“We Have Speculative Investment Even Today”: CEO
Some housing bubble news from Wall Street and Washington. “While an uncertain housing market anxiously monitors the spring selling season for hints of a turnaround, home-builder chief executives are keeping a close eye on their costs and the overhang of unsold homes on the market.”
“‘The key to the analysis of where home builders are is the amount of speculative inventory still remaining on the market,’ said Robert Toll, CEO of Toll Brothers Inc. ‘There’s the most speculation right before the market cracks,’ Toll said. Although the shakeout has driven many flippers from the market, ‘it’s remarkable we still have speculative investment in the market even today.’”
“Centex’s CEO Tim Eller agreed that the past few years have seen ‘an unprecedented level of speculative investing in housing,’ which is visible in the number of vacant homes on the market, both new and existing, which he estimated at about 1 million during the current correction.”
“With all the excess liquidity in the housing market and the amount of house-flipping, ‘the consequence was considerable excess.’ He estimated the housing market could be in the middle phases of a three-year correction.”
From MarketWatch. “Shares of subprime mortgage firm Accredited Home Lenders fell almost Wednesday, its second day of big losses as it became the latest target of sellers nervous about borrower defaults.”
“On Wednesday Piper Jaffray analysts expressed some surprise at how far Accreditied and rival New Century Financial had fallen. ‘While we understand that the subprime lenders are in trouble, we are somewhat surprised by the large gap between the current stock prices and last reported book values for the two,’ the analysts said.”
The Orange County Register. “KPMG, New Century’s auditor, believes that the company, the nation’s No. 2 subprime lender, could face insolvency unless it reaches new agreements with firms that lend it money to make loans. And New Century will report a loss for all of 2006 and not just for the fourth quarter, as it previously announced. New Century declined any comment Monday.”
“Impac Mortgage Holdings of Irvine has delayed the filing of its annual report, saying something was wrong with how it treated loan sales and cash payments between its own units on its 2004 and 2005 cash-flow statements.”
From Reuters. “Proposed guidance on subprime mortgages by regulators would likely pinch mortgage production of Countrywide Financial Corp., the company’s chief financial officer said.”
“Sixty percent of Countrywide’s customers seeking hybrid adjustable-rate mortgages, or ARMs, such as ‘2-28′ loans would fail to qualify under the guidance that urges lenders weigh the borrower’s ability to repay at the highest possible rate during the life of the loan, Countrywide CFO Eric Sieracki said.”
“The global junk bond default rate is expected to rise to 2.7 percent by the end of the year, Moody’s Investors Service said on Wednesday.”
“‘Defaults are primed for a potentially sharp rise going forward,’ said David Hamilton, Moody’s director of corporate default research in New York. Recent equity market volatility, weakness in subprime lending and expectations for slower economic growth all indicate weaker credit conditions, he said.”
The Washington Times. “In another sign the mortgage crunch is spreading, Lehman Brothers Holdings Inc. announced it is cutting the ratings of Countrywide Financial Corp., the largest mortgage lender, and other prime lenders as defaults surge.”
“‘Prime loans will see rising default rates as subprime has, due to increasingly weak underwriting in recent vintages,’ analyst Bruce Harting said. ‘The rapidity, breadth and depth of the subprime sector meltdown has been extraordinary, even in the context of an environment in which most industry observers felt that major problems in the subprime space were inevitable and overdue.’”
From KHOU. “There’s a change in the Houston area housing market. You can hardly drive a city block without spotting a home for sale or some new construction, but getting into those homes is now much harder.”
“It’s not because of fewer buyers, but instead fewer banks willing to take the risk. That could mean the recent housing boom might become a bust for some lenders.”
“‘Our clients are not being approved. They’re not being approved,’ complained Realtor T.J. Jackson.”
“The U.S. Department of Treasury reports at least 20 major lenders have stopped offering home loans to borrowers with lower credit ratings. Jackson says, that’s hurting everyone.”
“‘We don’t know what’s to come, everything is based on your credit and I’m not making light of credit. (It) should be good but not everyone can help that,’ she said.”
“‘The 100 percent financing just won’t be a reality for them,’ said Matt Frings.’ Frings is in the mortgage lending business. In the last few weeks, he’s seen minimum credit scores for sub prime borrowers go from 580 to as high as 640. Meaning, if they don’t have at least 640, Frings is being forced to turn down application after application.”
“‘It hurts everybody for them to be, to be not be able to be financed,’ said Frings.”
Houston Real News. “National sub-prime mortgage lender Argent Mortgage is not alone in worrying about its future. The subprime mortgage market is reacting to the realities of financial risk: providing less capital, to less risky clients at higher prices.”
“This particular loan officer closed nearly a dozen loans over the previous six months with Argent. Other loan officers had achieved similar success. The problem for this loan officer is that one of the loans did go delinquent, within the first six months.”
“Argent’s reaction was to pull the relationship with the entire bank.”
The Associated Press. “The number of mortgage fraud cases investigated by the FBI almost doubled the past three years, reflecting a problem that is ‘pervasive and growing,’ the bureau said Wednesday in its annual report on financial crimes.”
“‘The true level of mortgage fraud is largely unknown,’ the agency’s report said.”
“Chicago Federal Reserve President Michael Moskow on Wednesday did not rule out another interest rate increase to tamp down inflation, even after a recent run of soft economic data. ‘It is much too early to say that inflation is no longer a concern,’ Moskow said.”
“The extent of the housing slowdown remains a key question, and recent data show downside risks continue, especially given an overhang of inventory, Moskow said. ‘There also are financial risks associated with the declines in housing markets. Notably, defaults on subprime mortgages could have a larger-than-expected effect on households and lenders,’ he said.”
“Federal Reserve Chairman Ben Bernanke urged Congress on Tuesday to bolster regulation of mortgage giants Fannie Mae and Freddie Mac, and suggested limiting their massive holdings to guard against any danger their debt poses to the overall economy.”
“He recommended that their holdings might be linked to a ‘measurable public purpose, such as the promotion of affordable housing.’”
“Fannie Mae’s and Freddie Mac’s combined portfolios from the end of 1990 until the end of 2003 have grown more than tenfold, to $1.56 trillion, Bernanke said. Besides buying mortgage-backed securities, the mortgage giants purchase other types of assets for their own investment portfolios, Bernanke said.”
“Yet, less than 30 percent of their current portfolio holdings are oriented toward affordable housing, Bernanke said.”
“‘The key to the analysis of where home builders are is the amount of speculative inventory still remaining on the market,’ said Robert Toll, CEO of Toll Brothers Inc. ‘There’s the most speculation right before the market cracks,’ Toll said. Although the shakeout has driven many flippers from the market, ‘it’s remarkable we still have speculative investment in the market even today.’”
Not so remarkable given the assurances from the top that the housing market’s problems will quickly blow over like a summer thunderstorm. Speculators will hang on until serious evidence emerges that “real estate doesn’t always go up.”
“The global junk bond default rate was unchanged in February at 1.6 percent but is expected to rise to 2.7 percent by the end of the year.”
Since 71% of the businesses tracked by Standard and Poors are considered junk bonds (Wall Street Journal Jan 4, 2007) expect to see a doubling of corporate BK as well as the obligatory lay offs. I know several corporate BK lawyers gearing up for a busy decade.
Also from todays guardian:
“…Keith McGregor, an insolvency partner at Ernst & Young, said the complex nature of many private equity deals was likely to make them more prone to collapse if they suffered a downturn in sales or increase in costs.
“The quality of the debt has dropped off in the last few years. Debt with a CCC rating has a one in three chance of going bust within two years. But it is the fastest growing element of debt in private equity structures,” he said.
He said the situation would worsen next year when a significant increase in costs would begin to hurt companies when they needed to fund the second tranche of their debt repayments. The first level of debt, known as senior debt, is paid back in instalments and lenders have the first call on the company’s assets if it should go bust. The second and third tier of debt is typically paid back after four and six years respectively.
“Around 90% of the debt issued in the world is less than three years old. That means tranche two and three are still one and three years away from being repaid. There is no reason why the default rate will go up this year. I don’t think it will hit until 2008,” Mr McGregor said.
http://tinyurl.com/2qm6ma
It is going to get real ugly real quickly
“the complex nature of many private equity deals was likely to make them more prone to collapse if they suffered a downturn in sales or increase in costs.”
What complex nature? Let’s see here…
If we take on more debt, we can put up even less of our own money! Cash flow from operations will cover this, don’t worry! And even if that isn’t enough to cover our spectacular deal, it will grow over time. Because companies always do better next year than the year before, right?
People azre still “invested” in Chicago…
http://chicagobusiness.com/cgi-bin/mag/article.pl?article_id=27350&bt=Rental+Market+Set+To+Heat+Up&arc=n&searchType=all
That couple from Tinley could have my lakefront studio for $250k if they’re that into throwing money around. Where does one find suc..’er….’um…investors like these?
“He recommended that their holdings might be linked to a ‘measurable public purpose, such as the promotion of affordable housing.’”
So far it appears most of their activity has contributed to help push prices up to stratospherically unaffordable levels. Heckuva job, Fannie!
Anyone buying a house for investment purposes right now is an idiot.
“Speculative Investment”
oxymoronic
Anyone buying a house right now is a speculator (and probably an idiot)
This guy acts surprised about speculators here in March 2007, yet many in the industry and government keep talking about a near ‘bottom’ in the housing market, which of course implies a new run up. Notice the Centex CEO doesn’t talk that way.
IMO, they weren’t too concerned about speculators before because it took the inventory off their books, but now with the dramatic increase in vacant homes, the builders now have to compete with these speculators to find families to fill their stucco boxes. So now it is a problem in their world.
I’m also an Irvine renter. I agree there will be lots of vacant properties unless prices DROP!!!
Dude, that is way harsh . . . not true either. There are astute buyers out there with solid incomes, down payments and buying for legitimate long-term purposes. Many buying at “fair” prices in decent housing markets . . . so they are neither speculators nor idiots.
Several on this blog need to check their enthusiasm and negativity once in a while. The world is not coming to an end . . . this country has weathered some pretty nasty storms in its past . . . it will once again.
Will there be pain? Sure, but not unilaterally. This correction in the market may last a while and will weed out the people who don’t belong in it, but will not take down the banking system, there will be no government bail out. No doubt inventory will sit for a while in some places, but eventually will be absorbed.
Chill
“There are astute buyers out there with solid incomes, down payments and buying for legitimate long-term purposes.”
I would strike the word “astute” from the above statement. The collateral damage from the nonastute buyers without solid incomes who could only buy (up until recently) thanks to subprime will be severe.
If I understand your position, each and every person who has purchased real estate (no matter what price they paid and what the location is) within the past year or so is a complete fool. This is exactly the thinking I spoke of earlier. Pretty broad brush you are using don’t you think???
Well, I’m no RE expert, but most properties are going to go down in value in the next two years. I suspect that’s the group consensus around here, at least.
Given that, under what conditions would it be smart to purchase? Only in cases where there’s either a unique property which fits your special needs (in which case, it’s worth more to you (and only you) than the asking price), or in cases where the property is already offered at such a low price that the negative impact of the coming bust is already priced in (not many of them around - even non-bubble areas are starting to see declines).
So yeah, you’d have to be an idiot to buy most of the properties in the U.S. right now. Unless you think that prices will in fact not go down. Or, um, you don’t like money.
I just got done arguing with an otherwise intelligent person I work with - about why “it’s different here”, where “here” is Silicon Valley. It’s only different in vanishingly rare properties, spread out around the country. And it is certainly not different here.
Even prices in non-bubble areas of TX are going down because of overbuilding. The last I read, there were over 11,000 vacant homes in the Dallas area. If you can buy a foreclosure and rent it at positive cashflow, then good for you.
Since RE has barely seen a noticeable drop in prices for 99% of the country, I don’t think it’s an unreasonable stretch to generalize on the profile of today’s purchaser.
And on a side note, who in the hell purchases ANYTHING that is losing value, with the logic of it having “a legitimate long-term purpose”?
I’ll buy this $100 widget today, even though it will be a $70 widget in 3 years, because I have a long term “Widget Investment Plan”.
As stated by Jim & Jerry, I don’t think the Carleton Sheets’ talking points will go over very well here.
And on a side note, who in the hell purchases ANYTHING that is losing value, with the logic of it having “a legitimate long-term purpose”?
Vehicle, furniture, appliances, etc. all have legitimate long-term purposes yet they lose value the day you buy them . . . or maybe it is your opinion that you should rent them too.
If my car was going to lose $100k in value in the next two years, and I could rent it for $2k a month, then heck yeah I’d rent. Wouldn’t you?
And that’s exactly the issue.
Cars, furniture, et al cost more (200% for furniture) to rent than own. Real estate costs HALF to rent. So why buy?
I agree with your earlier post . . . MOST (i repeat MOST)recent residential RE investments will lose value over the next year or so - who really knows for sure how much and how long.
My issue is that definitive statements made by some, i. e. “Anyone buying a house right now is a speculator (and probably an idiot)” and “who in the hell purchases ANYTHING that is losing value, with the logic of it having “a legitimate long-term purpose”?” and “Real estate costs HALF to rent.”
Simply said, 1) Just because some or many RE buyers will lose value/money, does not mean ALL will, 2) Buying depreciating goods (notice I didn’t say homes) is many times preferable to renting and 3) Real Estate may cost half to rent in your area, but definitely not all.
People, take off the blinders and realize that your particular market may not be reflective of the entire domestic market.
That’s all I have to say about that.
You should be asking who is buying in the decent housing markets at “fair” prices. A lot of people (we’ll call them “knuckleheads”) from here in California thought that they were going to get rich buying land/houses out of state and riding the equity up. If the price of their house crashes here, what do you think they are going to do with their “investments?” Keep them, or try to sell them so that they can afford to pay their losses here.
By the way, there are a ton of BMWs, Infinitis, and Lexus’ being sold around San Diego with mileage between 20k and 40k and bought new between 2003 and 2005. Many below Blue Book.
Many buying at “fair” prices in decent housing markets . . . so they are neither speculators nor idiots.
Your use of quotes suggests that even you are suspicious of the notion that prices are fair.
“Fair” is relative to the eye of the beholder. What is fair to a buyer is not necessarily fair to the seller, etc.
I like to think that my rent is probably more ‘fair’ than the mortgage payment of the guy who just bought the crappy looking house next door to me that was on the market for 500K.
I wouldn’t buy a house for investment purposes ANYWHERE right now. The pain of this bubble burst will be felt throughout the nation. Buy now and be prepared to hold on to the property for 7-8 years before you make a profit on it.
But why sink all that money right now instead of using it for another investment and WAIT until house prices come down?
In California in the last bust, you had to hold for 8 years for breakeven, ignoring inflation. And that ignores the 6% commission. This bust looks to be bigger. So your 8 year hold plan may not work out so well.
Land in Kansas has still not returned to 1830 prices, even allowing for inflation. How’s that for “buy and hold”?
“Anyone buying a house for investment purposes right now is an idiot. ”
What about condo buying? Thats still ok, right??
Only condotels and ship-board condos are OK, the rest are suspect…
What you are hearing right now when you put your ear to the rail is the ever-increasing rumble. If you weren’t like most of us here who got the hell out of the way long ago, there’s a massive freight train coming at 90mph straight at you, your leg’s stuck on the tracks, and you have nowhere to go.
“‘Our clients are not being approved. They’re not being approved,’ complained Realtor T.J. Jackson.”
Quit your whining and try doing your job by PRE-qualifying your buyers for homes they can afford. And guess what honey ? Not every warm body that walks through your door is your next commision wether you like it or not.
That is the way it should be…
Funny thing, people are being pre-qualified for one type of loan and then by closing find they must lower their maximum price.
The commisions are going to drop pretty quickly YOY vs. 2006, or vs. 2005… or vs. 2004…
My relative who is a realtor ™ always points out that every realtor needs to be ready for those two years without a commision… Those two years are coming. (She makes a huge income during the good times, during the “lean years” she is mostly traveling.)
Got popcorn?
Neil
just got off the phone with my realtor. there is a huge change in tone in the past few days, from everything is dandy to:
“rates will go up(as opposed to rates will go down just a few months ago), lenders are getting very strict”.
sounds like some panic is creeping in.
very interesting indeed.
Good anecdotal evidence. Just curious, what part of the country are you in?
O Freekin C
prices in OC are improving slightly, but people still live in LALA land. lising old houses for more than what a brand new house on the coast at bellcliffe is listed for(about the same size). but overall taking to alot of my bull friends, their tone is softening, I guess you can say acceptance. definetely some good bargains by yesteryear’s prices but a long way to go down so it makes sense to buy versus rent. IMO
Could this be (at least part of) the reason that mortgage applications are up? People getting turned down have to submit multiple applications, causing the application numbers to increase?
Good point, I didn’t think of that. Plus, there is probably a certain amount of fear driving the desire to refinance.
Exactly, quit your whining. If your clients have crap credit scores, tell them to wake up, make things right and then come back to you when they have it together. This mindset that everyone deserves to “buy” a house whenever they want has got to go.
You can only afford a home in one of two cases: when you can buy outright with cash, or when you can afford to make payments that actually pay back the money you borrowed. I guess our friend T.J. the realtor may have to go back to being an Avon rep.
Actually his clients probalby ARE looking at the size / quality of house they have been traditionally able to afford - it’s just with the stupid lending it’s 2X the price it was historically compared to income - now with lending standards tightening the “system” won’t let them take the risk that just 3 months ago was the “norm”
Uncle Git,
You hit on another pet peeve of mine.
Now the REIC is blaming the buyers for buying “too much house” when in reality, they were taking on “too much mortgage”. Very different things.
I know we were looking at homes which we “should” have been able to afford (what we would have easily been able to buy in 1998 with our income and down payment). Could we buy? Not without taking on that monsterous debt/suicide financing. We said “no thank you” and chose to rent instead.
Best thing we ever did…
Beware the Ides of March…
hat tip to Robert Cote, Spring Sting is just around the corner.
I wait it eagerly!
ROTFL
But the question is, do we have enough on the bearish side to force a down market by then? I hate to say it… but I think the answer is no. Now, one massive layoff will change everything. For I see layoffs coming in:
1. Anything mortgage related
2. Anything RE sales related
3. High end commisions (e.g., Ferrari’s, jewelry, vacation sales)
4. The music industry (they just have a bad model right now. Its no longer 1950 guys…)
5. Automotive (its not done yet)
6. Construction supplies (lumber, tavertine, Viking stoves, etc.)
7. Construction
8. Boats, pool tables, RV’s, and any other HELOC driven purchase.
9. Apartments (flippers are going to run home to mommy and daddy)
10. Restarants (booze)
11. Expensive outdoor hobbies (skiing)
did I miss anything? That won’t get a partial start by the ides of March… be patient. Very patient.
Got popcorn?
Neil
My sister has been down to South America a few times in the past years and she raves about how cheap Argentina is, for a 1st World place. A good dinner, w/wine, around $10-15, rooms $30 and everything else, about a 1/3rd of what you’d pay in the states…
The Argentine Peso was linked to the U.S. Dollar and the 2 currencies traded @ par, for around 10 years and then Argentina’s economy shrank and a Peso is worth around 35 Cents.
Were the greenback Dollar shrink in value, against the Euro or the Yen, to 1/3rd of it’s current value, in those terms, how would our country gain from this?
The real debt would remain constant in Dollar terms, although shrink by 2/3rds in “real” value owed.
If things suddenly cost 2/3rds less in our country, we could become productive again, we have the knowhow, we just lost business, because of our high saleries.
The losses:
De facto telling the world, we want to get off the ride, called leader of the free world.
Forget traveling overseas for a long time, unless you are well heeled.
Loss of real income, vs everybody else in the world.
To paraphrase Paul Krugman, if you think devaluation will lead you to prosperity and increase your exports, then why aren’t we all driving Ladas (i.e. Russian-built cars). The problem is, all our imported raw materials will go up in price.
I rode in a Lada once, in Iceland, where somebody had marketed a bunch. I pulled the door closed — not particularly hard — and the handle came off in my hand.
The Neva, on the other hand, is a remarkable little off-road car.
aladinsane, I’m from Argentina. It’s cheap, and I love it, but it’s not 1st world. I don’t know nearly as much about economics as some of you people, but I would say that the devaluation worked in Argentina because of a combination of things, the main one being that the currency devaluated just in time to catch a good couple of years in the international grains market. Imports of all kinds completely disappeared for a while, but we had good stuff to sell and those dollars sure went a long way. Also we didn’t depend on imports to be able to produce the grains. Having said that, there is no telling the misery that people suffered. Even if here we get one tenth of that, it will not be for the faint of heart.
Argentina isn’t a first world country. I’ve also travelled and lived in South America. If you flew into Buenos Aires and then stayed downtown in a luxury hotel in the Recoleta, you might think it is, but if you wander around and see the abject poverty and poor infrastructure you will get a different opinion. 2004 figures show per capita income in Argentina at around @$12,400 and the U.S. at $40,000, and though you can find service oriented goods at a little cheaper price in Argentina, hard goods are very expensive (cars, t.v.s, etc). Argentines love to shop in the U.S. where everything is cheap to them.
Don’t forget the other elephant in the room. The dollar is declining and is set up for a big devaluation. When that happens, all imported goods (WalMart items, petroleum, metals, etc) are going to go up, inducing a perverse inflation- not driven by wages. This will intensify the recession and the rising prices will sink many of those who are already overextended.
Ahem… a last comment
A final nail in the coffin- after enough devaluation (that is, enough to reduce the trade deficit), foreigners will no longer be swimming in piles of excess dollars they can’t spend. Right now those excess dollars are being being invested in US stocks, treasury bonds, real estate, etc. Post-devaluation, alot of this investment cash will dry up, leading to higher interest rates and less money to lend.
Ever been to a country in the midst of hyperinflation?
I watched a grocer in Buenos Aries, marking up prices on his merchandise, on a daily basis, in the early 1980’s.
This was coming off of doing it initially monthly, then weekly and finally, every day.
Hyperinflation will cure the world of all that ails it, financially, but it’s going to be hard to put humpty dumpty back together again.
aladinsane, in 1989 remember seeing something in a window that I liked. I went back for it a couple of hours later and the price had gone up. As Martha Stewart would put it, that was not a good thing.
And the third elephant - interest rates. We have a huge trade deficit (more money leaving than coming) and no rate of personal savings. If the dollar tanks, interest rates could skyrocket, wreaking havoc on business and commerce in general, never mind anybody’s silly house.
“We have… no rate of personal savings.”
Not true. Most of us save pre-tax. The savings rate cited by the fed is post-tax. We are acting as the Federal government wanted us to when they set up these plans because companies were cutting back on their private pensions. I don’t think that it’s a coincidence that as 401ks and IRA’s exploded in popularity the official savings rate has declined.
Is there a person on this blog who doesn’t save a large portion of their income pre-tax? What about your friends? I bet the vast majority of them also save a portion of their money pre-tax. It’s not counted.
Ah, yes. The cost of being stupid and keeping everything out of balance. Can you imagine would happen to the government if it was forced to maintain a balanced budget and being constrained with high interest rates? Good-bye Social Security. Hello taxes….only of the “rich” (i.e. anybody making more money than me), of course.
The question is have pre-tax planned really gained that much popularity over the last four years for the savings rate to go negative? 401ks have been popular for a while now…
I believe, looking at the Bureau of Economic Analysis date, that the personal savings rate is calculated as [(total pre-tax income)-(total cost of goods & services purchased, including tax payments)]/[total post-tax income]. If this is the case (which is detailed at http://www.bea.gov), the personal savings rate is actually worse than the numbers shown, because personal retirement accounts (401(k), IRA, etc) are included as “money not spent”.
At the same time, the personal savings rate does not include as income money pulled from savings. Therefore, if you earn only $1 in a year, but pull $50k from a savings account, you have a negative savings rate of -50000%. Ouch.
10. Restarants (booze)
Maybe restaurants will be hurt, but booze will be fine. Its great to celebrate success and drown away sorrows.
Ah, alcohol. The cause of and solution to all of life’s problems.
Didn’t think that Paul Krugman and Homer Simpson would be quoted in the same thread. Nice work.
Restaurants are already doing badly. They are going to do worse, especially if they get caught in a deflationary squeeze with wholesale food prices rises on one side and consumer spending power falling on the other.
Drinking establishments, however, may be headed for good times. *g*
“Drinking establishments, however, may be headed for good times.”
Or maybe not. Two Buck Chuck at Cosco may give drinking establishments a run for their money…
I know someone who works at a bank that serves many merchants in the Hollywood are. He said the businesses have been hurting for some time.
“Federal Reserve Chairman Ben Bernanke urged Congress on Tuesday to bolster regulation of mortgage giants Fannie Mae and Freddie Mac, and suggested limiting their massive holdings to guard against any danger their debt poses to the overall economy.”
Do you want to know why the credit bubble gets so out of hand? Quasi governmental companies provide financing for housing. Is it any wonder investors do not concern themselves with losses? Moral hazard is so incredibly rampant in our asset based economy.
millions in pay for gov clerks
raines and mudd
hope the both go to jail forever………
time for “me no subprime” declarations
I love how this is being called a “credit crunch,” like it’s some negative, terrible thing. How about a return to sanity? How about a return to prevailing lending standards that were in place only a few years ago??
Well, the pendulum will probably swing past “return to sanity” mode and all the way over to “credit crunch mode” before too long. It would be unusual to have such a crazy excursion into loose lending without an over-reaction in the other direction.
“On Wednesday Piper Jaffray analysts expressed some surprise at how far Accreditied and rival New Century Financial had fallen. ‘While we understand that the subprime lenders are in trouble, we are somewhat surprised by the large gap between the current stock prices and last reported book values for the two,’ the analysts said.”
Yes after the stock market crash I was surprised by the difference between the money in my account and the last statment I got.
Well, since NEW has to restate earnings for the last 9 months and are going to post a loss for all of 2006, just maybe their last reported book value is a little unreliable? That book value shows them holding their repurchased loans at face value, so I think it might be just a tad high. So, if the book value is overstated, then maybe that gap with their stock price is a little easier to explain. Look, I’m no financial genius, but the BS spouted by some these highly paid analysts just baffles me.
Beige Book: Dallas, Boston, St. Louis, NY slowing
Housing still weak
MVille:
Perspective
Mr Practical
Mar 07, 2007 2:14 pm
You should know the nature of the beast and the only way to fight it: reduce risk before everyone else does.
The relatively small sell-off in global stocks has the media scrambling for reasons and apologists regurgitating their normal excuses. The Wall-Street machine churns out bull after bull to assure us that “the bottom of the housing slump has been reached” and “stocks have no more downside.”
There is a reason for the sell-off, although none has been touched on by mainstream sources. Does anyone remember Japan raising rates? For nearly a week nothing happened, so the connection was lost. Even marginally higher interest rates are death to the massive structural problems that exist. The fact that they will take years to correct is something that most do not want to contemplate. Central bankers assure us everything is fine. This is, if I can identify one thing, the problem.
A market economy works because its participants are entrepreneurs. The economy rewards their production and mercilessly punishes their sloth. The economy should provide its own liquidity through production and then savings. In its self-interest it seeks the best value and destroys the worst. It tightens liquidity when debt gets too high and loosens it when it’s too low. Government steps in with some regulation to ensure fair play. Fine.
But when government grows too big and through its hubris believes its bureaucracy knows more than the market, the seeds of eventual deflation are sewn. I am not talking about the re-distribution of income through taxes (that is another story); I am talking about direct intervention in the supply of credit to “ensure price stability.” That lie is due to the political refusal to allow the market to tighten.
The problem becomes worse when big government aligns itself with big business (the extinction of entrepreneurs) to affect the natural self-correction processes of the market.
Years of debt accumulation are not cured by a 5% correction in stocks as Wall-Street wants you to believe. A major debt correction, one that the market has been trying to accomplish for years but is rejected time and time again by Fed policy, is necessary to correct the huge imbalances that exist. To deny the necessity of this eventuality is human.
Total U.S. debt is now 3.6 times GDP and continues to grow. But new debt is having less and less effect in driving economic growth: more income is going to service that debt and less to creating production, the stuff that generates income. The second highest U.S. debt has ever been was 2.9 times in 1929. Despite Mr. Bernanke’s false recollections of Fed actions back then, they created an immense amount of liquidity (credit) trying to cure the stock market crash. The market did rally back temporarily as a result, then slowly crashed much worse as that new credit just went to short term speculation in stocks. The new money did no real good because there was already too much capacity, so the credit never went to creating production. The same thing is happening today. It now takes $7 of new debt to make $1 of GDP where it only took $1 in 1980 and $3 in 2000.
And the consumer, which is most of the economy, is in trouble too. Today household debt is now 130% of income. That is up from 100% just in 2001, 70% in 1986, and 40% in 1953. How quaint we were back then.
So step back from the TV and take a good long look. The US’ problems are not solved by a 5% correction in stocks and the coming debt correction won’t take a week and then go away. We do not know how it manifests nor do we know the timing of it. But you should know the nature of the beast and the only way to fight it: reduce risk before everyone else does.
Does anyone remember Japan raising rates? For nearly a week nothing happened, so the connection was lost.
Heck, the Riskloves doubled down after the BOJ hike. But, with the spreads tightening, they had no other choice. Question is how long will this continue before an exogenous shock or sheer pyramiding causes the unraveling.
A bunch of news stories hit about the increases in home values here in Southeastern Virginia (Norfolk, Virginia Beach, etc). The comments are A: people talking about voting out politicians because of no tax breaks, and B: people talking about how we need something like prop 13. I always post that if they wait a year or two, their values will go way down. I wouldn’t be surprised if a few are the same type to damand nosebleed prices for their properties at a sale.
Lot’s of chatter on BO about NEW:
http://forum.brokeroutpost.com/loans/forum/2/100677.htm
I liked the comment that Friday is NEW’s drop dead date - be sold or be dead by Friday. Tough to sell yourself when the buyers know that they can, in all probability, buy them a lot cheaper in BK.
Funniest comment on that thread was the first: “osted - 03/07/2007 : 08:39:16 AM
Does anyone know whats going on with New Century????? its not funding their closed loans.”
That’s todays loan officer for ya.
“From the end of 1990 until the end of 2003, the combined portfolios of Fannie Mae and Freddie Mac grew more than tenfold, from $135 billion to $1.56 trillion, and the share they hold of outstanding residential mortgages increased from less than 5 percent to more than 20 percent. Moreover, to finance their own holdings of MBS and other assets, in 2005 the two GSEs together issued almost $3 trillion in debt. Today, the two companies have $5.2 trillion of debt and MBS obligations outstanding, exceeding the $4.9 trillion of publicly held debt of the U.S. government (Lockhart, 2007).”
Here is the full text of BB’s speech:
URL: http://www.federalreserve.gov/boarddocs/speeches/2007/20070306/
the revelations never cease to amaze me.
Seriously! This is like with the lunatic mass murderers who kill millions of people and you wonder how they found the time. If someone gave me a $5.2 trillion credit like I’d … I’d … Wait, what? So, take a number I can comprehend and add six zeros to the end and … Houston, I’m going to need some of those astro-diapers.
Thanks for posting that.
So, Bernanke seems to be saying that 1) Fannie and Freddie’s sole purpose for existence should be to support affordable housing and 2) evidence that they do so is “difficult to find”.
Can we assume that 3) maybe, just maybe, somebody will come to the conclusion that we need to get rid of these dogs?
That will be impossible. The GSE’s are sacred cows of the FDR era.
I went to a networking meeting yesterday for a small “le Tip” like group of which I am part. Our real estate agent flew to Austin, TX over the weekend to buy two condos, which will be ready in a year and at which time they will “flip” for a nice profit. There will be no problem selling them because everyone wants to live in this new, very fancy full-service building, and $450,000 (about?) for a two bedroom condo is a great investment.
I have talked to her about where I see the market heading and why. At the time she seemed receptive to my analysis but I suspect she’s just the friendly type who isn’t comfortable debating economics. I know she thinks she just secured her financial future. I think she just put herself into bankruptcy.
Nope, the kool-aid is still being mixed and sold at a 1000% mark-up and people are buying it eagerly. All we can do is continue to be the sane (and lone) voices out there and do our best to educate. But if people want the kool-aid, need the kool-aid, crave the kool-aid like a good dose of heroin, all we can do is stand aside and let them drink.
This ends when the money dries up. It’s that simple. I remember mid-90’s - if you could find a bank to underwrite an “investment” loan at all, and it was tough, and pretty much out of the question without a 30% cash downpayment. Thirty-percent, cash.
Sad. She should see what you can buy in a SFH for $450K in Austin. The only question is how much money she’s going to lose.
A 2 bed condo in Austin for >400K ??? wtf.
Does she understand “property taxes”.
Oh, RE is different here in Texas. (3% !)
No, really it’s ok. She’s only going to “own” the property a couple weeks (when it is finished in a year) and then flip it. She admitted she might have a make a mortgage payment or two, but not more than that because this is a sure thing!! She can pay the property taxes out of the profit once she sells it for a $100,000 gain! No worries here. This is a well-thought out plan and it CAN’T fail!
Personally, if I was buying a $450,000 condo I’d be in a fetal position on the floor hyperventilating until the day I sold it. I cannot fathom why people do not understand what a massive amount of debt $450,000 is! And this is only one of the two she bought! (Although to be fair the other one was cheaper.)
no wonder General Motors is a disaster. What buisness do they have being in the sub prime mortgage business?
http://money.cnn.com/2007/03/07/news/companies/gm_subprime/index.htm?postversion=2007030709
NEW YORK (CNNMoney.com) — General Motors may owe as much as $1 billion to cover defaulted mortgage loans made to borrowers with less than top credit by its former home lending unit, according to a public report.
The Detroit News, citing estimates from several analysts, said that problems with loans made by units of GMAC such as Residential Capital could cause the automaker to make the payments. General Motors would not comment to the paper on the report.
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Rising delinquency rates and defaults on mortgages granted to borrowers who don’t have top credit ratings, known in the industry as subprime mortgages, have been a rising concern of stock markets recently.
I’m guessing they did it because subprime lending was much more profitable than selling their cars?
Yup. The joke was that they were giving cars away with loans.
Live by subprime, die by subprime…
Selling lemonade was more profitable than selling cars. Why the heck would they jump into the riskiest of lending business models?
Funny about that. GMAC is the profitable division, not car sales. GM should get out of the car business and stick with finance. (Of course, it seems they are screwing that up too)
GM is a microcosm of America. Losing money making stuff. Making money shuffling money.
Time for a sales promotion!
Buy a car, get a house loan
Sorta like the fact that chains like Circuit City make more money off of their extended warranties then they do off of selling the product itself (!)
Off topic, but that reminds me of a guy at CompUSA. They had a screaming deal on a laptop that I wanted. I went in to inquire about it. I asked if they had any in stock. “Are you going to buy the 2 year warranty?” I replied that I wasn’t. He comes back and indicates that they don’t have any in stock.
I go home, pull up CompUSA and order the laptop online and select “In-Store Pickup”. Incredibly, they have one onhand that is “available for pickup in 15 minutes.” Now I’m pi$$ed. The guy lied to me and he’s wasting my time.
I go back to the store and the salesguy is PI$$ED when I tell him I’m there to pick up the laptop. He hands me off to another guy who gets the laptop and starts recommending the warranty since “the problem with these Sony’s is….”
“Are you sure you don’t want the warranty?” I told him that my experience has been that if the thing fails, it’ll do so within the warranty period. I also left him with, “I have full faith that you wouldn’t sell me a faulty product.” (Otherwise, they’d have dropped that brand/model long ago, if they were having that many problems, right?)
He wasn’t very cordial when I told him to have a great evening.
My wife used to sell computers at a similar store. She sold a lot of computers but caught flack for not selling enough extended warranties to go with them - that’s where these retailers make their money, not on the slim markups on the product itself.
As for the salesman - I would have torn him a new one if I found he outright lied to me. You’re a better man than I.
Betamax,
All I needed was for him to know that I knew that he lied to me.
I believe that between that and my body language, he knew what he’d done was sleazy. If I’d have torn him a new one, he’d probably just have gotten angry and not realized a thing.
I don’t mind people trying to sell me things. But when I say no when I believe it to be in my best interest, I mean it.
“‘It hurts everybody for them to be, to be not be able to be financed,’ said Frings.”
No it doesn’t. It actually helps those of us that have good credit, pay stuff on time, and only buy what we can afford. We will no longer have to bid against people that have a much higher chance of defaulting.
Let me translate:
“‘It hurts me and my buddies, to be not be able to be financied,’ said Frings.”
Exactly. Just get these people (i.e., those who should not have qualified under traditional lending guidelines) out of the market, and prices will return to where I can and will be able to buy a home at a reasonable price.
Of course, I think when Frings says that it hurts everybody, he really means that it hurts him because he can’t get those commissions anymore.
“Chicago Federal Reserve President Michael Moskow on Wednesday did not rule out another interest rate increase to tamp down inflation, even after a recent run of soft economic data. ‘It is much too early to say that inflation is no longer a concern,’ Moskow said.”
Do Fed insiders think they can jawbone away inflation pressures indefinitely?
What morons. Increasing interest rates can ‘tamp down inflation’ by cooling the economy IF the inflation is driven by increasing wages. If the inflation is driven by increasing import costs (i.e. from devaluation), increasing interest rates will do squat for the inflation and will sink the housing market even faster.
That appears to be the game plan. It’s worked so far (to my amazement), helped I’m sure by massaging the inflation indices, but so far the bond holders have not tested them. I still think that the bond market will test the Fed, but I also thought they would have done it before now, so either I’m completely wrong or just wrong on my timing. I think we’ll know by the end of year which it is.
“Sixty percent of Countrywide’s customers seeking hybrid adjustable-rate mortgages, or ARMs, such as ‘2-28′ loans would fail to qualify under the guidance that urges lenders weigh the borrower’s ability to repay at the highest possible rate during the life of the loan”
That’s something to think about. Of couse, if the ARM has the potential to reset as high as 20% if the prime is 15%, but that is unlikely to happen, perhaps the regulators are being too harsh. On the other hand, perhaps what they are saying is that lenders can’t offload 100% of the interest rate risk.
“real” mortgage lenders charge fixed rates.
I.e., those who keep the notes they originate would never write a note that is too unpredictable for the borrower to manage effectively. duh.
Countrywide got approval to convert to a federal savings bank.
http://www.ots.treas.gov/docs/7/777014.html
Anyone know why they wanted to do this? What benefits might it give them? TIA
easier acquisition target by BofA… so CFC plus credit cards for illegals equal “massive credit risk” as their official new biz model.
I don’t think the Fed would allow for BofA to do anymore buying of banking due to market control.
I believe it’s due to more lax regulatory reporting requirements by not being a full-blown bank.
Savings Bank vs. Regular Bank
I think you have a better deal as to regulation, not fdic the office of thrift supevision. A bunch of clowns versus the fdic goosesteppers.
Yes, regs are less strict. An old, respectable bank was toying with the idea of changing its charter thusly in the ’80s…word came down from the powers that be: Don’t try it - we’ll cut you off at the knees.
Countrywide is so large now that they would be required to be audited by the federal reserve. They changed their charter to avoid an audit.
“Although the shakeout has driven many flippers from the market, ‘it’s remarkable we still have speculative investment in the market even today.’”
In Portland, I still see lots of dumpsters out in front of weathered homes. I often wonder if they have no clue about the current market (like most people) or just like builders, this is their livelihood so they continue forward albeit at smaller margins than last year.
In the end it’s more vacant property on the market accruing more holding cost. Builders have more staying power, flippers don’t.
Google aggregates news stories for each company. Right now, if you look up Countrywide, Ben’s blog is listed first under Blog Posts.
http://finance.google.com/finance?q=cfc
“2007 is gonna suck.” -DR Horton CEO
he is just now realizing this????? Maybe DL will say something just as astute…
I love it! Straight talk from a builder CEO. Wouldn’t it be nice if Ben Bernanke or Alan Greenspan would come out and speak their true thoughts, too. I picture the Senate testimony as sounding somewhat like Jim Carrey in Liar, Liar:
“Yes, Mr. Senator, we did in fact cut rates too low. And of course we inflated a housing bubble — duh! Oh and those subprime borrowers? Yep, they’re pretty much hosed. By the way, when’s lunch?”
I get the distinct impression that these guys are stumping in the media for a fed rate cut. How awful business is… I hope BB doesn’t buckle.
Ditto for all those financial analysts on Nightly Business Report. “Oh sure, Mr. Kangas, the Dow just had a great run today so I think we’ll see BB possibly cut interest rates a quarter % next summer…HINT HINT Ben B! You ARE going to cut rates, right? RIGHT?”
… and the stock doesn’t get hit. I think there is some institutional collusion going on in the HB sector ala “we know these guys are gonna be in the red for the foreseeable future, but let’s not sell the stock b/c we’re all in this together”
Sounds good until someone buckles, then it’s TIMBER.
The original topic touches on so many issues….
Regarding New Century and their warehouse banks: these banks who provide the lines to fund new loans are right on top of things. They monitor and know things before the stockholders and wall street. When they pull/not renew their lines, its all over.
Regarding Countrywide and more restrictive guidelines cutting their business: they will only do this if forced by wall street/investors of the mortgage securities, and of course the banks providing lines of credit to fund loans. CW needs all the subprime and so-called prime business that is really subprime because of high LTV, state income, etc.
“warehouse banks”
Who are they? And are they politically culpable for the subprime debacle?
Commercial banks provide the money in lines of credit/loans for the mortgage bankers to fund their loans. The MBs then sell their loans to pay off the lines. These banks are concerned with the loan product produced so that the loans sell for the necessary price. In other words, the loans should sell for close to par (100cents on the dollar.) When loans sell at a discount and there are repurchases, there are losses. The repurchased loans, if they can be sold, are sold at a big loss. This uses up capital, or loans that cost interest and affect overall borrowing ability.
Let’s talk mindbogglingly stupid speculation. Here’s four unsold McMansions priced between 700K and 900K, all in a neighborhood where until the last 2 years (and for the previous twenty plus years), 350K was the ultra high end. This neighborhood used to be where twentysomething and early thirtysomething “professionals” (law firm associates, etc.) would buy and live until the rugrats arrived and they went to the suburbs. These prices are beyond stupid and the houses themselves are as well. And of course, the realtor schmuck who has these listings is spamming the hell out of CL with them, like that will do any good:
http://dallas.craigslist.org/rfs/290062809.html
(blows my mind, that street was 150K - 250K max before this)
http://dallas.craigslist.org/rfs/290063941.html
(same)
http://dallas.craigslist.org/rfs/290064845.html
(who was it told me that houses in Dallas are cheap vs. California?)
http://dallas.craigslist.org/rfs/290065888.html
(crappy high traffic street with nasty little 50 year old wood frame shacks on it)
Good God! $729-929K for suburban DALLAS?? Jesus, those even top typical prices for Pasadena, CA!
Zillow doesn’t have the sales history on the 1st one, but property tax assessment value was $192,810 for 2006. Looks like a complete tear-down/rebuild job, but even so, I doubt the new pergraniteel shell added ~$740K in value, unless they used solid gold bricks for building material.
Those don’t look anything like Tudor. Tudor comes from the inside, not the outside. They are just McMansions.
The truly sad thing is those look like nice houses for the $$$ for those of us living in the SF Bay Area. In SF - $1M still buys you a 80 yr old 3BR / 1BA house on a small lot in an average part of town. I definitely know where you are coming from though - it’s all relative. Property taxes on $1M homes in Texas must kill the owners.
I’d rather live in an 80 year old 3 bdr in San Francisco than any of those McMansions. I just can’t afford it.
Oh, and as a bonus, you have to send your kids to private schools if you buy any of these. The public schools are abysmal, unlike the Park Cities where they use the schools to rape everyone on house prices.
Housing is on the rebound according to Toll:
http://money.cnn.com/2007/03/07/news/companies/toll.reut/index.htm?postversion=2007030715
I love how declining cancellation rates indicate that housing has bottomed. Nevermind that they might have declining sales, even factoring in an improvement in cancellation rates. This guy is a joker.
Yeah, this logic keeps resurfacing - that declining cancellation rates indicate we’ve reached bottom. But couldn’t they also indicate an overall decline in purchasing new homes altogether as marginal buyers are chased away by market realities? It’ll be interesting to see how long they play this tune.
Then why is Bob Toll selling??? It’s classic pump and dump. I hope people write their Congressman and demand hearings (that wont happen, but this is disgusting and Congress is in on it).
http://finance.yahoo.com/q/it?s=TOL
Wow…great post on the insider selling. I thought Toll sold out his stock last year when it was still high. To see he is still dumping shares at current prices shows he has little faith that things will be better in the near future. What a bunch of friggin crooks. I believe in capitalism, but I feel our current system permits legal robbery of the masses by the elite who are in a position to manipulate large scale semi-fraudulent actions.
He also says Subprime won’t bother them because they are a luxury builder.
But the CEO from D.R. Horton said that 2007 is going to suck, all 12 months of it. Who to believe? Seeing as how Toll said that his call of a bottom is only a “guess,” I think I’ll go with 2007 is going to suck (for HBs). Also, his comment about the subprime implosion not affecting them is total BS. While the majority of their buyers are not subprime, they are trade-up buyers who need the subprime to buy their current houses so that they can buy the McMansion from Toll. Without those FTHB, the whole chain comes to a screeching halt.
2007. “The great Adjustment”. The end of capitalism as we have known it.
If we are at the bottom as Bob Toll puts it and starting to see a rebound, then why is he selling?
25-Jan-07 TOLL BRUCE E
Director 200,000 Indirect Sale at $32.90 per share. $6,580,000
5-Jan-07 HILLAS ROGER S
Director 36,000 Direct Sale at $30.75 - $31.15 per share. $1,114,0002
4-Jan-07 HILLAS ROGER S
Director 12,000 Direct Sale at $31.15 - $31.17 per share. $374,0002
3-Jan-07 HILLAS ROGER S
Director 60,000 Direct Option Exercise at $6.39 per share. $383,400
3-Jan-07 HILLAS ROGER S
Director 12,000 Direct Sale at $31.54 - $31.67 per share. $379,0002
29-Dec-06 TOLL ROBERT I
Officer 735 Indirect Acquisition (Non Open Market) at $0 per share. N/A
29-Dec-06 TOLL ROBERT I
Officer 735 Direct Disposition (Non Open Market) at $0 per share. N/A
21-Dec-06 MARBACH CARL B
Director 2,100 Direct Disposition (Non Open Market) at $0 per share. N/A
19-Dec-06 TOLL BRUCE E
Director 500,000 Indirect Sale at $31.62 per share. $15,810,000
19-Dec-06 TOLL ROBERT I
Officer 8,940 Indirect Acquisition (Non Open Market) at $0 per share. N/A
18-Dec-06 TOLL ROBERT I
Officer 471,098 Direct Option Exercise at $0 per share. N/A
15-Dec-06 TOLL ROBERT I
Officer 242,560 Direct Acquisition (Non Open Market) at $0 per share. N/A
13-Dec-06 NOVICK STEPHEN A
Director 100 Direct Acquisition (Non Open Market) at $0 per share. N/A
13-Dec-06 BOEHNE EDWARD G
Director 300 Direct Acquisition (Non Open Market) at $0 per share. N/A
13-Dec-06 HILLAS ROGER S
Director 100 Direct Acquisition (Non Open Market) at $0 per share. N/A
13-Dec-06 MARBACH CARL B
Director 200 Direct Acquisition (Non Open Market) at $0 per share. N/A
13-Dec-06 SHAPIRO PAUL E
Director 200 Direct Acquisition (Non Open Market) at $0 per share. N/A
13-Dec-06 BLANK ROBERT S
Director 100 Direct Acquisition (Non Open Market) at $0 per share. N/A
11-Dec-06 TOLL ROBERT I
Officer 170,000 Direct Option Exercise at $4.88 per share. $829,600
16-Nov-06 TOLL BRUCE E
Director 149,100 Indirect Sale at $29.20 per share. $4,353,720
15-Nov-06 TOLL BRUCE E
Director 350,900 Indirect Sale at $28.64 per share. $10,049,776
This is from a Saxon AE. Many of the laid off FMT employees went to work for Saxon.
“Saxon Mortgage, A Morgan Stanley Co. is still actively lending in ALL 50 states. With Morgan Stanley as our parent, we have the Stability & Strength - which is what it takes to survive in today’s sub-prime!
Call with scenarios, and see how Saxon Mortgage can help you!
Christopher Logan - Account Executive
Saxon Mortgage, A Morgan Stanley Company”
Is it time to to short Morgan Stanley for the plethora of of subprime they are about to do?
“‘The true level of mortgage fraud is largely unknown,’ according to the FBI.
This level has to be a HUGE number. I’ve read of flippers getting simultaneously multiple loans each over $500 K from different lenders. By applying for these loans simultaneously, they hide their true level of risk to the lenders. IS this fraud?
Will Da Boyz step up to the plate and buy up what is left of the subprime wreckage? What’s in it for them?
———————————————————————————-
Associated Press
Fremont Subprime Unit Attracts Buyers
Associated Press 03.07.07, 5:29 PM ET
The stock of Fremont General Corp. jumped Wednesday as the battered mortgage lender told employees its subprime home mortgage business has received interest from five or six parties.
The shares closed up $1.75, or 26 percent, at $8.53 on the New York Stock Exchange.
Dan Hilley, a spokesman for the Santa Monica, Calif., company confirmed it is in talks with potential acquirers but declined to comment further.
http://www.forbes.com/feeds/ap/2007/03/07/ap3495347.html
Who would buy a lender will a portfolio full of fraudulent loans and who’s loan division has been shut down by the FDIC? It would be like buying a farm in the middle of the Sahara Desert
We met with our CPA accountant last weekend for tax time. We got on the subject of real estate, and he told us that “real estate always goes up” and anounced that he is now an “investor”. Him, and three other “investors” are closing on some townhouse units in Utah, in addition to the 20 acres of land bought last year, in somewhere, Palm desert (coachella?) because “they are’nt making land anymore”…and because they MIGHT build a air freight airport bigger than LAX the area…he says, towns grow rapidly-buy land now in the outskirts, and in 5 years it will be worth alot more. The sad part- he cashed out of the 401K because it was only earning 7% a year. His thinking-with RE, the returns could be upwards to 15% a year….
He’s a nice guy, thank god he has a day job.
I just nodded and smiled. He is so brainwashed, I won’t even try to convince him of anything different. He will soon find out - RE doesnt always go up! I just hope he doesnt loose his shirt.
He wasn’t a tax preparer in the early 90’s if he believes this. The number of people coming in with 1099 for “forgiven” debt was pretty high back then.