash & fraud in NYC, i am a paralegal who needs to be as busy as you…LOL!
“For 35 years I have never worked with a lender but I have worked for them. I starved over the past 4 years and now I am busier than ever working for law firms in fraud investigation and forensic appraising.”
Something I like to see - good for you!
Fake appraisal are a product of fake bidders.
You get buyers thinking there are multiple bidders (which are unconfirmed and unseen), they overbid and then have to fake the appraisals to get a mortgage based on fake documentations.
It’s not that the system “doesn’t work”, it’s just that real estate is very illiquid and there isn’t an efficient pricing scheme.
That said, the only true appraisal comes when a property finally closes escrow. Then you know the true value on that day.
The best appraisal made is by an informed buyer acting under no durress with typical financing and a personal stake in the deal.
I tell my guys to think about putting your own money in every deal. How do you like it now?
You would be amazed how street smart buyers are when they are putting money down and a lot of them have grease on their hands and can only look after work. It is criminal to have taken all that savy and corrupted it.
We should all be really pissed these jerkoff fee mongers got away with this.
I was an FHA foreclosure appraiser for many years and learned how the system and philosophy of the HUD herd works. They are a very independent bunch and have suffered at the hands of M and M contractors from the private sector now for the past 7-8 years. M&M’s bascially took the jobs of many government staff through a bidding process.
Basically HUD has a huge base for handling foreclosures and disposing of properties. There are several home ownership centers around the country who oversee the process of foreclosure, cleaning and maintenance and marketing. These are called HOC’s.
HUD is chomping at the bit to become the powerhouse it once was back in the day after having been neutered to a large extent.
I have heard rumors through my contacts that the govm’nt is considering how to handle the tsunami of vacant homes, many of which will fall into the hands of the GSE’s.
Now get this, they are considering using all sources to include, VA and FHA assets to move the properties. In Florida I think FHA thresholds are at about $400,000 now. They were about $240,000 in 2000.
Long and the short is many gated communities may be HUD projects soon. Try that on for you dinner party next weekend and say hello to my little friend.
Here’s how to fix the appraisal system.
Owner has the right to relinquish their property for the appraisal value and the taxing agency has to buy it.
That should instantly correct misapparaisals.
Er, correction. This would fix the tax assessment system. The assessment would truly reflect the market value of the house and the appraisal would be completely unnecessary.
ResMae sells for $180 million, but not to Credit Suisse
ResMae Mortgage of Brea is selling for about $180 million to Citadel Investment Group, which beat out Credit Suisse in an auction, reports Bloomberg.
Citadel, a hedge fund out of Chicago, offered $20 million for the subprime lender’s operation and 98.5 cents on the dollar for its $160 million in loans. Credit Suisse had offered $19 million.
98 cents on the buck for crappy loans ?
I don’t get it
ditto
isn’t Citadel, one of those “Deal with the Devil” type hedgefunds that will do anything for a buck.
Getting good returns has become hard recently, so now we’ll probably see these hedgefunds get desperate tyring to justify their ludicrous fees (and their 5X to 10X leverage)
I’m sure the Devil is dancing while he watches this
Maybe this purchase is only one side of a hedged position.
Where’s the other side?
LMAO
What counter a risky position with a secure position. Are you taking finacial advice from your Grandfather?
There’s only one side to a hedge postion and that’s the high leverage high profit side. There’s no risk in the market anymore, so why water down the returns with a useless counter position.
…ever see the devil do a two step
how do you go about calculating yield on 98.5 cents? i guess you’d have to know the rate and duration on the underlying securities… i’m reaching, no clue.
bacon: Real simple. Take the yield at face value, then multiply this by 98.5 and then divide by 100. Of course, these loans will have a negative yield, so this calculation is useless.
oops. I meant multiply by 100 and divide by 98.5
ockurt: etal:
It is fascination to watch Wall street type traders, and lucky money managers who happended to be at the right place once, to now think they can do any business with OPM hedge fund money.
Citadel like Cerebus (GMAC/ RESmae) mis-timed this play! And oh by the way bid Far to much. 90 days left on Citidal watch!Cash call anyone?
As with usual government work, these regulators are reactive instead of proactive. Sleeping at the wheel again, John?
and getting a raise !
and more to be hired soon
Wadda ya talking about, they were incredibly proactive in removing all regulation so big republican donors could start bending over the working man…..worked out real well as far as I can tell.
Slightly OT, but highlights brainless bank employees. I just pulled a big chunk out of my Bank of Americrap account, and within 2 days their “premier client rep” called me to see what they could do for me. I told them about my concerns - loans to illegal immigrants, tons of heloc loans, misrepresentation of fees, general crummy service on their part, and that I wanted some diversity in where I keep my funds. Then she offers to be for me there in case I need a home loan, and what wonderful investment advice they can give me! I think my moment of silence and subsequent hasty “Thanks for calling, gotta go” may have clued her in a bit.
I closed my BofA account a decade ago. Never regretted that decision!
And, while we’re on this topic, didn’t I just hear an NPR story saying that BofA now wants to offer credit cards to illegal immigrants. Just as Wells Fargo is doing already.
Which makes me wonder, what do *I* need to do to be re-classified as an illegal immigrant? Being an American isn’t such a hot deal anymore.
the funny thing is that someone on this board pointed out that once people go bankrupt they could pretend to be illigal open accts in b of a and get credit again…
This will come soon… you don’t have to do anything.
Yeah, how do I get to be illegal so I can get free medical care?
Hey, I want some of that free medical care too!
TANSTAFL.
Read page 4 and 5 of your passport. By the way, it’s not all it’s cracked up to be. Good luck.
None of those things is anything she can change… all she can do is commiserate. Been there done that. It’s not brainless, it’s systematization.
“Some economists say that choking off more than $100 billion in home financing will cause problems for real estate and home prices overall by keeping some buyers out of the market and by forcing some current homeowners to sell or face foreclosure.”
Gee, so let’s keep lending to people who can afford these mortgages to keep the housing market artificially afloat. Face it, these people should never have been in the game to being with.
The first house I bought back in 2000 - I needed to jump through all sorts of hoops to get approved. And this was with decent credit and ~1.5x gross. Fast forward five years, and I know of a guy buying his fourth house (at the market top in Tahoe, I might add) on stated income. His job? A busboy/waiter-to-be at the casino.
Kind of long but interesting…
Pimco’s Gross and his fishy housing thesis
Pimco Fed watcher Paul McCulley quotes some intriguing insight from his boss, bond guru Bill Gross, into how the housing market works …
“The Plankton Theory, like life itself, begins and ends in the ocean. Plankton, of course, are almost microscopic organisms that serve as food for higher life forms. Without plankton almost every fish and mammal in the sea could not survive, since most species depend upon other fish for their existence and plankton are the initial building blocks of the entire process. Logic would suggest, therefore, that in attempting to forecast the well being of the Great White Whale, Jaws, or even Jaws II, that one of the factors to consider would be the status and future outlook of the plankton. That, in one hundred words or less, is the Plankton Theory.
Now, what possible significance could this have for the investment world? Plenty. Take for example, the area of real estate, especially that of single family housing. We’re all familiar with the rapid escalation of home prices over the last 10 years. For most Americans, their homes have been the best and in many cases the only investment that they have made in their entire lives. Some have gone so far as to invest in several homes and have endured ‘negative carry’ on the cash flow in anticipation of leveraged capital gains a few years down the road. But where does it stop? Can housing continue to increase at twice the Consumer Price Index for the next 10 years?
One way to measure might be via the Plankton Theory. In the case of real estate, the plankton would be the first-time buyer (perhaps a young married couple) with a desire to own their own home but with very little capital to carry it off. When the time comes that they can’t pull it off – either through an inability to come up with a down payment, or to service the monthly mortgage – then the ‘plankton’ would disappear and the rapid escalation in housing prices would ease as well. For, unless the current homeowner has someone to sell his house to, he’ll be unable to afford the house with the view or that extra bedroom, and the process would continue into the echelons of Beverly Hills and Shaker Heights. In the end, the entire market would wither on the investment vine and home prices would stop increasing at the same rapid rate. So to gauge the health of the housing market, look first at the plankton. Without their presence and financial vitality, the market’s not going to repeat the experience of the past 10 years.”
Gross wrote that in August 1980.
Great analogy. There is no way around it, cut off the easy money spigot to entry level buyers and speculators, and the ocean that is the housing market dies.
beautifully scripted… i’m wipping tears from my eyes…. logic is kinda refreshing.. don’t ya think.
got cash?
I’m not sure I particularly care for being compared to a plankton, but here I am — young, married, and totally locked out of the SoCal market, even with a six-figure income.
No tuna better count on getting fat on me and moving up to the whale level.
Ditto here–the wife and I are in the same position. When in the history of this country has the entry level (but middle class income) buyer ever been completely iced out of the housing market?
Legally, that is.
As a retired investment advisor, I can tell you that the economy makes the greatest sense when it is viewed as a biological system. We are animals and subject to cycles. This is manifest in our economy and markets. I agree with the “plankton” theory. When the plankton die, it is only a matter of time before the larger preditors suffer the same fate.
One observation is that as lower level animals begin to suffer, it causes prosperity for those higher up the chain. The reason… is that the weakened lower animals are easier to take advantage of prior to their demise. That is precisely what has been happening in the 3rd world and the 3rd world within our nation.
A primary reason for the problems in the moslem world are not religious but economic. Their populations have tripled since WW2. Inflation adjusted per capita income topped out in 1979. When the future of young men and women is so dismal radical spiritualism is the result.
Our leaders are not evil men…even Greenspan. In 2002 he was staring deflation in the face. He joined Bush to put off the inevitable. Keynes described this behavior when he stated regarding putting off economic problems “in the long run we are all dead”.
The problem we are dealing with is far greater then the ability of you fellow bloggers to buy a house for 40% off 2005 levels.
Beneath the ice the world economy is in decay. It is only a matter of time beore the whole world economy implodes and we witness massive debt desruction.
As a retired investment advisor, I can tell you that the economy makes the greatest sense when it is viewed as a biological system. We are animals and subject to cycles. This is manifest in our economy and markets. I agree with the “plankton” theory. When the plankton die, it is only a matter of time before the larger preditors suffer the same fate.
One observation is that as lower level animals begin to suffer, it causes prosperity for those higher up the chain. The reason… is that the weakened lower animals are easier to take advantage of prior to their demise. That is precisely what has been happening in the 3rd world and the 3rd world within our nation.
A primary reason for the problems in the moslem world are not religious but economic. Their populations have tripled since WW2. Inflation adjusted per capita income topped out in 1979. When the future of young men and women is so dismal radical spiritualism is the result.
Our leaders are not evil men…even Greenspan. In 2002 he was staring deflation in the face. He joined Bush to put off the inevitable. Keynes described this behavior when he stated regarding putting off economic problems “in the long run we are all dead”.
The problem we are dealing with is far greater then the ability of you fellow bloggers to buy a house for 40% off 2005 levels.
Beneath the ice the world economy is in decay. It is only a matter of time beore the whole world economy implodes and we witness massive debt desruction.
I like to know what you think one can do to better protect themselves from this debt destruction? I’m a true believer that cash is king, especially now. We sold our house in Jan 2006 after owning in 23 years. Made out very well. We don’t owe a penny to anyone. Just want to preserve our cash and keep ahead of inflation. No plans to buy back into this market for some time to come. Any thoughts?
You didn’t direct the question to me, but as another retired financial advisor (not that that means that I know any more than anyone else), I would say that you’ve got it just right. Cash, safely invested, is the key to staying afloat in a period of debt distruction and likely deflation. No debt is the way to go as well. I know those values are old fashioned, but I think the era of “reward the speculators and cheat the savers” is coming to an end.
I can guarantee all the Libertarians out there….Anybody thinking that “everbody for themselves, banding together with my fellow man is socialism” will get culled from the herd in short order.
It wont matter how much ammo you have or how deep your bunker is. You cant stay awake 24/7. In case you haven’t noticed people with no hope strap semtex to themselves and take out as many people as they can. And you can say it all you like, but it is physically impossible to “Kill em all”.
It is much easier and cleaner to make sure people have something to live for.
To all the “let em all burn/drown” people out there, you cant always control the fire once you start it…and the drowning man can very easily take you down with him.
The sheeple have spoken!
TJ,
I’d like to hear your rebuttal to his argument.
I’m a libertarian where personal freedoms are concerned, but understand the necessity of social (economic) safety nets — for precisely the same reasons Kenny describes.
If you talk to people who lived through the Great Depression or wars (on your own soil), you will know that the ONLY way to survive is by banding together with others.
Please explain if I am misunderstanding something here.
anyone have the LIErah link ?
tia
Another one from JL’s blog…commercial r/e pulling up the #’s?
O.C.’s real estate/finance jobs grow for 13th straight year
Revised O.C. job stats for 2006 reveal that industries tied to real estate and financing continued to add jobs as a group. All told, these property and money businesses add 9,900 jobs in 2006, the 13th straight year of gains. But 2006’s real estate job boost was down 25% from 2005 and was the smallest gain since 2002. (To read my Register column on new jobs stats, CLICK HERE)
Your blogger’s spreadsheet shows this local real estate circle added 114,600 since 1993, a 79% growth rate and 28% of all the jobs added since the ugly bottom of the early 1990s economic debacle. (Yes, these real estate and money jobs were 52% of the new employment in the last five years!)
This real estate and financial work in 2006 was 17% of all O.C. jobs — that’s the highest in the current state database that dates to 1990. During the last real estate slide, real estate work bottomed at 12.5% of all O.C. employment.
And for you trivia buffs, these real estate business lost 18,500 jobs from 1990 to 1993, or one-third of all the jobs lost during that countywide downturn.
Job slice 2006 vs. ‘05 vs. ‘05
Construction 107,000 +7,100 +7.1%
• Construction of buildings 24,200 +1,500 +6.6%
• Heavy construction 8,500 +1,000 +13.3%
• Specialty Trades 74,300 +4,600 +6.6%
Lending Activities 52,300 -1,700 -3.1%
• Bank Lending 17,100 +500 +3.0%
• Non-bank Lending 22,300 -1,500 -6.3%
• Lending Support 12,900 -600 -4.4%
Other Finance 11,400 +600 +5.6%
Real Estate/Leasing 39,400 +1,900 +5.1%
• Real Estate 32,800 +2,100 +6.8%
• Leasing Services 6,600 -200 -2.9%
Services to buildings 31,200 +1,900 +6.5%
Building/garden supply 12,500 +300 +2.5%
Farm 5,400 -200 -3.6%
All Real-Estate Related 259,200 +9,900 +4.0%
All Other O.C. 1,266,300 +19,100 +1.5%
All O.C. jobs 1,525,500 +29,000 +1.9%
• Real estate’s share of O.C. jobs 17.0%
• Real estate’s share, 1-yr. growth 34.1%
• Real estate’s share, 5-yr. growth 52.1%
2005 9.4% ? of employment nationwide was RE
mean is 6%
that’s mean folks
Boy is that graph about to fall off a cliff.
I’m visualizing a picture of a bunch of real estate agents in freefall. As the edge of the cliff recedes from their view, they shout, “It’s a great time to bu-u-u-y-y-y!!!”
Look at CR’s blog. We’re in an overhang on construction employment. Watch April and May’s employment numbers. Until then, sit back and relax.
Got popcorn?
Neil
Have a look NEXT year. Employment is sorta sticky.
So, Congress is looking at “predatory lenders”. How about looking at the realtors and home sellers who lied and continue to lie to buyers about the value of overinflated properties and the bubble nature of the market?
Any home seller who told a buyer that property values always go up should be sued for fraud and forced to compensate the buyer for their loss.
To be honest the realtors are just doing what we pay them to do - help us buy and sell houses. Sure the PR about “housing always rises” is infuriating and pure BS - but at the end of the day that’s what they do - sales.
The financial buck stops with the Lender and the buyer IMHO.
One makes the risky loan, the other accepts the risk of taking that loan. Once it blows up those two entities have to assume the lumps from their behaviour.
No bailouts for either in my view - they accepted the risks - time to pay the piper.
But if the realtor, representing the seller, misrepresents the property both the agent and the seller should (and I do believe are) liable for the loss the buyer incurs as a result of the misrepresentation.
This issue is key. This bubble would have never occurred at the magnitude we saw if sellers and agents were compelled by law enforcement agencies to state market values and conditions as material facts, which is what they are. Any seller and/or agent that uses market appreciation as a selling point makes market conditions a material fact, and therefore they must tell the truth to any potential buyer.
“But if the realtor, representing the seller, misrepresents the property both the agent and the seller should (and I do believe are) liable for the loss the buyer incurs as a result of the misrepresentation”
Realtor are held liable for misrepresenting in the form of defects, but come on now, how it appreciates. Good luck proving that. Plus any sucker..ie FB that was willing to overpay for that deserves what they get.
IMHO lenders who loaned to buyers that could not afford, and buyers who took the loans deserve to go down in flames.
With all due respect, you are wrong. Any misrepresentation with the intent to gain is wrong. Here’s an example. Let’s say that a realtor/seller in Virgina claims that George Washington slept in the house they’re trying to sell, and some fool buys the house at an inflated price because of that misrepresentation. The house and the property can be defect free, but the realtor/owner committed fraud.
A material fact is any fact (or supposed fact) that if revealed to a buyer could influence the buyer’s decision to buy and at what price.
P.S
I believe a lot of commenters on this site are bugged by the idea that a seller can be liable for misleading a buyer about market conditions. Many people come here and brag about how they sold their overpriced property at the top of the market to some stupid “FB”.
There are regular commenters that crow about being professional “flippers” who buy low and sell high. For many (not all) of these braggers lying about market conditions is the only way they can convince some “FB” to buy their overpriced “POS”. Just the suggestion that they can be held accountable for failing to disclose what they knew to be a bubble market on the verge of deflating makes them angry.
clearview, I believe that one of the documents the RE agent makes you sign is a disclaimer to void themselves of responsibility for whatever they may have said to you about such things as market conditions. This is only heresay, as I have never purchased a house. But it makes sense that they have covered themselves on this issue.
Clearview -
From regularly reading this blog over the past year or so, I would have to say that there are few people who claim they sold at the top, fewer still who said their buyer was a stupid FB in the same post describing their sale near the top of the market, and fewer still who claim to be professional flippers who buy low and sell high.
By the way, flippers buy high and try to sell higher. The last thing you described actually describes “investors” - you know, people who buy things based on fundamentals, and then if those fundamentals get out of whack sell for a gain and wait for the fundamentals to return to normal. Is that so hard to understand?
I have counted a dozen commenters who have make statements as I have described. There are flippers who read this blog and get a kick out of bragging about their exploits.
“Innovation may have made it easier to mislead,’ he says. ‘But the key driver was the willingness on the part of lenders and mortgage purchasers to take on high risk, which will turn out to be a big mistake.’”
If the “key driver” was the lender, then the “Co-pilot” was the FB. They were just as ‘willing’.
I think using pendings as an indicator is going to lose some meaning for the next few months as credit tightens and sub-prime’s blow up. You can pend w/o having financing right?
Listings are losing meaning too. It seems that more and more are going FSBO as I drive around and notice. Govt needs a FSBO checker to keep track so they can add those to the monthly report. That way DL will see what he is really up against.
OMG don’t suggest that or flatffplan will scream!
Does anyone have an idea why prices in NYC seem to be (so far) immune from a downturn? It’s become frustrating to watch this play out in the rest of the country but not (yet) affect pricing here.
Thoughts?
2 simple reasons:
1) Wall Street
Wall Street bonuses determine the price of housing in New York. Period. Banker’s bonuses were absurdly high this year, that much we all know. But what most people don’t realize is that secretaries, IT managers, analysts, publicists, etc. at Wall St. firms also made fat bonuses this year. We may be teetering on the edge of a financial precipice, but this past year was very, very, very, very good to Wall Street.
2) Europeans
The dollar is dirt cheap for those spending Euro’s. New York is, and will always be full of international executives, UN diplomats and European playboys who want a pied-a-terre in NYC. At all levels of the market too — NYC is, and always will be, immigrant city. And those who think immigrants come to NY with “no money” are living in the 19th century.
(And for the record: It frustrates the hell out of me too!)
Momentum. We have a fundamental shift, with NYC becoming more valuable relative to the suburbs, which has led to huge price gains. But at this point it is going up just because it is going up. The suburbs are already dropping. It will take longer here.
I have to say, I’m scratching my head about Manhattan prices too. Manhattan shouldn’t be immune to supply and demand. And I don’t think Wall Street bonuses bear much responsibility either. Because most of the best paid wall street types live in the suburbs, and prices there are falling.
I think the real reason prices are still rising in Manhattan is that its a lot of people throwing in the towel and stretching as far as possible while borrowing money from mom and dad to buy SOMETHING… ANYTHING because they’re afraid they’ll never be able to afford anything again. Even if it means buying some shit hole studio, they’re doing it just to “get in the game”. This of course, can’t last.
And remember, except for those neighborhoods 5 to 7 minutes away from Manhattan on the subway, the outer bouroughs like Brooklyn and Queens are still slowly falling in price.
Personally I’ll NEVER sacrifice like people do today to buy a property in New York. Its much cheaper to rent anyway. So by simply saving hundreds of dollars a month by NOT owning, I’m building equity all the same. Except its going into stocks and other divisable and liquid investments.
I’m with you. I’m happy to rent in Manhattan. Makes MUCH for financial sense as far as I can see it.
The whole thing is perplexing. I run across otherwise intelligent people all the time who tell me I’m “throwing my money away”. I try to tell them that prices are out of whack and will fall soon…
I bore myself talking about it these days. I know I’ll be right eventually, but so is a broken clock. Maybe once all these crappy MBSs undermine the financial markets, things will finally shake out here.
It’s not so much that I want things to fall (though it would be good for the long term health and diversity of the city), at this point I just want to be right.
Is that wrong?
75% of the market here is co-ops and the boards are like the soup nazi. you can get any kind of mortgage you want, but unless they approve you to buy into the building you are not getting in.
to get approved into the average co-op you need to put at least 10% down and in most cases 20% down. no downpayment, no move in. you also need liquid assets, they check your credit and they verify your income. you have to submit tax returns, pay stubs, etc. in my case they hired a private investigator to check me out and he said his company does a lot of business with apartment buildings in the area in queens.
it’s not 100% that people won’t foreclose, but it’s a big check on the nonsense that can go on with real property like condos and homes.
True enough dba, but aren’t 50% of current sales in Manhattan condos? I thought I read that somewhere recently. Does that add a different dimension to the market than there was in the past?
Yes and for the same reasons above, co-ops are strict condos are not..so i’ll bet a lot of these “kondoz” are really nothing but 100% financed buildings. The Kondoz at Queens west were like $75,000 yes $75,000 to buy a condo in NYC…….but the monthly maintenence was over $2000 mo! Even studio rentals at $2500mo is not covering the real cost.
So lets think this out, with a low price and high maintenence, the market collapses and your Kondoz is worth Less the ZERO on the free market..then what?
Walk away? or Pay someone big $$$ to take over your kondoz? How can you sell a Kondoz for less then zero?
I remember looking at a unit in Queens west about 10 years ago, when that building was brand new….1 bedroom with den/2nd small bedroom…with views facing south Manhattan for less than $30K. The maintenance was almost $2K/month…that was the killer as I couldn’t afford the maintenance. Now the same unit is going for approximately $300K, and guess what…the maintenance has only gone up. CRAZY!!
i read somewhere that even some condos were doing some kind of background check, but can’t verify it.
condo prices are crazy because the construction costs are out of this world. it costs millions of $$$ before you even start building. biggest scam is air rights.
the good condos are long built and done. most of the ones going up now are the junk in bad locations that will probably go under.
60% of Manhattan’s real estate market are Co-Ops no 75%. So thats 40% of the market that’ll sell to anybody. The ratio is lower in Queens and Brooklyn. But thats irrelevant anyway, 20% annual price increases aren’t justified by the 2-4% annual increases in local wages here even in Manhattan. The vast majority of Manhattan residents don’t work on wall street. So whether Co-op boards are harsh or not doesn’t seem to have slowed the ridiculous price gains in NYC, and I don’t think they’ll be much of a defense to price declines once the time eventually comes.
“‘The rapid shift in January to frigid air in much of the country had a cooling affect on home shopping that went beyond normal seasonal factors,’ Lereah explained. ‘Weather disruptions have continued since.’”
The deep freeze is definitely here in the subprime lending sector. Is this the weather he is talking about?
Casagrand’s take on San Diego inventory:
http://realtytimes.com/rtmcrcond/California~San_Diego~bobcasagrand
“The inventory as of the first of the month was 17,058 homes. This is up from 14,847 from this time last year. If we use Pending sales for the month of 2,627 then we have 6.5 months supply, if we use Sold of 1725 then we have 10 months supply, since we seem to be experiencing Pending falling out of escrow, the truth probably lies somewhere in the range. However, it is important to note that supply varies widely by neighborhood and price range. There are some neighborhoods that have less than 3 months supply which favors sellers while it lasts. It is important to note that expired, cancelled and withdrawn listing total 7,107 for the first 2 months of the year, this is up 233% from last years level of 3,048. This is an indicator that the time on market to sell a home is getting longer, increased inventory and lower sales being the cause. Listings this year so far are 12,953 which is down from last years 14,043 level. This would indicate that inventory will grow more slowly than last year, but since we are already ahead of last year we should still reach the 23,000 level we had last summer. Some people seem to have stopped trying to sell their homes or they are waiting for the spring bounce, if they come back into the market then inventory will exceed last years and even more price pressures will exist. The big unknown this year is how many of the record ARM resets will cause people to put their homes on the market as “gotta sell”. This could dramatically affect the year if the number is large.”
BEN
can we get a “it’s not spreading marquee”
SW air is soft
is it time to buy lumber futures or timberland?
Lumber futures trade as an interest rate derivative (see graphs of Plywood or lumber over 10 year Tbonds).
Timberland again depending on the type of timber, maybe.
“The family-owned Pyramid Mountain Lumber Co. has cut wages by 10 percent across the board and plans to lay off 10 workers, company officials said.”
Other reports indicate builders are asking subs to cut costs or walk. If members of housing’s supply chain are being forced to cut wages and other costs, home prices are certain to fall. What’s more, how can anyone deny the existence of deflation along the supply chain? Since it measures rent prices, however, the CPI probably will not capture deflation. So, it does not exist.
wonder if the overpaid government “price checkers” wander as far out as the builder line ?
rent there is aproaching $0 = squatters
We’re entering a period of deflation.
Like it or not, its too late to miss it. Because of the layoffs in building, other sectors are suddenly going to lose their wage inflation pressure. Hmmm… Interesting times.
Got popcorn?
Neil
Home for lunch. I just finished up an inspection on a new home for a long-time local, one-man shop, homebuilder. I couldn’t help but notice that the local subs have all been replaced with non-english speaking men from out of state. Margins are starting to get a lot tighter. I wonder where all those local workers went? Maybe they jumped the fence the other way to gain illegal status on the way back.
Are you a county building inspector? What city do you work in?
I know what you are saying is very true in Cali. I’m curious if “American flight” is happening in other states.
Sean: it is happening in the NY/NJ? and CT area too, a little slower, but it is definitely happening. Just compare end of 0t 50 end of 06, begining of 07.
‘We’ve created an unproductive asset,’ says Joe Carson, director of global economic research at AllianceBernstein. ‘A house doesn’t produce income.’”
Tell that to the Real HELOC Housewives of the OC.
“Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. would be hardest-hit on Wall Street if the slump in subprime mortgages becomes a credit crisis like the one that followed Russia’s debt default in 1998, Sanford C. Bernstein & Co. analyst Brad Hintz said.”
He added, “[a]s long as the MBS pullback continues to be limited solely to the sub-prime market, the impact on the brokers is manageable.”
I wonder if he crossed his fingers and toes DL style.
Motley Fool:
“On March 2 of this year, federal banking regulators expressed their concerns that homeowners who buy or refinance using adjustable-rate mortgages may not understand these products’ associated risks.”
“They didn’t say this on March 2, 2002. Not March 2, 2003, 2004, 2005, or 2006. But in 2007.”
“It’s unbelievable to me that regulators have the gall to come out with this now. Were they not in on the little jokes about the products that mortgage banks and brokers were selling? The so-called ‘liar loans’? Appraisal fraud? Degradation of credit requirements, the 103% LTV loans, any of this?”
“Unless I’m mistaken, any and all new rules will be promulgated by the same regulators who waited until everyone on the planet knew that there was irresponsibility going on in the housing market to mention it.”
“In this case, the cow’s out of the barn, out of the paddock, and truth be told, no one remembers the last time they saw her ’round these parts. Rumor has it she’s living in a flophouse in Passaic. I hope the mortgage isn’t delinquent.”
**********
Well, it’s nice to know that The Motley Fool(s) are regular readers here and I congratulate them for pointing out the regulators’ folly.
On the other hand, it would have been nice had The Fool itself been questioning these lending standards a few years ago. Perhaps I should let others judge whether it’s really “their job”, but I have to say I don’t recall The Fool, or any other media source, mentioning problems with lending standards until very recently.
Great minds think alike, Jack. I was wondering the same thing.
It’s only a problem if share prices of subprime lenders in which Fools have invested are dropping by double digits percentages each day.
Good point Jack.
Maybe lending standards are one of those things that are “okay” all the way up to the point where….they’re not.
It would be interesting to see when ANYONE, official or otherwise noteworthy (non-blogger?) first raised the issue.
The Fools started mentioning things well over a year ago. Maybe longer, but I don’t read them religiously. So they’re not exactly jumping on any bandwagons.
I’m not a regular Fool reader, either, and I do recall them parroting some lines from the HBB in the past year.
However, I would be very surprised if they were calling for regulators to have stricter lending guidelines at any time in 2006.
ot-
did anyone see on the money on cnbc last night?
well anyway they were discussin gth esub prime meltdown and
they showed a clip of the implode o meter web site
Just saw on ebay:
DAVID LEREAH underwear: Lightly used ; Slightly soiled ; starting bid .01…
Add another 84c and you can get a copy of his book
http://www.amazon.com/gp/offer-listing/0385514344/ref=pd_bbs_olp_2/103-8343357-7457406?ie=UTF8&s=books&qid=1173207157&sr=8-2
did he wear it oh his head as a hat? since he is such a sh**head
More on the Central Pacific Mortgage/Ivanhoe story.
TMSF Holdings Backs Away From CPM Wholesale Deal
“‘We’ve created an unproductive asset,’ says Joe Carson, director of global economic research at AllianceBernstein. ‘A house doesn’t produce income.’”
What’s more, those who were responsible for preventing malinvestments looked the other way. Instead, they profited from it. Others in charge claimed it was not in the CPI so it did not exist. The magnitude of this thing is scandalous! A lot of handwringing and pillow biting will follow.
Less than 90 days after they distributed 54 $$$$$$$$$$Billion in bonuses
“‘If we experience a crisis similar to the Russian Default/LTCM event in 1998, we can expect Goldman Sachs and Lehman Brothers to experience the largest annual decline in net revenues, net income and return on equity among the large domestic security firms,’ Hintz wrote.”
Now that’s what I call “value performance”!
That’s what I’d call looking out for #1.
This is interesting… the investment banks will try to mask the losses. I doubt they’ll be able to hide beyound September.
Does that mean October will be the stock market correction?
Got popcorn?
Neil
Crashing in October is the custom isn’t it?
There are five “where were you when it happened” New York days in my recollection. The millenium, 9/11, the 2003 blackout, the 1996 blizzard and the 1987 stock market crash. Wait a minute! That’s one party and four disasters (though the blackout was also a party).
No problems there in 1998 or during the tech stock bust, then?
“James Bianco of Bianco Research in Chicago notes that the deterioration in the subprime mortgage market has been under way and known for months. Why, then, was the story an element in a slide in stock prices that began just a week ago, he asked.”
Could it be you sell what you can not what you want when Mr. margin comes calling. IOW, was someone forced to liquidate as a result of the subprime meltdown?
No. Speculators were just trying to milk the subprime teet until it went dry.
The innevitable has arrived now that there is no way to avoid the raw number of defaults that bad lending practices have caused.
It will soon be clear to all why similar bad lending practices begat the Great Depression.
Leverage goes both ways
“Factory Orders Dive Amid Broad Declines
Tuesday March 6, 10:32 am ET
By Martin Crutsinger, AP Economics Writer
Orders to U.S. Factories Fall by Largest Amount in 6 1/2 Years in January”
Is that the bad news that explains the big “contrarian” rally on Wall Street today? Because if the economy is headed into a recession, then the Fed will have cause to drop interest rates, which will be good for stock prices, right?
Note to DL: update your excuse list.
Weather has been great here in the Bay Area/Silicon Valley. It has been a very dry winter, with temperatures in the 70s for much of January and February.
I can’t wait to see NAR’s excuse for unseasonably low sales once the weather warms up in Spring.
Painted yourself into a corner have we?
The news isn’t out to the underclasses and subprime borrowers yet. They’re still seeing ads and hearing advertisements for huge mortgages and teaser rates. They still think they can buy at those levels and are still shopping. I don’t necessarily think the NAR numbers will show any plunge - yet. Mind you, whether a plunge actually happened or not is open to question since NAR keeps on using “seasonal adjustments.”
Think of it like a sale at a department store where suddenly, in the middle of the day, all of the store credit cards are cancelled. Shoppers won’t be aware until there is some sort of stir among their fellows or an announcement over the loudspeaker. People may even be queued up to pay before they learn of the problem. Even then, there will be some folks who are shopping with cash or other cards who will continue.
To further the analogy, after such an announcement, people who were relying on the store cards will leave. End of story, full stop. It doesn’t matter whether the store marks down their products by 10%, 50% or 75%, those folks won’t be back. Other shoppers who were shopping with cash or other sources may get great deals, but this may not be enough business to keep the store open.
Speaking of which, have you seen that annoying “mortgage dancer” ad on YahooGroups? It’s the one with the ultra-low monthly payment and a dancer that just won’t stop. Until, of course, you click away from the dang thing.
Yes, they are everywhere there. When I compare the total some to the rates, I think that it must be some exotic mortgage, but I don’t want to waste time to find out. I’ll buy not before traditional lending standards have been established again for a year.
Another item I can’t wait for:
Lenox Financial Mortgage–they of the “it’s the biggest no brainer in the world” annoying advertisements–landing on Implode-o-meter.
This company really should be raked over the coals for predatory lending practices.
Regarding the 1998 credit crisis, I was with a large mortgage banker that went bankrupt. It made a classic mistake of not selling forward loans so as to lock in the price, instead profiting on the spread between note rate and warehouse cost. Amazing how quickly this can happen. Same thing with buybacks being sold at a big discount. Losses will either break the company directly or cause the warehouse lenders to pull their lines. I do not see how this runaway train can be stopped at this point.
It can’t. Everyone who can is trying to get out of its way.
If we only could just come up with more dumb buyers along with more dumb lenders - a new real estate boom could on the way
“In this case, the cow’s out of the barn, out of the paddock, and truth be told, no one remembers the last time they saw her ’round these parts. Rumor has it she’s living in a flophouse in Passaic. I hope the mortgage isn’t delinquent.”
I hear LV Landlord is her roommate.