Bits Bucket And Craigslist Finds For March 28, 2007
Please post off-topic ideas, links and Craigslist finds here.
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Check this out from the WSJ. Off balance sheet surety bonds are a further threat to book value at the homies.
Risks Pile Up for Builders
Shares Remain Vulnerable
As Impact of Surety Bonds
Could Bring Down Values
March 28, 2007; Page C16
Earnings at Lennar, the largest U.S. home builder by revenue, fell by 73% in the last quarter. Home-building stocks, inflated by the housing bubble, have given up all the gains they’ve made since 2004. They are selling now for little more than the value of the assets on their balance sheets. So they might appear to be bargains. But investors should beware. The home builders’ book values rest on shaky foundations.
Development land weighs heavily on the builders’ balance sheets. In the fourth quarter of last year, the five biggest builders by market capitalization — D.R. Horton, Lennar, Pulte, Centex and Toll Brothers — wrote down their land assets by a combined $1.5 billion. Lennar alone lost $26.5 million on recent land sales. There’s the danger that land prices will continue falling, leading to further writedowns. That potential is visible on the builders’ balance sheets. But another risk is less apparent.
[Combo]
The top five have almost $13 billion in commitments to local authorities, having promised to build the necessary infrastructure for new housing developments. They back these commitments with surety bonds, which are pledges to pay a municipality a big slug of money if a builder doesn’t finish a project. These surety bonds total between a quarter and a third of the book value of the leading home builders. Centex’s $6 billion of surety bonds actually exceeds its book value, though it estimates it has just $2.5 billion of work left to complete. In a recent regulatory filing, Lennar revealed it had $1.8 billion of these commitments. However, they won’t affect its balance sheet unless they are triggered.
The surety bonds make it tough for home builders to walk away from projects. With land prices falling, disposing of development land and dealing with surety bond commitments is costly. This leaves home builders with one option — to keep building. But that’s not appealing either, as home sales are falling and inventories keep rising. In more than one way, the builders have dug themselves a hole.
http://online.wsj.com/article/SB117504912935151345.html?mod=mkts_main_featured_stories_hs
Well, at least they’ll be a big increase in affordable housing, paid for by investors.
I have been wondering for some time now why the home builders just keep on building. I guess for them it comes down to which is the lesser of two evils.
“I have been wondering for some time now why the home builders just keep on building”
Someone on the board once said:
“what do you call a builder who doesn’t build?”
“Unemployed”
Think back to your school days. Remember those kids who couldn’t sit still? The ones who had the attention span of a gnat?
Well, they went into construction. And they STILL have to keep moving. Hence, they continue to build…
I have a question.
With all the drugged kids these days, does this mean we aren’t going to have any builders in say, 10 or 20 years?
Who then is going to overbuild during the next housing bubble, circa 2022?
zombified America is going to be interesting
There has been drugged kids for the last century and no shortage of builders.
–
There is a huge Pipeline Problem that follows all housing bubble busts.
Jas
One of the few things I remember from the only economy class I ever took is: the money you’ve already spent is gone. You can’t make a decision based on how much you’ve spent, you have to make the decision based on how much you can gain compared to what you have to spend from now on. That means the builders will keep building even at a loss, because the loss is smaller than if they sold the land, permits (+half finished house?) and materials at a loss.
Many builders are still making money. The builders are “price leaders.” The builders are price leaders because the have so much profit that the can afford to reduce their prices and still make money. All others must then drop their prices to compete with the new homes.
Just wait until they stop making money. Then the builders will stop building. Unemployment will follow.
Another reason: as long as they don’t go under due to lack of cash flow, they can reason this way…. we have already bought the land and we will have to write off its value whether we build or not- it is a sunk cost. So, we will build as long as the housing can be sold for more than the marginal cost of construction. This will cost us less than not building at all and trying to sell the land. So expect to see builders continue to build as long as they can actually move property at less than the cost of building. And, it looks like they can, as homeowners are reluctant to drop below their loan value (or are not allowed to by their bank). It’s a gamble, but the builders just need to build fast and undercut the present homeowners.
This will be interesting.
I wonder if any of the big players will go down in BK? (or better put, WHICH big players will go down in BK)
It is reasons like these that I wonder about the builder’s ability to slash prices too far…
The builders who have a true cash cushion should likely survive… they can use that cash to pay operating expenses while building homes that don’t sell, or that sell for “too little”. But this may take years… The debt-dependent builders will lose their lines of credit and go under, like New Century Financial.
It truly is astonishing to see how much stocks the builders bought back last summer/fall. They essentially wasted their liquid cash to buy back stock. And now they need that cash. They can’t float stocks again to raise cash, because their position doesn’t look good.
It is an example to me how CEO interests were NOT aligned with company/shareholder interests. They killed the golden goose. Short term stock manipulation in order to reap huge rewards (e.g. cash in options) in the short term, while killing the company long term.
despicable.
HIC.
Clouseau: It is an example to me how CEO interests were NOT aligned with company/shareholder interests. Supposedly, the CEO is there to represent the company/shareholder interests. Somehow, the CEO losses track of that. Same thing happened in the dot com bust, for example Nortel.
Clouseau, do you have an update on your bat encounter?
The housing market today far more resembles 1990 than 2000, and my guess is that housing will eventually fall more than in 1990/1991. So what were the homebuilders trading at when they bottomed back then? Of the 13 homebuilders listed above, nine were publicly traded in 1990. Here are the low PB valuations of 1991/1992, and the losses from current levels if stocks traded to those levels after Ms. Zelman’s charges.
Centex 0.53x BV, -57%
Hovnanian 0.29x BV, -75%
KB Home 0.80x BV, -44%
Lennar 0.14x BV, -91%
MDC Holdings 0.22x BV, -82%
Pulte 0.50x BV, -60%
Ryland 0.57x BV, -62%
Standard-Pacific 0.48x BV, -50%
Toll Brothers 0.71x BV, -53%
Average 0.47x BV, -64%
They actually used SHAREHOLDER cash to repurchase stocks…all the while they were selling PERSONAL stock, basically it was just like sneaking out the back door.
see Angelo Mozillo, CFC
This is a great article. In most cases, builders cannot just finish 1/2 of the subdivision and stop working. They have to at least finish the roads and water / wastewater lines along with other public infrastructure. We require these bonds (or a cash deposit) in Austin as do most cities. In Austin, a builder has 3 years to finish a project (although they can apply for an extension). If they don’t finish, they forfeit the remaining portion of the bond. In that case the City takes over and finishes the subdivision. After a builder finishes the grading and infrastructure, they may as well build the homes and sell what they can. It’s like putting frosting on after you have baked a cake. You can always build 3-2’s and sell at cheap prices even if you were originally planning on building mansions.
So, builders (or subsequent municipalities) are going to be building for the next few years even though the market is saturated. This would not be a big deal except every where you go, there are subdivisions popping out. That’s a lot new product in the pipeline that is going to be built pretty much no matter what happens on the demand side.
This will crush prices in the surrounding neighborhoods. This is why I haven’t bought in a newer subdivision since my first house 1985 when I got my education about buying in areas where the builders can keep building.
Now, at the bottom of the market, it may be OK to buy in these areas…but one would need to have some confidence they area won’t deteriorate into a slum.
First I heard of surety bonds. It sounds like a hard landing for builders is in the bag, as they are contractually obligated to build on into the sunset of a bust.
C’mon the city of San Diego would never do that to their best friends, would they?
“surety bonds, which are pledges to pay a municipality a big slug of money if a builder doesn’t finish a project.”
I was wondering how these bonds show up on the municipality’s books. And if the builder went bankrupt w/o finishing said project how that would affect John Q. Taxpayer.
Surety bonds are like any sort of performance bonding- they are essentially insurance. The construction company paid a surety (insurance) company. The latter is what will end up being the bagholder if the construction company does not perform. The insurance company will pay the city, but then might go after construction company assets (or even sometimes corporate official’s/owners assets, as per any agreements). The cities should be ok, but the insurance company and/or construction company could take a beating. I wonder if these insurance companies are also tightening their standards now?
Oh, if you want to see some surety bond forms, check out
http://bondforms.surety.org/bond_search_result.asp
AKRon,
Thanks for explaination and the link.
“Explanation”–headache, kids, lots of excuses.
Nothing shows up in the San Diego “municipal books”. That’s the problem isn’t it?
Had to suffer through NPR this morning, since I couldn’t drive my satellite radio equipped vehicle. One of the top stories was about the subprime collapse, striking the now usual tone of “victimization” of buyers, but also trotting out the Wellesley professor who reassured everyone listening that the suprime debacle was not a storm, just “a little rain” and that the Massachusetts housing market will be booming again once this spring.
“the Wellesley professor who reassured everyone listening that the suprime debacle was not a storm, just “a little rain”
Actually, if you are opposed to a bailout, as I am, the best thing is to actually promote this piece of spin. Yep, Congress, it’s just a little rain, nothing to see here, move on. Just a handful of irresponsible borrowers who should be left to their fate. No need to panic and go for a bailout.
Yet, the MSM continues to promote this cognitive dissonance. Pumping furiously for a bailout of subprime while interviewing shills who suggest — no, LIE — that a turnaround is just moments away.
Look at the NPR demographics. Look at the NPR staff demographics. Look at the NPR revenue source demographics. You have just defined ground zero for bubble exposure.
Hmm, I guess I didn’t realize Arizona, Nevada, and Orange County were leftist enclaves.
Not to mention Florida and Idaho and Utah and Texas.
OC leftist? ok I should not have been drinking coffee when reading that >; )
I grew up in OC. The place is pure evil. (imho)
Or upstate NY
The OC is leftist in the self-righteous, liberalism in YOUR backyard, but not mine, sense.
Actually, NPR had a report late last week on a buyer who came out and actually took responsibility for their predicament. First reoprt I’ve seen or read where that happened. Good for them.
Hmmmm, Rob Dawg.
I have a nice home but neither mortgage nor flatscreen, yet I contribute to NPR.
Funny, I can say the same thing about most of my friends who listen to NPR as well. Spurious comment.
“‘the Wellesley professor who reassured everyone listening that the suprime debacle was not a storm, just “a little rain’
Actually, if you are opposed to a bailout, as I am, the best thing is to actually promote this piece of spin. Yep, Congress, it’s just a little rain, nothing to see here, move on. Just a handful of irresponsible borrowers who should be left to their fate. No need to panic and go for a bailout.”
********
And what if you are opposed to a rate cut?
I think the same strategy applies, just talk up the “little rain” and lotsa inflation. That should do it….
There was an article in yesterday’s Financial Times (sorry if it’s already been posted) that subtly argues for a rate cut while acknowledging the folly of what was done in the past few years. I don’t know enough about monetary policy to agree or disagree, but I think it makes interesting points.
http://www.ft.com/cms/s/fda4255c-daf1-11db-ba4d-000b5df10621.html
A relevant passage was
Some argue that the Federal Reserve should have started tightening monetary policy earlier in the current cycle and avoided what they see as liquidity-driven bubbles. Regardless of the merits of this position, the theory that this constitutes a reason to avoid easing monetary policy, come what may, hardly follows. If, as may prove the case, the dominant economic concern becomes a shortage of demand, it is incumbent on the Fed to provide stimulus so as to maintain conditions for growth and financial stability.
Maybe they should ask Ivy League professor Elizabeth Warren about that.
I have yet to hear one NPR commentator or politician point out that today’s subprime lending “victims” were yesterday’s house-proud financial geniuses, who smugly bought Hummers and cruise ship vacations with their liberated equity. Live by the sword, die by the sword.
“Live by the sword, die by the sword.”
Let’s hope.
NPR isn’t the only media outlet guilty of this. I think your comment can be applied to them all.
They also covered the Chinese decision to stop buying so many US Treasury bonds. That is the big new. Could cause the dollar to drop.
Isn’t it spring already?
NY Times article “Behind Foreclosures, Ruined Credit and Hopes”
http://www.nytimes.com/2007/03/28/nyregion/28debt.html?hp
What do the people profiled in this article ALL have in common? NONE of them could afford the mortgage from day one. Mr. Abazie makes $2000 per month. . .guess what his mortgage payments are . . .$2600. How in h*ll did he ever think he could make this payment . . .
I have yet to see ONE of these stories where the FB took out a reasonable loan that was affordable and then something outside of their control forced a foreclosure. . .
I’ve commented before that a big reason behind this subprime debacle seems to be that people can’t (or don’t want to) think for themselves. I know how much rent I can afford and/or how much mortgage I can afford. I don’t need a bank or mortgage broker to tell me if something is OK, I know what is and isn’t OK. But the FBs seem to think that if a bank or mortgage broker says they can afford it, then it must be true. Honest to God, that really does seem to be the thinking.
This truly is a manifestation of people turning into “sheeple”, an inability to think for themselves. Someone else has to tell them what they are “allowed” to do. They can’t determine it for themselves. They are defined by what others think or allow them to do, and then it is a big shock when it doesn’t turn out the way others told them it would.
Biggest cure for the housing bubble would be people learning to think for themselves.
we always had people like this, but with the internet and free money from heaven we now know who they are
“But the FBs seem to think that if a bank or mortgage broker says they can afford it, then it must be true. Honest to God, that really does seem to be the thinking.”
Is this so unreasonable? This was basically true in 1999.
“Is this so unreasonable? This was basically true in 1999.”
From the NYTimes link…
“NONE of them could afford the mortgage from day one. Mr. Abazie makes $2000 per month. . .guess what his mortgage payments are . . .$2600.”
Unreasonable? Nope, it’s beyond stupid.
Not at all unreasonable. I had a rough idea of what I could afford the two times I bought, but I really didn’t have to worry about it– and most people didn’t. Banks and S&L’s (remember those?) simply didn’t lend more than you could reasonably expect to pay in the past. In fact they usually erred on the side of caution. 50% of income? That’s ridiculous! 33% was generally considered to be stretching it a bit in the past. And the old rule of thumb was that you shouldn’t spend more than a quarter of your income on housing.
When we bought in 2002 I laughed at what the bank told me what we could borrow. I told them I was planning on eating too.
I did the same number crunching in 1999. Ya gotta know what your cashflow is to know if you can afford something. If you don’t have a handle on your expenditures, you can’t really make any financial decisions. If your income is variable, you have to purchase based on the lowest flow (unless you’ve got enough savings for an extent of time)
After that, it’s really 3rd/4th grade math stuff—basic addition/subtraction. I’m not sure why people are so afraid to think it out. Denial I guess.
Never ask your barber if you need a haircut.
Is it unreasonable to expect a lender to do due diligence before handing over money? If a bank or mortgage company thinks the borrower is good for the money, let them eat the loss when it turns out they guessed wrong. That’s the only thing that’ll make lenders return to the days of responsible lending.
I’m tired of idiots crying because they’ve loaned too much money to people they had every reason to believe would not be able to pay it back. Suck it up, Wall Street.
Well said, Homoaner!!!!!
Irrespective of what the borrowers thought, the lenders are responsible for making loans which can be paid back.
IMHO, the borrowers should lose their homes, but the lenders should not be able to come after them IF they encouraged them to take on mortgages they couldn’t afford.
My wife wants to buy a bigger house. She called our mortgage company and reported joyously to me that the company would allow us to borrow some ridiculous amount. “Great,” I said, except that we wouldn’t be able to pay our various insurance premiums, the loan amount didn’t anticipate the $15K average taxes in the area, and we’d have to stop putting money into our retirement accounts and kids’ education funds. “Oh,” she replied, “well, why would they agree to lend us that if they didn’t think we could pay it back?” Why indeed.
The more people who do not think for themselves, the more probable a dictatorship will be sought for the cure. Okay lefties, you can say that the people will seek a fascist dictatorship. Okay Righties, you can say the people will seek a communist dictatorship. I don’t care. Either way, we’d be toast. Buy gold bullion, keep it in a secure place, keep a low profile, and you will survive the drab gray future.
Whatever to this story. Stupid, bleeding heart crap typical of NYT.
That’s why they’ve earned the term, ’sheeple’. I spent 28 years in public service- they don’t want to think much. They prefer to be told what to do. Liar lenders love them all.
People will do anything within their power to avoid thinking.
Unknown
“NONE of them could afford the mortgage from day one.”
That was no problem back when home prices were going up at double-digit rates year-in, year-out.
from the article:
“Soon, the mortgage payments began squeezing them. Electric and telephone bills became harder to pay; recently his cellphone was turned off for late payments. Mrs. Moore has started suggesting that they sell the house and move in with his elderly parents, who have a large home in Newark. He rejected the idea, but is now pondering selling some of his prized possessions, including his collection of expensive bicycles and perhaps one of his Fender bass guitars. “I need to make some moves,” Mr. Moore said. “I need to keep this house.”
—————————————————
This family is being touted as someone we should feel sorry for, yet the husband has been buying all kinds of stuff he can’t afford, not just the house.
he probably got them before the house. what is your problem?
Some people do without luxury items in order to pay their bills. And if people need to sell these items to pay their bills, that’s life. Not a tragedy.
How in h*ll did he ever think he could make this payment . . .
He thought, like some of my neighbors here in Hawaii, who explained it to me a year or two ago, you are supposed to use some of the cash-out money to make the mortgage payments for 1-2 years, then sell at a big profit. That’s how leverage works. What idiots.
you are supposed to use some of the cash-out money to make the mortgage payments for 1-2 years, then sell at a big profit.
——————–
BINGO!!! You must have read the memo handed out to all the sheeple at the lender’s office.
Can’t tell you how many times I’ve heard that the FBs will either “just refi” (????) or “sell the house and move up.”
These morons seriously thought that they could NEVER lose on their “investment”. Good luck with that.
Better not expect the rest of us to bail them out of their foolish “investment” decisions.
Need a little reassurance from you all.
I am in the middle of relocating to Salt Lake City, UT. Fingers crossed, but it looks like I’ve got my last home sold. Prices in SLC are roughly double my old location. I’ve been reading and occasionally contributing to this board for over 2 years. Every bone in my body is telling me not to buy. I even have my spouse on board with the idea of renting for a while.
So what’s the problem? Well- there isn’t much to rent here. My choices are few and far between, and renting probably means a longer commute, not as good of schools, a smaller yard, etc. I have a couple of dogs which is further restricting my choices. To buy a nice place, in a nice neighborhood probably would mean spending ~5X my income. The mortgage payment isn’t the issue; I could pay cash for such a home (with, of course, associated opportunity costs). I just don’t think incomes here can support these prices long term, and I’m in no hurry to sign up for the financial ass-kicking I think buying now will lead to.
I believe there is, and will indefinitely be, no shortage of idiots willing to buy into this, or any other market. That’s what irks me most about this bubble- the quality of home you’re able to live in isn’t a function of how much you earn or save- rather it’s a measure of how stupid you’re willing to be. I am very reluctant to compete in that game.
So, what I’m hoping you guys can assure me of- is that the supply side for credit really is going to start saying “no”. That at some point my stellar credit, and ability to make a real down payment will be worth something. It looks like there are some measures being taken in the sub-prime area- but are we confident the tightening of credit will eventually percolate up the chain? If this happens, I have no doubt that prices will fall. But if I spend the next couple of years living in a crappy rental, and at the end of that time, prices haven’t moved down, I’m going to have some regrets…
Thanks-
Caveat Emptor
(sorry if this is a repeat- I tried to post yesterday, it never made it past the filters)
Are you sure you’re looking for rentals in the right places? They’re not all on Craigslist; in many areas there are other sources that pre-date CL. Have you driven around the neighborhoods you want to live in and looked for “For Rent” signs, that kind of thing?
I live in SLC, Sugarhouse / East Millcreek area to be exact. Rentals can be a little bit of a pain to find but they are available. What area are you looking in? Some areas you rarely see on Craigslist, you have to drive around and watch for For Rent signs. There are rentals to be had… I know of 3-4 in my general area. With credit tightening SLC is going to fall just like every where else, but we were late to the appreciation game so sellers my try and have the means to hang on a little longer. Inventories are growing at a rapid rate but we are still below the 6 month “buyers market” level right now. I’m thinking we’ll be there by June. Once things stop selling and prices start dropping I believe they’ll drop faster than other areas because our appreciation didn’t start in full force until 2004-2005. There are more sellers that have actual equity and will be willing and able to sacrifice it for a quick sale. There was a lot of speculative purchases in the last 2 years so its the flippers that are going to get burned the worst. Let me know if you have any other questions about the area
Many areas have rentals in MLS as well.
Regarding your last question, financial forecasting is a lot like counting cards in blackjack. Card counting can’t guarantee that you are most assuredly going to win the next five hands or even the next hand, but it can tell you that the deck is highly favorable (you’ll win more than you lose) or highly unfavorable (you’ll lose more than you win). Right now there are plenty of smart folks (street and academically) who are saying the deck looks highly unfavorable right now.
Bluto, would you mind contacting me privately through PDXrenter at gmail dot com - I have some career change related q. to ask and think you might be a right person for those.
I lived near SLC for a couple years - ‘88-’90. There was hardly any such thing as “a commute” in those days, but I’ll take your word for it now. One thing that can not have changed is the “land shortage” situation. It’s a darn big place - if house prices are out of whack with respect to incomes, don’t buy. Look hard for a suitable rental, per some of the above posters. Shouldn’t really be a problem. And I hope you’re not getting the rental picture from a real estate agency either…..
Maybe find a for sale home you think you might like and offer a lease-to-own arrangement with the seller, with an exit clause of course. That way you can test the neighborhood out and make sure it is where you want to be. We have a lot of people in our region who relocate from other parts of the country and end up wanting to sell in a few years to be in the part of town they really like. Your only risk would be if fixed rates are over 8% later, but that wouldn’t be a concern if you don’t need a mortgage anyway. But what do I know about real estate. Good luck.
Unlike super-heated markets like SoCal, Florida and Vegas where prices are going down, the Salt Lake market is more likely to stagnate over the next several years. I lived in Seattle during the big RE boom of the late 80’s early 90’s and prices hung flat for over five years. So in three years you will probably say to yourself, hey I could have bought this or that house back in 07 for this price. The downside is that if you buy now you basically are renting to yourself if you go to sell in the next few years since there will be little if any equity built up due to the stagnate prices. Tough call good luck
I think there will be declines in Salt Lake, some of the more desirable areas have appreciated 60-70% in the last couple of years. While its not the appreciation other states have seen it is still way above fundamentals for the area and would take 20 years of stagnate prices to come back to fundamentals. Prices will decline its just a matter of when and how much.
I, too, was in Seattle during that time, and am reluctant to compare this debacle to that more normal unwinding. What I have no recollection of is the level/rate of foreclosures. Back then we didn’t have access as easily to data, but I’d be shocked to learn there was any comparison.
I know this may sound strange to some, but find your self a good Realtor who can find you a rental. I know for a fact that Realtors have in house rentals that they don’t advertise. If you let the Realtor know you want to rent for the next year or two and then buy, I guarantee that Realtor will do cartwheels for you. Find a Realtor that has been in the busy for many years, not a new comer. The good rentals aren’t put on Craiglists or even advertised.
No kidding! We stumbled into a rental by that very method when we moved to the DC area some years back and were so short of rentals to look at that we went to sales open houses out of boredom.
And this was not a newbie realtor, either. This was one of the “old hands” that best wishes mentions; both she and her husband were in the business for decades. When we mentioned that we really wanted to rent for 6 montnhs or a year, she said they knew lots of people with property to rent, non-advertised. In fact, when we finally moved out of the rental, they didn’t even advertise it then either.
I can actually see the realtor-owner conversation: “I’ve got some hot renters for you here, a couple, good incomes, look tidy. I discussed their finances in regards to buying, and they’ll give you no problems at all with paying rent on time…” An excellent pre-screen, come to think of it.
Totally agree with using a realtor. Even if you have to pay a small fee, it might be worth your while.
SLC (Utah, in general) has been on the flipper “hit list” since at least early 2004 (they were all posting and rushing into that market, based on various sites/blogs I’ve frequented). That area is just as subject to price declines as any other.
Additionally, you never know if you’re going to like a new area or if the job/market will pan out. Best to rent while you check everything out.
I have no idea about SLC and where the good/bad parts are, but here is one 4 br rental for $1200 (dogs ok):
http://saltlakecity.craigslist.org/apa/300757267.html
That’s just with a very cursory search. I’d definitely NOT buy right now, as the CREDIT bubble infected all corners of this, and other, countries.
Good luck!
Good info everybody - thanks.
I agree that SLC is nowhere near as overheated as places like Vegas, LA, South Florida. So that makes the decision a little harder. On the flip side, it appears prices in some areas (Sugarhouse, for instance) have just about doubled in the last few years.
The trick is figuring out what the (national) credit tightening will do to the (local) market. It has to exert a deflationary pull on prices- the question is: how strong. I earn 6 figures, have a big pile of cash, and still think it would be really hard for me to (truly) afford a $500K house. The fact that I’m even considering that seems a little baffling. Are there really busloads of potential buyers like me out there- with whom I will be forever competing against, if so I might as well take the plunge an buy. My gut tells me that many “buyers” out there, are downpayment challenged, option-ARM, stated income type buyers. My hope is that the credit market will soon take them out of the equation, leading to a much more favorable (from my perspective) supply/demand ratio.
Of course, and this should probably go without saying, the realtors are telling me “it’s different here”, because of growth and such.
As to the SLC specific questions, regarding what I’m looking for: I’m trying to find a place on the East Bench. Would be great to get my kids into Skyline high. 2500+sqft. Basement. Reasonable fenced yard. A 2 car garage. Pets allowed. I’m scheduled to go look at a couple potential places this evening- wish me luck.
Don/t worry, once this all plays out,there wont be many homes listed for $500K anywhere, especially in SLC. You should be able to find what you want for much less than that pricing. Also, you are corret in that there will be plenty of people who are taken out of the equation with the credit tightening underway (and) construction workers out of work.
Hey Caveat Emptor,
I hope you see this. I am in almost the exact same situation as you! We are moving to SLC in May. We almost bought a house there last fall (the move has been in process for a while) and decided against it at the last minute.
We live in Arizona and saw what was happening here, and when I went to Utah on house hunting trips and saw the papers reporting and the realtors spewing the same stuff Arizona had been saying a year earlier, then I figured Utah would be heading down the same path soon enough. It’s been really hard for me though. I want to buy, I want to nest, but I keep telling myself that things can’t stay at these price levels in a place where the median income is around $50,000.
Also, I can pull up streets on Traverse Mtn (Lehi) and find house after house for sale in the new subdivisions, empty and never lived in which tells me the flippers have done their work in Utah as well. And, many houses on the MLS are vacant even in the more established areas like Sandy and Draper. What concerns me is that the inventory levels are so low (especially compared to AZ). That’s when I start second guessing myself.
I’m concerned about finding a rental as well. I haven’t rented since my early 20’s, and I’m not excited about having a landlord. Fortunately, we have a little latitude in location (I’m putting my kids in private school) and so we can live anywhere from Sugarhouse to Highland. But, rentals do seem slim. I think the realtor idea is a good one. And driving around is good too. A lot of people just plunk a sign in the front yard and don’t advertise any other way (especially in the high demand areas like the East Bench.)
If you see this and would like to talk more, let me know.
Yep, in the area’s I’ve been looking at, inventory is still low. Realtors are telling me that to get a place, I’ll likely have to pounce, within a few days of it hitting the market. That’s just a big red flashing light telling me now is *NOT* the time to buy…
My job is way out on the west side of town. The East side just feels a lot more like a place I’d be willing to call home. But, if I’m going to wait this out renting for a couple years, I may even look over in Stansbury Park or something.
If you want to chat off-line Kris, backwards email (will it foil the bots?) is: moc.oohay@redrob_nayr
My wife lived in Stansbury Park when she was a teen.
Since we love just about everything the Wasatch’s have to offer (except for drunk hunters in Oct.), my husband and I would love to move back to SLC in a few years. We grew up there. One thing for sure, SLC real estate is no different — it’s just lagging by about a year. My sister says that four houses around her in the Avenues have sold for $500K+ to out of town people who did not even bother to visit before buying!!! (One of them they didn’t bother to keep the heat on over the winter AND didn’t drain the pipes. Not a smart thing to do to a 100+ yr old house.) Anyhow, my parents in SLC have done well by timing the real estate mkt. It goes up and it comes down, right on schedule, about 1 yr behind So. Cal.
As to rentals, Craigslist hasn’t really made it to SLC — most SFRs are filled via word-of-mouth or the small sign in the yard.
The only other thing is that if you’re not LDS, a big public school like Skyline can be a tough place for kids.
Don’t buy in to the “It’s different here” mantra. If that’s all your Realtor has in her pocket, then you should run.
Also, real-estate agents are incentivized to put you in only in a short-term rental. If you’re planning to wait it out for a couple of years, then you are probably better off looking in the paper. I’ve noticed that prices for rentals advertised in the paper are cheaper than those on Craigslist, although I don’t live in SLC.
I will try this again - my comments sometimes don’t stick. Also try places where people with bigger incomes might hang out. Maybe Whole Foods? The bulletin boards at places like hospitals might work, too. I know that is popular here in Boston.
If you have cash and are not looking at a house as an investment and are willing to “lose” some of your purchase price (perhaps a lot of your cash is previous appreciation anyway) to depreciation, look in an older, close-in, great neighborhood. If you find a house you truly will enjoy, with less than 5 miles of a commute to most anywhere interesting, great schools, buy it. The builders can’t over build the area (except condos which aren’t direct competitors anyway). Demand for this type of housing will come back first in any type of recovery. Further, if gasoline prices go up like some predict (and even shortages some predict) over the next decade, then there will even be greater demand for that type of house.
Good luck with your move Caveat E!
Rentals appear hard to find in my area too. However, I found what was happening was landlords were advertising in teeny local papers or thru word of mouth.
Ask your new employer to ask around the office. HR may help but it would be even better to have co-workers recommendations if possible.
Check out the local universities. Many times profs on sabatical rent out their homes while doing out of country studies. Also I’ve seen people moving into the area get on our town web sites and ask for help.
I’ve seen rentals posted in the library and supermarket. Perhaps they’re keeping their overhead down?
In the end, I realized there was a lot more available than I would’ve known looking at the city’s Sunday paper which for our area was virtually useless.
A lot of smaller individual landlords will only rent thru word of mouth or small sign in the window or yard, because then they don’t have to worry about the discrimination aspect of being a landlord.
Most papers make you agree to not discriminate against any race, color, creed, religion, handicap, etc., whenever placing a classified ad.
Most papers make you agree to not discriminate against any race, color, creed, religion, handicap, etc., whenever placing a classified ad.
—————————
Not just the papers, it’s the law:
http://www4.law.cornell.edu/uscode/html/uscode42/usc_sec_42_00003604—-000-.html
Having sold our place last summer we went up to houses that were up for sale and after talking with them a good number were interested in renting, because they hadn’t sold to at least cover some/all of their mortgage. Of course the spring may not be the best time for that approach as many still have visions of selling by June
Thanks for your post. I’m in a very similar situation here in Pullman, WA. Rents are not high, and rentals are abundant, but most are shabby or noisy student rentals. We have seen very few quality homes for rent, and with only 9000 permanent residents (non-students) there are likely to be only a handful in the whole town.
With a sizable downpayment, we can afford to buy here, but I know that very few people in this town are in as good a position. Looking at long term trends and rents, I’d say housing prices are probably 20% over where we should be: a bit of a bubble, but nothing all that dramatic. Due to very tight zoning, Pullman has historically be a relatively expensive town with stable RE values. However, there is more building going on now than at any time in the past 30-40 years, a ton of lots on the market (120 on the MLS, even more not listed), lots of spec homes going up on all sides of town. Apartment units are also going up like crazy, with a municipal goal of 11% vancancy rates to make Pullman more affordable. In a normal year perhaps 100 SFH change hands in Pullman, and most of these are existing homes. So what are we going to do with the hundreds of new houses in the pipeline?
Do we bite the bullet and buy a home, knowing that we will effectively lose 60K over the next 5 years (300k house)? Or do we wait a year? The problem with waiting is that (1) most lending here is conventional and (2) incomes are very stable historically. So I’m guessing that prices will probably just flatten out (zero appreciation) for 5-10 years until rents catch up to home prices.
Caveat Emptor, have you considered getting a realtor to do some legwork for you in finding a rental? Many of them are half unemployed and would probably appreciate a small commission.
Good Luck! Most realtors–even the starving ones–refuse to touch rentals (excepting those who do rental management as part of their ongoing business). The MLS in most places is a complete waste of time (for the same reason). The paper, driving around, word-of-mouth and even a “rental wanted” ad work best. Working with a realtor will almost guarantee that they are working for their landlord clients–not you. Keep that in mind when they hand you that NAR-written lease agreement (feel free to strike certain clauses).
Also, a note left on the door (better to call or send a letter, but you may need to do some research) of a long-time “For Sale” property asking about possible rental may get a “hit”.
You can also try fliers posted on boards in hospitals. I know some people who prefer not to post on Craigslist because there is an unknown element to it. Try places where people who are generally employed hang out or where those with a higher income go - Whole Foods bulletin boards possibly. It seems that overpriced rental languish on Craigslist and you have to sift through them anyway.
Where I live, the best rentals are through property management companies, with photos and info online
Here’s another. Beazer is being investigated for mortgage fraud by the FBI.
http://www.marketwatch.com/news/story/beazer-homes-shares-falls-report/story.aspx?guid=%7B916A2E34%2DA4BD%2D4F1F%2D981C%2D41EE86937BC4%7D
Not just mortgage fraud. From other coverage of the story:
“The Federal Bureau of Investigation and the United States attorney’s office in Charlotte, N.C., as well as the Internal Revenue Service and the Department of Housing and Urban Development, started an investigation of Beazer Homes last week, a spokesman for the F.B.I. office in Charlotte, Ken Lucas, said. Mr. Lucas said the inquiry involved ”fraud in general” and dealt with corporate, mortgage and investment matters.”
BZH down 10% this morning.
Housing sector in general ugly again today.
Subprime Smackdown: The true reality of the MESS starts to sink in !
Bloomberg: Subprime Mortgage Bonds Sold in ‘06 May Be Worst Ever, S&P Says
Subprime mortgage-backed securities from 2006 may be the “worst-performing in recent history,” with delinquencies on the underlying debt “consistently higher” than in the prior five years, Standard & Poor’s said,.
About 13 percent of mortgages made last year to people who have poor or bad credit are delinquent, S&P analysts Michael Stock and Scott Mason said in a report yesterday, with 6.65 percent of the total classified as “seriously delinquent,” or more than 90 days late. Losses on bonds backed by the loans will be between 5.25 percent and 7.75 percent, compared with 5.5 percent in 2000, S&P forecasted.
“It was the layering of risk,” Stock said in an interview. “There is no equity in the home, no income verification and a first-time homebuyer.”
… And the KICKER IS:
`Severe’ Cuts
Moody’s Investors Service said yesterday that some collateralized debt obligations may face “severe” ratings cuts because they hold subprime mortgage bonds. Even top-rated bonds from CDOs with about average exposure to the securities may have their ratings cut if the underlying collateral is downgraded, New York-based Moody’s said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aEtwcRJfM01Y&refer=home
If Moody’s actually cuts the ratings on these CDOs, all hell will break lose. There will be blood in the streets. Heads will roll.
And I have heard a rumor (just a rumor at this point) that this is going to lead to a massive hedge fund meltdown. Apparently, the losers being the folks who have skin in the hedge funds, not the managers, some of who will take their loot and relocate abroad.
The “wealth transfer” in this case being from the millionaires who put their money in, to those who “managed” the money and raked in the fees.
Many, if not most, who put their money into the hedge funds will probably be able to sustain the loss. Still, that’s gotta hurt.
unfortunately, a lot of pension funds have been invested in Hedge Funds.
So it won’t just be the millionaire from Long Island, it will also be the police officers of Kansas City. (just an example, not a true fact)
If I recall correctly, didn’t the City Pension of San Diego lose big time when Amaranth imploded?
credit destruction is a PITA.
Don’t money market funds utilize MBS in order to offer higher rates to attract more depositors?
in theory the pension funds loses, in practice the tax payer loses
but pension fund investments on hedge funds are in the low single digit. not enough to collapse the pension fund but enough to have a few managers and administrators get fired.
A millionaire may just be some regular guy in the ‘Valley (pick which Cali valley) who bought a regular house 20 years ago. This Cali Valley guy probably cannot well suffer the loss.
i am not so sure. most of them are savvy enough to not put all there eggs in one basket. for one, they probably will not get that rich that long if they are financially stupid.
Most of them are really not that financially savvy at all, which is exactly why they will not stay that rich for that long. When the “value” of their residences decline from $1 million to 1/2 that, and this over a course of years during which inflation will occur, they will no longer be millionaires. And they will not be able to withstand any losses in their investment accounts.
That will be interesting……. wealth transfer from the old stupid and rich to the too smart and over educated hedge fund managers. I look forward to it. Vangard index funds are the way to go. hedge funds too complicated.
http://tinyurl.com/26zhst
MarketWatch
Super-rich investor club shifts away from stocks
High-net-worth members move to investments ‘outside traditional avenues’
“A 3% rule
Over time and as a general rule, Tiger 21 members say they have learned that spending 3% of assets annually to live is the maximum one can spend each year before stressing one’s portfolio and tilting it towards short-term income over long-term gains.
And, they say, holding 9% of assets in cash allows them to withstand three years of market distress without having to liquidate long-term holdings at unnecessary losses.
It’s interesting to note the conservative nature of this asset allocation, especially given the increased weighting toward private equity investments. The data seem to show that while these high-net-worth investors are only willing to shave off 3% of their portfolio for living expenses (at $10 million, let’s say that’s $300,000 a year), yet they are willing to increase their exposure to what seems like riskier investments: hedge funds and private equity instruments.
The reason, they say, is that private equity, to them, isn’t riskier. “Private equity has more value in an illiquid form,” Sonnenfeldt says.
And only 10% of members felt that any recent hedge fund implosions would have a high likelihood of reducing their commitment to the asset class.
This harkens back to good, old financial planning 101, where correlation is considered key to optimizing a portfolio. Sure, for the average investor this means optimally mixing stocks and bonds to reap the biggest rewards with the least risk. But for the wealthy investor, there is simply too much exposure in the capital markets to risk loss. After all, at $10 million, the concern is with wealth preservation. ”
*******
Thought some of you might enjoy this.
Next act: hedge fund meltdown.
palmetto, I posted this before I saw your similar comment. great minds think alike!
hedge fund have been running amok for the past few years, using the yen carry trade to speculate on anything and everything. they disregarded risk because they were playing with opm.
http://www.larouchepub.com/other/2007/3407real_est_hedges.html
Hedge funds, especially those “investing” in real estate, are grabbing for cash to stave off impending disaster.
Interesting stuff — but is their Manhatten rent/value ratio info accurate? Seems pretty low to me (assuming they aren’t talking rent-controlled units).
“The outrageous thing about the Fortress IPO, is that for it, the “value” or market price of the apartments Fortress owns in Germany is calculated as 17.4 times the gross annual rent that tenants pay for the apartments. This is an almost unheard-of rent multiple. By contrast, apartments in New York City have a price-to-annual-rent multiple of 8-9 up to 12 at the highest.”
the rents were stabilized for a long time in germany most of the apts wer owned by state through utilities or energy companies whom didnt really rock the boat and rents were more or less frozen. maybe they will try to raise them but I doubt the would be able to.
feb 07? how come they have not blown up yet?
It’s the hedge fund managers who have been running amok with the money entrusted by their wealthy clients. I have no beef with people being wealthy, provided their wealth is honestly and productively come by. In that case, I say, more power to them.
It is the people who manage and work for the hedge funds that are generally despicable. The article I was reading (not sure of its veracity, that’s why I’m not linking) mentions that certain hedge fund managers are taking their money and moving out of the US, leaving the carnage behind. And I don’t recall the name of the guy, but didn’t we just read on this board about some hedge fund manager who is moving his business to Asia? He was pretty smarmy about it and implied that he was doing so because of the business and social climate in the US and that we’re on the brink of disaster.
So I just put two and two together and realized these guys are spinning it in such a way as to make the US look as if it is making a bad climate for business here. BWAHAHAHAHA! What a self-righteous load of crap! He and others are just masking the fact that they have to get the hell out ahead of the Feds, because of their crimes and manipulation. Well, I’ve changed my minds about these people who want to leave the US and take their “business” with them. By all means, go! China has mobile execution vans (I kid you not, I tried to post yesterday’s USA Today story on it, but I guess it was inappropriate) and they use these vans to execute criminal businessmen as well as political dissidents. I’d suggest that hedge fund managers stay here and take their lumps. The Federal pen is a much better alternative to what China does to people who do what the hedge fund managers have done here. But hey, let them see if they can get away with the same shenanigans in Asia.
These guys may be able to buy their way into a country as Robert Vesco did after looting a fund he ran in the Sixties.
Investor’s Overseas Services (IOS) was the name of the fund, assuming my rapidly-dimming memory is serving me correctly.
They might already have done that. A lot of the hedge funds are claiming Cayman Islands as their home.
http://www.larouchepub.com/other/2007/3410caymans_hedges.html
8282 hedge funds out of 9800 registered at the end of 2006, were headquartered in the Cayman Islands (pop. 57,000).
Would this be preceeded by defaults in the repurchase agreement (repo) market?
Does this mean pension funds, required by the “reasonable man” doctrine not to hold financial instruments below a certain rating, will now sell into a falling market?
And if these are public employee pension funds, with benefits guaranteed, how much will my services be cut or taxes increased to make up the difference — given there is already a hole pension fund managers are trying to close by taking more risk?
Most of the time, they are allowed to hold stuff that gets downgraded but not allowed to buy new issues. They learned in prior downturns that even if you want to eventually sell the time to do it isn’t when the day after the downgrade when everyone in your industry is also selling for the same reason.
My wife wants us to buy a bigger house. She’s smart and savvy when it comes to everything but major financial decisions. We’re within $30k of having the house paid off, the neighborhood is OK and the schools are good. She just wants a bigger house.
The kids have their own bedrooms. We have a separate study. We got 2 1/2 baths. But it’s not as BIG as the houses her friends have bought recently. For instance, we don’t have a game room. (Both my wife and I grew up in houses smaller than what we live in now. I am not sure why big houses are important now to most people.)
The house is 10 years old and needs new carpeting. Large dogs and 2 kids will ruin a carpet pretty quick. So I am using the dogs as an excuse: “We will need to replace the carpet before selling the house. I am not replacing the carpet until the dogs are gone.”
It’s a lame excuse, but I am keeping my fingers crossed that it will give me some time until it dawns on her that we’d be better off staying where we are for a while.
Too bad you have to deal with that. Must be irritating as hell.
Yep. Caveat: The carpet really is BAD. Maybe if I get it replaced everything will be cool.
Maybe get some flea action going. LOL
Or get hardwood. That’s upscale. Might do the trick. Also maybe a kitchen redo with some stainless steel fronted appliances.
I second the kitchen redo idea. We just did one and it made my wife very happy - but she’s pretty easy to please, anyway (she’s stayed married to me for almost 20 years)….
Refreshing the house by replacing the carpet, painting and updating the kitchen is probably the best idea if you are satisfied with the area you live. This type of project can keep your wife busy for a couple years so the next time she starts looking around to buy a house we should be pretty far along in the housing bust.
Lou,
Be sure and post pics of the new house…..
If she HAS to have bigger, then maybe look at adding the gameroom on the back of the house. Construction labor is getting cheaper by the day.
Or gameroom in the basement? MA friends did that …..ya can’t even hear them down there and it really is a beautiful room. Really an idea we’re looking into now that we’re getting close to tween years and they’re not so keen with hanging w/Mom and Dads friends.
How old are the kids? If at least one is a teenager you might get away with telling her the house will be “plenty big” in just a few years.
Or maybe tell her you’ll look into adding on a room to the house. Then just sit tight for a bit while you continue to feed her tidbits about the housing market… and wait for her friends’ ARMs to reset/recast.
I was in the same boat this past year but got the wife to agree to a 2-3 year waiting period and in exchange get an even higher-quality house in our current area than we were planning. Higher end homes should get crushed by builders’ oversupply and the demise of stated income loans. The media coverage now is pervasive enough that she agreed and hasn’t even asked to visit open houses lately.
You could try chaining your wife to the computer and forcing her to read this blog, Kindleberger’s “Manias, Panics and Crashes” or the overview of the US Housing Bubble at Wikipedia (http://en.wikipedia.org/wiki/Us_housing_bubble). What is it about so many women (not all, such as txchick and others here) with the nesting instinct, peer pressure, and inability to see anything but blue skies? And how can you combat emotionalism with reason when they refuse to play by the rules of common sense? Being single has its benefits, and being the captain of my own ship is one. Good luck.
What is it about so many women (not all, such as txchick and others here) with the nesting instinct, peer pressure, and inability to see anything but blue skies?
I think part of it, at least for stay-at-home moms, is that they are the ones in the family who interact with the neighbors on a day-to-day basis. They are the ones who have the friends of their children come over to play. As such, they see and notice every little thing about the house (good and bad) in comparison to the neighbors’ houses. Men who work all day just want a place to come home and crash. Women who live in the house all day want a home.
Luckily for me, my wife knows exactly what’s going on right now and has no interest in trading up. She now understands how all her neighbors have been able to buy whatever they want while we continue to live a meager, comfortable existence.
My wife’’s light bulb went on just a month or so ago. She helps at our daughter’s elementary and related a conversation with another mom there how she and her husband were each worknig 2 jobs to keep up with the mortgage payment and the stress they had. She has been a lot better about sitting this bubble out since then.
You guys are funny. I’m the one trying to convince my husband that our 1575 s.f. house is just fine and that if needed, we can always add on to it. A friend of mine has a 990 s.f. house, that she’ll have paid off within 10 years. Not all women think like that.
And how can you combat emotionalism with reason when they refuse to play by the rules of common sense?
You gotta figure out what END these MEANS (bigger house, more shoes etc) are fulfilling and find out a cheaper and more repeatable, reliable alternative to get to the same ends. And then do it regularly enough. Common sense and logic are more likely to make people dig their heels in.
You could try chaining your wife to the computer and forcing her to read this blog, Kindleberger’s “Manias, Panics and Crashes” or the overview of the US Housing Bubble at Wikipedia (http://en.wikipedia.org/wiki/Us_housing_bubble). What is it about so many women (not all, such as txchick and others here) with the nesting instinct, peer pressure, and inability to see anything but blue skies? And how can you combat emotionalism with reason when they refuse to play by the rules of common sense? Don’t get me wrong, there are plenty of guys that have been caught up in the whole bubble psychology, but being single has its benefits, and being the captain of my own ship is one. Good luck.
Sorry for the double post.
First thought is DON”T !!! As any reader of blog can see prices are falling , much better opportunities await the patient home buyers. I would also look at the long run / big picture. How old are the kids ? Will they be going off to college in a few years ? If the economy hits the rocks (with housing & auto industry on shaky ground this may happen soon). Do you have enough of a financial cushion ? Is retirement approaching (me
“First thought is DON”T !!! ”
First of all, if you need a bigger home and yours is almost paid off, what’s the upgrade going to cost? That’s got to be your first question. The next is whether you plan on making a 10 year move. If not, don’t do it.
If this is a long-term move, what’s $15K if that’s what the house sits over valued? Just make sure you’re getting a good deal relative to prices several years ago…not relative to today.
We bought in December. House was $225K in a neighborhood that prices were in the $300’s during the peak of the boom. Houses are still runing in the $270’s on the high end and $250’s on the low end. Unless we go pre 2001 pricing, we’re going to be fine.
Maybe you should replace the wife and keep the dogs. LOL
True dogs love you unconditionally
What’s that bumper sticker?
“My wife yes, my gun maybe, my dog… never!”
I was thinking of the one that reads:
“Lord, please help me to become the person my dog thinks I am.”
I think you got dog and gun reversed.
I’m in the same situation, less the dogs and the bad carpet. My wife stays a home and I had to pull rank on her when it came to getting a bigger house. I’ve stopped bitching about her spending and have agreed to making some needed improvements to our house. She’s rearranged the furniture in the living room, redecorated a good bit, and seems to be happy for the time being. I’ve promised the bigger house, probably next year….Good luck!
Funny, I was married three times and none of my wives were even remotely “house freeks.”
Focus on all the nice vacations you can go on when you have a low mtg payment.
We rent and by my calculations we save about $1,100 a month by renting. Every month, I put $200 into a vacation fund. This keeps her happy, I get a good vacation and we don’t buy a house. For now.
This sounds like a weekend topic to me: Outlasting the bubble or your significant other; which will go bust first?
I have a small amount of spousal pressure, but as long as we have a good rental I’m o.k.
A good rental is very important in the quest to keep the spousal unit happy.
What I find really surprising today is that two of our long-term HBB’ers are actually considering buying a new (for them) house, right now.
Lou & Caveat Emptor have been around a while and know what’s going on. Kinda makes me sad to see some of our own giving in to (or thinking about) buying — right when the credit bubble is beginning to collapse. Guys, this is what we’ve been waiting for for so very long.
Hang tough. The time will come when you can buy your target house for 35-50% less than peak prices. Let’s see where this whole thing goes — make sure we do not enter a depression first — before buying and taking on more debt.
Just MHO, but good luck with whatever you decide!!
Does she like to shop and spend money on clothes, household items, knick-knacks (sic)? Is she willing to give that up to pay a larger mortgage, taxes, energy bill?
“It’s a lame excuse”
you do what you have to do. For the most part, my wife is rational on housing, but every once in a while, the nesting/home improvement/showy bauble demon posseses her, and I have resort to such tactics. Luckily, the unbridled optimism about housing in our area is having the opposite effect on her, ie she realizes how much in denial some of the people here are.
Oh, what’s with you people. Don’t you know women? Lou, just tell your wife: Darling, do whatever you want, I totally trust your taste. Get us some nice hardwood and an updated kitchen. Then work out a budget together. I guarantee you she will do magic with it and become more attached to this house. Boy, sometimes I despair of men. That carpet argument is stupid. It will only make her hate the house.
But it’s not as BIG as the houses her friends have bought recently.
Very easy solution: Buy her something big and sparkly she can show off to her friends.
Like a tin foil helmet perhaps??
ROFLMAO!!!
When arguing with women, it seldom works to use obviously unrelated excuses. It just makes us mad.
Try getting her to understand it at a fundamental level instead.
http://www.youtube.com/watch?v=Ubsd-tWYmZw
My wife wants us to buy a bigger house. She’s smart and savvy when it comes to everything but major financial decisions.
I’m guessing wives have played a disporportionate role in the financial downfall of most FB families. Too many have absolutely no innate caution when it comes to homebuying - just a galaxy-sized sense of entitlement, a decision-making process driven by emotion not logic, and a baffling misconception that female realtors are their friends.
When some on this board complain about the calibre and intelligence of their wives, all I can think of is that there are some interesting parallels to the FBs complaining about their houses. There are plenty of good, smart, loyal, rational and even thrifty and money-wise women out there. If you are complaining about the one you live with, it’s because you, like so many FBs, did not do your homework. A spouse is for life: think long and hard before you commit and evaluate their qualities with a clear eye to the long run instead of with the hazy judgment of infatuation. In marriages, as with mortgages, you get what you deserve. Of course, this applies to women choosing male spouses too, but funny how few complaints the women HBBers make about their men.
Right on, bublicious!!!!!!
In marriages, as with mortgages, you get what you deserve.
I agree completely.
I’m guessing wives have played a disporportionate role in the financial downfall of most FB families. Too many have absolutely no innate caution when it comes to homebuying - just a galaxy-sized sense of entitlement, a decision-making process driven by emotion not logic, and a baffling misconception that female realtors are their friends.
What a load of BS. I handle all the finances in our house. We have no debts except the mortgage and are paying for my husband’s degree out of pocket with no loans and no employer assistance.
In marriages, as with mortgages, you get what you deserve.
I agree completely.
I’m guessing wives have played a disporportionate role in the financial downfall of most FB families. Too many have absolutely no innate caution when it comes to homebuying - just a galaxy-sized sense of entitlement, a decision-making process driven by emotion not logic, and a baffling misconception that female realtors are their friends.
What a load of BS.
stupid double post
Time Is Running Out to Win ‘Gadget Toilet’
Wednesday March 28, 3:00 am ET
Roto-Rooter’s Pimped Out John Sweepstakes Enters Final Days
CINCINNATI, OH–(MARKET WIRE)–Mar 28, 2007 — The most talked about toilet in the history of toilets is about to find a new home when registration for Roto-Rooter’s Pimped out John sweepstakes wraps up at the end of the day on Monday, April 2nd.
Roto-Rooter, a plumbing and drain cleaning company, built the Pimped out John as an exercise in hedonism to take the toilet to new technological heights by equipping it with more gadgets than a Swiss Army knife.
The sweepstakes kicked off on Thomas Crapper Day in January and registration will end next Monday. One lucky winner will be announced on National Plumber’s Day, April 25.
The Pimped out John is a high-end Kohler® Cimarron(TM) toilet that is fully loaded with the following luxury components on ergonomically placed robotic arms. Everything is within easy reach of the user:
– Philips(TM) 20-inch LCD flat panel TV
– Xbox(TM) 360 video game system
– Philips(TM) DVD player
– Gateway® EMachine(TM) laptop computer on
fully articulated robot arm
– iPod(TM) with 30gb hard drive and stereo
docking station with toilet paper
dispenser
– Tivo(TM) digital video recorder (DVR)
– Avanti(TM) refrigerator with beer tap,
stocked with drinks and snacks
– Magazine rack with subscriptions to
Sports Illustrated, ESPN and GQ
– Bike pedal exerciser
– Cup warmer / cooler
So far more than 290,000 sweepstakes entries have been received at http://www.RotoRooter.com, thanks in part to amazing interest from around the world as far away as Pakistan. The Pimped out John was mentioned in hundreds of newspapers, radio and TV shows including the BBC, NBC’s “Today Show” and the “Tonight Show with Jay Leno.”
Source: Roto-Rooter Services Company
Roto-Rooter points out that the average person spends one year, four months and five days on the toilet in his or her lifetime. The company believes the time can be better spent on its one-of-a-kind Pimped out John. “We’ve found that men love the idea but some women think men already spend too much time on the toilet,” said Roto-Rooter’s VP of Marketing, Steven Pollyea. “We like to joke that the Pimped out John is equipped with everything except for a fax machine to receive the divorce papers.”
Roto-Rooter was established in 1935 and today is the largest provider of plumbing and drain cleaning services in the United States and Canada. Roto-Rooter is a wholly owned subsidiary of Chemed Corporation. Roto-Rooter operates businesses in more than 110 company-owned territories and more than 500 franchise territories, serving approximately 90 percent of the U.S. population.
Image Available: http://www.marketwire.com/mw/frame_mw?attachid=453787
and people call Americans gluttons and wasteful!
I don’t see a single item on that toilet that isn’t essential.
The pic is classic
ROFL.
Talking toilets…
Why does virtually every toilet in New Zealand, a tiny country of 4 million people~
Have 2 flush buttons on it, one for #1 and one for #2.?
Button #1 is a 1/3rd flush and Button #2 is a full flush.
They decided they didn’t want to waste water.
Why have you never seen one of these in our country?
“Why have you never seen one of these in our country?”
Every new toilet has this feature:
Flush once for button #1.
Flush 2, 3, or 4 times for Button #2.
Thank you congress!
My parents have them in their house.
Aladinsane, I didn’t even know there was such a thing as a two button flush for a toilet.
What am I, made of money? I’d have to give up the flat-screen attachment.
Don’t forget the essential bass boat.
S&P under the 50 dma again. Wash. Rinse.
Good article on CNN.com
http://money.cnn.com/2007/03/27/real_estate/subprime_losses_spike/index.htm?postversion=2007032716
CRL’s analysis rebutted the mortgage industry’s claims that the increase in subprime loans has opened up home ownership for millions of low income buyers. Instead, CRL contends, relatively little subprime lending is used for first-time home buying.
CRL contends that few subprime loans went to first time buyers, a notion that was seconded by Emory Rushton, chief national bank examiner for the Office of Comptroller of the Currency, in his testimony before the Finance Committee. He pointed out that Mortgage Bank Association figures revealed only 11 percent of subprime loans went to first-time buyers last year.
CRL says the record going back to 1998 is even worse; only 9 percent of subprime loans went to first-time buyers in the nine years through 2006.
Yep, lots are HELOCs for people with six figure incomes who blow it all and then some, and need to pay off credit cards. That’s what my brother, who briefly worked in the industry but fled to a more socially useful career, told me.
Are you suggesting that the “debt consolidation” offers seen on TV are financed by subprime loans?
I fired off a couple of emails to my senators yesterday after reading that article. So Dodd wants us to bail out folks who engaged in reckless cash out refinancing?
Grim Reality / PIMCO´s Bill Gross
on housing, fed, and the economy
http://immobilienblasen.blogspot.com/
From Gross’ article:
http://www.pimco.com/TopNav/Home/Default.htm
“This study’s important conclusion for PIMCO and our clients is that if home prices in the U.S. have peaked, and are expected to stay below that peak on a real price basis for the next three years, then the Fed will cut rates and cut them significantly over the next few years in order to revigorate an anemic U.S. economy. Strong global growth (not part of this study’s assumptions) may temper historical parallels and provide a higher floor than would otherwise be the case.”
Very interesting. The grasshopper fiddling party (while Rome is burning) will continue for another 3 or 4 years of credit bubble and will be a great boost for precious metals if Bill Gross is right. Also for stocks. I’m cautious, but I’ll keep my asset allocation target at 10% metals, 25% government securities, and 65% stocks. The nice thing is that by keeping my balance at those ratios, I will sell off the overvalued gains and buy more of the undervalued.
“65% stocks”
I’m still thinking that reduced consumer spending is the next shoe to drop. Christmas season ‘07.
The Fed will re-spike the punch bowl even at the risk of inflation, this says, to prevent housing prices from falling.
The inflation, of course, would make home values descend rapidly in real dollars without a nominal decline, shifting the pain from the homeowner to the lender.
This is the inflation solution — devalue all debt.
But I thought that inflation was the Fed’s primary concern? Me confused…
But I thought that inflation was the Fed’s primary concern?
It was, until it got trumped by something even more scary.
“would make home values descend rapidly in real dollars”
That only happens if you see wage inflation as well…are there signs of this comming?
And the next paragraph shows what pimco is really tring to say, Buy Bonds. And of coures pimco sells bonds.
” Nonetheless, prices for houses that I can see and touch every day outside my office are morphing with bond yields inside my computer screen to produce a reality show that speaks to an ongoing bond bull market of still undefined proportions.”
William H. Gross
Managing Director
What can the Fed do about the following? Cutting interest rates could be seen as stimulative, especially given inflationary pressures, which would make long-term mortgage rates go up, not down.
“To prevent a double-digit decline in prices, PIMCO’s statistical chart suggests that mortgage rates must decline a minimum of 60 basis points and the sooner the better. The longer yields stay at current levels, the more downward pricing pressure will build as foreclosures/desperate sellers dominate price trends as opposed to prospective buyers. While the Fed, as pointed out in last month’s Investment Outlook must be cognizant of an array of asset prices in addition to housing, homes are the key to future equitization trends, and fundamental therefore to the outlook for consumption.”
NYT sez New Century may take the cure this week
http://www.nytimes.com/2007/03/28/business/28lend.html?_r=2&ref=business&oref=slogin&oref=slogin
So often that light at the end of the tunnel is no more than the headlamp of an oncoming freight train…
A North Dallas real estate newsletter I subscribe to says existing home sales for homes under $200K dropped by 33% compared to last year. Homes priced between $200K and $300K dropped 20%.
Is anyone else seeing similar behavior in their local market? Anyone know the cause(s)? My guess is it’s primarily due to builder incentives on new homes, but I’m just a guy with a couple neurons to rub together — anyone have any “real” information?
Can I have a link to that? I monitor the DFW market.
Sure, it’s right here.
In the subdivision I bought in Tampa area last year, my neighbor closed for 360K last August. I, being a bubbleblogger, knew the skinny on the builders and beat them down 80K on mine (identical model with more upgardes) by threatening to walk. I closed in September so my neighbor lost 80K in a month. She was an inch away from crying when she found out what I paid (BTW i had the pressure from the wife to buy thing - I only went through with it because I had lots of bubble cash from selling my NY apartment and beat builder down to $100/sq. ft, which is 2001 prices where I am at). Just recently I researched on the county appraiser site and found my first 2 flippers in the development who sold at a small loss, so the party is getting started here. There are probably 30 flippers in here who will get burned.
This is a great post, on so many levels.
“A spokeswoman for New Century, Laura Oberhelman, declined to comment.”
She was too busy cleaning her desk out.
No, she was on her cell. [Table six needs more coffee and table eight's food is "up". Gotta go!!]
I think we’re about to get back to the old definition of mortgage:
Death Pledge
mort·gage /ˈmɔrgɪdʒ/ Pronunciation Key - Show Spelled Pronunciation[mawr-gij] Pronunciation Key - Show IPA Pronunciation noun, verb, -gaged, -gag·ing.
–noun
1. a conveyance of an interest in property as security for the repayment of money borrowed.
2. the deed by which such a transaction is effected.
3. the rights conferred by it, or the state of the property conveyed.
–verb (used with object)
4. Law. to convey or place (real property) under a mortgage.
5. to place under advance obligation; pledge: to mortgage one’s life to the defense of democracy.
[Origin: 1350–1400; earlier morgage, ME
Casey Serin’s in the making…
http://www.suntimes.com/classifieds/homes/homelife/311886,HOS-News-open25.article
All this bailout talk is likely to reenergize the speculators…
The speculators will not get far…there is no “rocket fuel” for fueling the next wave.
The article reads like an add for the “The Gallery at Gateway Centre”.
By the way, do they spell center “centre” in Chicago, or is the “centre” spelling a marketing spelling that means “stainless steel and granite”?
I’m assuming it’s the SS&G spelling> I haven’t noted it as a trend in Chicago.
A lot of RE articles in the local papers are basically ads for the developements. Most of the bubble news we get here in Chicago is national news. Then they throw a few sentences in regarding local ramifications which usually sounds like, “don’t worry, everything is OK here”.
Save the Sheeple
http://wallstreetexaminer.com/blogs/winter/?p=575
Lest anyone think that interest rates are going to fall, there are big forces mounting in the inflation arena.
http://money.cnn.com/2007/03/27/news/economy/corn_prices/index.htm?postversion=2007032807
Corn (and grains) are used in a lot of products.
We’re plenty corny in this shoppe! And oily too as of yesterday afernoon! Yeeehaw! Look at doz indices tank!
You goin’ native on us?
Ha ha ha. I’m a little giddy, sensing “the big one” may be coming down the pike soon. The one I’ve thrown away so many put premiums waiting for !
May/June horizon?
Txchick, how are you positioning for “the big one”–I’d very much like to know!
The increase in corn prices resulted in fertilizer price increases and fertilizer is in short supply. Farmers will have to work harder. The farmer will make no more than last year as a result of these price increases. Most of the fertilizer now comes from the middle east or Russia. So much for Ethanol as a substitute for oil.
There will be significant price increases in food this fall as well as poorer quality meats available.
“So much for Ethanol as a substitute for oil.”
It never made sense to me, anyway, to use oil (mechanized farm implements and fertilizer) to produce food (corn) which is then used to produce an oil substitute. There has to be a bevy of politicians behind the scenes making loads of dough off this hairbrained scheme.
There has to be a bevy of politicians behind the scenes making loads of dough off this hairbrained scheme.
Get Stucco, you bet there are, here in the US and in Brazil. Also, there are thousands of beautiful irreplaceable trees coming down in the Amazon because of that and hundreds of thousands of acres of desert in the making. God save us from ourselves.
“Most of the fertilizer now comes from the middle east or Russia.”
I was wondering if anyone had enough of a farming bckgd to explain why the U.S. can’t produce its own nitrogen based fertilizer. One of my greatest hopes for this economic slowdown is that we return to our own manufacturing/production.
I have a farm. Much of the fertilizer is a by product of natural gas. I use anhydrous ammonia - plentiful but it has gotten expensive. However many farmers use urea (more concentrated, safer to work with)
from yesterdays financial Times
“The US now needs to import this type of fertiliser as many of the country’s petrochemical plants that made urea, a nitrogen-containing compound, were shut down when US natural gas prices spiked to then record highs in 2003. Urea is made from ammonia, which is a derivative of natural gas.”
http://tinyurl.com/2o6dov
http://www.larouchepub.com/other/2006/3322_ethanol_no_science.html
Ethanol is a gigantic fraud perpetrated on the gullible US public by the food cartels.
Corn is the new bubble!
Unfortunately the cost to farm corn is now over $3.00/bushel (on a 200bushel/acre farm) otherwise you would be right. The cost for everything involved with agriculture has gone up. So for farmers like the rest of the workers in America - income has not changed in 6 yrs.
Hoz:
You don’t mind being my very own personal “Green Acres” eyes and ears, do ya?
No Problemo - Aladdin Sane : But only Corn and beans - no wheat, oats sorghum etc.
Hoz, so who’s getting the gazillion dollars in subsidies? Is it just the big guys?
“In order to make decisions people acquire information. This is a costly process, constrained by the limits of the human mind in the acquisition and processing of information. However, individuals act by using knowledge and not information. Personal knowledge is the fruit of the subjective elaboration of external information which start from perception and representation and end up in actions.” Salvatore Rizzello
Nice quote…
I’ll have to get up to speed on things Rizzello~
Thanks.
Rizzello is in a newer field of economics theory dismally called “Cognitive Economics”. Current economics theories (Austrian, keynsian etc.) stumbles or trips or falls or collapses when confronted with “Why do people spend more than can rationally be expected.”
and to Cassiopeia
I will try to answer your query tomorrow in detail. But in short the ADM, ConAgra, Bunge, Cargill etc. are making windfall profits from ethanol production.
Oh, damn, I knew it, I just knew it. Those “seven sisters’ or whatever they are called are a scourge on any land they descend upon.
I’ll look for your informed opinion. Thanks.
From a letter to the Mogambo Guru to explain hedonic inflation
“Dear Mogambo, I’m afraid you still don’t have this substitution thing down. You see, as the cost of food rises, people will ’substitute’ eating (which is expensive) with starvation (which is free)! Therefore, as the price of food rises, the CPI decreases. I hope this helps.”
http://tinyurl.com/3bds94
So we don’t have to worry about inflation at all.
Harsh
Reality
An Article on Sen. Dodd, for all you fans out there.
http://www.lewrockwell.com/rozeff/rozeff146.html
Paul
Good link, Paul. Thanks!
When I open Explorer it goes to the msn main page news. The headline reads, “Extreme tax write offs: how to deduct a big-screen TV, T-shirts & more.” I am not religious, but we are all going to hell.
“I am not religious, but we are all going to hell.”
That’s the funniest thing I have read today.
Hey kids! It’s not different in NYC -surprise surprise!
http://www.nydailynews.com/news/2007/03/28/2007-03-28_set_up_for_a_fall-3.html
In some areas of South Jamaica and Bedford-Stuyvesant, as many as 10 homes per block faced foreclosure last year.
The reason: subprime mortgages offered by unscrupulous real estate brokers and predatory lenders, according to a new study on the epidemic of citywide foreclosures.
The crisis has even spawned a new group of real estate predators that offers to counsel homeowners in default, or “help” them refinance their homes.
In neighborhoods like Brooklyn’s East New York, signs have sprouted on street poles offering cash on the spot to buy homes in foreclosure.
More than 9,000 New York City home owners faced foreclosure last year - an astounding 50% increase over 2005 - and that number has skyrocketed even higher during the first months of this year.
Mortgage lenders have filed 3,116 new motions to foreclose against delinquent homeowners since Jan. 1, according to a soon-to-be released study by the nonprofit Neighborhood Economic Development Advocacy Project (NEDAP).
Our city is now on track to surpass 15,000 filings this year, more than double the total two years ago, according to the study, which examines one- to four-family homes.
Ken Rosen: We are in the “first inning” of housing price declines.
Hottest markets (SoCal & FL) will see price declines of 5-15 percent over the next two years.
Care to catch yourself a falling knife?
http://www.marketwatch.com/tvradio/player.asp?guid=%7BCD303452-3CC6-4CE0-8BF7-E36689A6F803%7D
P.S. His price decline scenario assumes there will be no recession over the next couple of years…
Rosen finally got some religion.
Except I disagree that it’s only going to be a two year decline of “5% to 15% in formerly hot markets” (Florida, Las Vegas, Phoenix, San Diego). I think we are in the second inning of a much longer game (he says “first inning” in a two year decline).
He also downplays recent price growth in San Francisco, saying it wasn’t very strong, though I wonder what he thinks of the earlier bubble (’98-’01) in housing here due to dotcom funny money. He also, interestingly, thinks that “Web 2.0 VC money” (the definition of “funny money”) is currently having an impact on housing here.
I don’t see that happening yet in any big way.
“I think we are in the second inning of a much longer game…”
Agreed. First inning started in Spring 2005, when Fed speeches started dropping hints to speculators that the housing boom might soon be history…
“A couple of years ago I was fairly confident that the rise in real estate prices primarily reflected low interest rates, good growth in disposable income, and favorable demographics. Prices have gone up far enough since then relative to interest rates, rents, and incomes to raise questions; recent reports from professionals in the housing market suggest an increasing volume of transactions by investors, who (along with homeowners more generally) may be expecting the recent trend of price increases to continue. Even so, such a distortion would most likely unwind through a slow erosion of real house prices, rather than a sudden crash.”
http://www.federalreserve.gov/boardDocs/Speeches/2005/20050422/default.htm
Also predicts homebuilder share prices to drop another 50% from here…
Just the beginning … nowhere near stabilization… need to get back to 2003 levels of production for sustainability…
The spindoctors at marketwatch.com managed to garble Rosen’s message in their byline — he said there will be price declines over the two years, which will be “the first inning,” not that the slump could last two years. Presumably there will be eight more innings to go after the first inning.
“Price slump has a long way to go
Ken Rosen, of the Fischer Center of Real Estate at Berkeley, says the home-price slump is only just starting, and could last two years.”
I wonder about the new bankruptsy laws… as I understand them, those making more than the medium (state) income will need to report to the Justice Department for 7 years of (partial) repayment.
I have 2 questions…
1) Are the new laws going to be force FB’s to go into IRA’s or 401k’s after they declair BK?
2) Are loans that are “sloppy”… (ie- filled with lies like stated income, fake rental agreements etc.) going to be investigated and turned into a criminal charge… then forcing the buyer to go into retirement fund?
I keep thinking of ways to make money on this collapse… Perhaps a mortgage auditing business would be a great service right now…
Any thoughts??
Joel, sorry if this is a repost.
You win Door Number 2: Getting at those formerly untouchable assets. New profession, projected high success rate, very high transaction rate.
http://www.law.com/jsp/article.jsp?id=1174554223354
VERY interesting…
Bottom line is “IF” you (FB or loan broker) fudged the loan application regarding income, rental, assets or other… and it can be proven in court.. you could have your retirement up for grabs.
Now.. who wants to invest in a fraud-investigation firm that to find these FB’s fraudulant loan docs…?
Anyone… ??
VERY interesting..
Bottom line is “IF” you (FB or loan broker) fudged the loan application regarding income, rental, assets or other… and it can be proven in court.. you could have your retirement up for grabs.
Now.. who wants to invest in a fraud-investigation firm that to find these FB’s fraudulant loan docs…?
Anyone… ??
VERY interesting…
Bottom line is IF you (broker or buyer) lied on your application regarding income, rental, assets etc…. you can be liable for damages and the mortgage holder can go after your retirement account…
Anyone want to invest in a fraud investigation firm????
J
PS- sorry if this is a repost but my computer is acting funny..
I’d be interested. Been thinking along those lines, myself.
You can e-mail me at jo7878 at aol dot com (just put it together, written to avoid spam).
U.S. stocks fall sharply on Fed chief inflation talk
NEW YORK (MarketWatch) — U.S. stocks fell sharply on Wednesday, sending the Dow Jones Industrial Average down by over 120 points, after the chairman of the Federal Reserve reiterated concerns about inflation, disappointing investors hoping that weaker growth would soon push the Fed closer to cutting interest rates.
http://snipurl.com/1e07m
Anyone else think that Bernanke is trying to tell the market they completely misinterpreted the Fed’s remarks last week?
“Anyone else think that Bernanke is trying to tell the market they completely misinterpreted the Fed’s remarks last week?”
It would not be the first time…
Bad Ben made Goldilocks cry. Bad Ben, bad!
Let’s see Goldilocks throw a tantrum, fling herself sobbing onto the floor, twisting around and screaming.
A proper liquidity withdrawal being just the opposite of the sugar rush.
Ron Paul for President
“We can’t tax, borrow, and inflate forever. That’s what we’ve been doing, and our obligations are overwhelming.”
http://www.lewrockwell.com/orig5/galles6.html
He’s gaining support slowly. Despite the fact that he has had ZERO pub in the media. Zogby has him at 3% behind only Giuliani, McCain, Mitt Romney and Fred Thompson. Thompson isn’t even running, Romney’s star is fading fast, and McCain and Giuliani are going to have big problems with the social conservatives.
Just wait until the debates start and people get a chance to see Ron Paul discuss the issues. He will make the rest of the group look like fools. I’m beginning to think he has a legitimate chance to win this thing despite all the cards stacked against him.
They won’t allow him in the debates for some yet to be determined reason. I support him, just don’t think the PTB will allow him a toehold.
He’s already scheduled to debate in the NH primary on April 4 that will be televised on CNN.
Sorry, I meant the NH debate.
Didn’t hear that, thanks. I hope it doesn’t turn into another Perot-like election though.
We can only hope so. Hello Perot ‘92 and another Clinton in the WH.
(As a left-libertarian I think half of what Paul says is awesome and half awful).
I’m with you on that, Troy. Left-leaning libertarian here.
Would not mind at all seeing Ron Paul win (not much better to vote for), and would like to see how some of his ideas might work when put into action.
Time for some new blood in the White House.
Maybe he can hook up with the Comptroller General.
javascript:cnnVideo(’play’,'/video/bestoftv/2007/03/27/pysk.david.walker.cnn’,'2007/08/15′);
This guy is like Pop waiting at the door with his belt if you get home after midnight.
Here is some first-rate perspective on the subprime lending bust from someone who has seen it all before, and also is familiar with financial history:
———————————————————————————-
Hearing on Subprime and Predatory Lending
By Alex J. Pollock
Posted: Wednesday, March 28, 2007
TESTIMONY
Subcommittee on Financial Institutions and Consumer Credit (Committee on Financial Services, U.S. House of Representatives)
Publication Date: March 27, 2007
Subprime Mortgage Lending Problems in Context
Madam Chairman, Ranking Member Gillmor, and members of the Subcommittee, thank you for the opportunity to testify today. I am Alex Pollock, a Resident Fellow at the American Enterprise Institute, and these are my personal views. Before joining AEI, I spent 35 years in banking, including 12 years as President and CEO of the Federal Home Loan Bank of Chicago, and am a Past President of the International Union for Housing Finance. I have both experienced and studied many credit cycles.
As we all know, the great house price inflation of the past several years has topped out, and the unsustainable expansion of subprime mortgage credit which accompanied it has shifted distinctly into reverse. As many people have pointed out, the market is itself correcting sharply and rapidly, if belatedly. The subprime boom is over; the bust is here. Former enthusiasm has been replaced by large financial losses, the bankruptcy of subprime lenders, layoffs, accelerating foreclosures, fear, a liquidity squeeze–and of course recriminations, some well deserved.
What was recently seen as “creative” and “innovative” democratization of credit is now viewed as misguided and culpable bungling or worse.
Historical Patterns
All these elements of the current subprime mortgage lending bust display the classic patterns of recurring credit over-expansions. Such credit celebrations are based on optimism and a euphoric belief in the ever-rising price of some asset class, in this case, houses and condominiums, providing a sure-fire way to make money for both lenders and borrowers. They are inevitably followed by a hangover of defaults, failures, dispossession of unwise or unlucky borrowers, revelations of fraud and scandals, and late cycle regulatory and political reactions.
In the general pattern, nothing changes. You would think we would learn, but we don’t. As the great student of financial behavior, Walter Bagehot, observed in 1873:
“The mercantile community will have been unusually fortunate if during the period of rising prices it has not made great mistakes. Such a period naturally excites the sanguine and the ardent; they fancy that the prosperity they see will last always, that it is only the beginning of a greater prosperity. . . Every great crisis reveals the excessive speculations of many houses which no one before suspected.”
http://www.aei.org/publications/filter.all,pubID.25857/pub_detail.asp
Great commentary on the deep roots of the subprime mess:
“In economics, nothing is ever free. To preserve the fixed rate mortgage no longer provided by savings and loans in the 1980s, it was necessary to depend on vastly expanded securitization. Securitization typically breaks the link between the originator of the mortgage loan and who actually bears the credit risk. This usually results in riskier and less careful lending.
The financing engine of the subprime mortgage boom was securitization. This structure has greatly suffered, as is now clear, from just this break in credit decisions from credit risk bearing.
I believe that in an ideal mortgage finance system, the loan originator should always maintain a significant credit risk position in the loan, which creates a superior alignment of incentives– this is always my advice to developing countries as they consider housing finance ideas. The subprime mortgage financing system is very far from this ideal.”
“The financing engine of the subprime mortgage boom was securitization.”
It sounded good at the time…
“Periods of very rapid house price inflation result in greater defaults and losses than those of steady house price movements.”
So much for trying to fix the mess by respiking the punchbowl to reflate the housing bubble…
Very important to the subprime bailout debate:
‘There has been recent discussion in Congress and elsewhere of the possibility of some kind of fund to refinance defaulted subprime mortgages. The FHA is often mentioned in this context, although it is a credit insurer, not mortgage investor. Also, its delinquency rate is at the same level as the subprime sector, which suggests that loosening its credit standards further may not be the best idea. And we should certainly not be bailing out subprime lenders and investors–they should be on their own.
In considering this issue, I have been able to find one historical precedent: the Home Owners’ Loan Corporation (HOLC), created by the Home Owners’ Loan Act of 1933. In the midst of the housing finance system collapse of that time, the Act was to “protect the small home owner from foreclosure and relieve him of part of the burden of excessive interest and principal payments.” Giving its bonds in exchange for defaulted mortgage loans, it provided refinancing for about 20% of U.S. mortgages. HOLC ended up itself foreclosing on about 20% of its own loans. Upon liquidation in 1951, it returned a small surplus to the Treasury.’
“As I said, a good lender wants an informed and understanding borrower. Just as you get a prospectus for an investment, you should have to get a one page form something like this before you enter a mortgage loan agreement.”
This sounds great, except for one problem: The aforementioned securitization made it far less profitable to be a good lender. So long as you could securitize the loans, what difference did it make whether the borrower was informed and understanding, or whether the borrower had a snow ball’s chance in hell of repaying the loan, for that matter?
I would like to see the design of a one page form which gives the essentials of the loan, which would be given to every mortgage borrower a week before the closing. This page should contain the following:
* Amount of loan
* LTV ratio
* Final maturity
* Prepayment fee, if any
* Balloon payment, if any
* Points and closing costs
* Initial rate on loan in % and monthly payment in dollars
* How long this rate is good for = when higher rate starts
* Fully indexed rate on loan in % and monthly payment in dollars
* Your household income on which this loan is based
* Initial monthly payment as % of income, and payment plus taxes and insurance as % income
* Fully indexed monthly payment as % income, and payment plus taxes and insurance as % income
* A name, number and e-mail for you to contact with any question
* An authorized signature of the loan originator
* The signature of the borrower.
Unfortunately, common sense is not so common.
Why do we allow ourselves to surf on the web @ rates of sometimes 1/100th, as fast as the rest of the world?
Parable alert:
When I first started traveling, landlines in many countries were pathetic, truly.
You might wait months or years to get one. This situation never improved.
Until cell phones came along.
Things Change
Hey America,
You may think i’m down on you, but not really.
I’m the patriot you never saw coming.
I’ve watched you dumb yourself down to the point where kids value “ring tones”, somehow?
Mother Nature (always bat’s last) is never far from my mind, and she is your Mother as well.
When we do bad things, like say the Habsburgs and their little inbreeding problem, resulting in Leopold, The Hogmouth, who had a rather amazing deformity, as evidenced by the picture of a coin, in this link: http://en.wikipedia.org/wiki/Leopold_I,_Holy_Roman_Emperor
You upset the natural cycle of life.
We tend to be really down on inbreeding today, still.
For good measure.
Now, being a coin geek, I know that every last European Duchie, Kingdom or what have you, all issued coins and most every ruler looks like tom cruise, (hopefully not that vapid) because if your mug was on every piece of money, wouldn’t you want it to look good?
For poor Emperor Leo,
They couldn’t hide what had happened.
Any lineage of Leopold?
I apologize for spilling the beans.
I’ve just shorted AHM because of their 50% exposure to option-arms. Does anyone else have some option-arm shorting candidates?
The Dow, Nasdaq and S&P
LOL! Tell us how you really feel TXchick.
Except for the metals. I would not short any type of metal at this time.
Hoz:
Which one of us is Tweedle Dee and which one of us is Tweedle Dum?
I am dum. Dum dee dum dee dum
Wouldn’t short oil either.
Since they move together in lockstep, I guess it doesn’t matter which of the headline U.S. indices you choose to short…
QID ??
Slightly off topic, but found this on a stock chat board regarding Dendreon (DNDN), which has a pivotal drug review with the FDA:
http://www.investorvillage.com/smbd.asp?mb=971&mn=53708&pt=msg&mid=1771962
“Make a choice, buy in or not. It’s better odds than Vegas. I sold all holdings and moved to DNDN. 100%. I still don’t have much, my account size won’t even let me buy calls, so a loss won’t kill me. But if this gets approved and eventually realizes 50% of the potential within a year or two, I’ll have a nice downpayment on a foreclosed California home… Not a bad gamble.”
DNDN has whacked a lot of people over the years and this dude will just be more roadkill.
Mizuho Leads $4.9 Billion Bailout of Orient Corp (Update2)
By Mariko Yasu
March 28 (Bloomberg) — Mizuho Financial Group Inc., Japan’s second-biggest bank by assets, agreed to lead a 578 billion yen ($4.92 billion) bailout of Orient Corp., after the credit-card company forecast a loss.
“Mizuho is being aggressive writing off bad debts and that’s good,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo. “But why do they want to be in this business if it’s never any good? Maybe they are too far in to get out.”
http://www.bloomberg.com/apps/news?pid=20601080&sid=a08iA3y4JTzY&refer=asia
Maybe they are too far in to get out…
By the way,
‘New-York based Morgan Stanley and an investment fund run by Kohlberg Kravis Roberts & Co. are also taking part in the rescue.’
Say no more…
Wow, a Japanese bank needing a bailout. Interesting.
I volunteer @ the local museum and it’s a quiet task…
People stay away in droves~
I get to read a lot. I absorb everything.
Where I live, about 2,000 native Americans lived peaceful lives, they wanted for nothing. For @ least hundreds of years, if not longer.
The Californian Indians have never gotten much press, except for Ishi… (Ishi in 2 Worlds)
And I always found it interesting that of all of our 50 states, California had the most Natives, on a per capitia basis…
Yet, until they started showing themselves again, in the guise of being casino owners, (my favorite is the san manuel band of mission indians, the whole double handful of them) I’ve never really seen any Indians in California, except for that guy @ Knott’s Berry Farm, you could get a picture of yourself with?
Segwaying madly, sorry about that…
Those 2,000 indians?
We like to think that we had to kill every last indian, as we had deluded ourselves after the fact, “The only good Indian is a dead Indian”.
But with my readings (Hat tip to Jared Diamond, you made me think harder) indicate that the local indians and us honkeys got along spendidly, until 1866…
The Indians started dying. Lots of em’
The few white folks around?
What was it, that they are doing differently than us? and are we in danger?
Every Indian in town had a sweatlodge, their shower or bath, if you will. We started tearing down the damned sweatlodges, surely, that’s why the people are dying?
What was killing them?
Measles.
Their immune systems weren’t up to snuff, and something that merely incapacitates us for a week, once, when we are kids…
killed off the Indians in my town and every other area of California.
How’d the locals take it?
I read an account of a “Ghost Dance”, some 25 miles away from me, in 1870.
As many as 3 or 4 thousand Indians, the ones that survived Measles (it would never be a killer again, once you’ve survived, you’re good to go on living, down the line, generationally)
Would hold 3 to 5 day nonstop dances, trying to conjure back loved ones, that had perished, because of Measles.
As far as I know, they met with little success.
Here is the next shoe to fall. Countries buying oil in Euros, not Dollars.
http://business.scotsman.com/latest.cfm?id=474362007
China shifts to euros for Iran oil
By Chen Aizhu
BEIJING (Reuters) - China’s state-run Zhuhai Zhenrong Corp, the biggest buyer of Iranian crude worldwide, began paying for its oil in euros late last year as Tehran moves to diversify its foreign reserves away from U.S. dollars.
On what are they going to spend their dollars then?
http://gazette.net/stories/032807/rocknew223824_32326.shtml
Article about a failing condo project in Rockville, Maryland, a suburb of Wash DC, at a site on the metro.
“As recently as last year, loan officers were getting annual pay of as much as $200,000, said Charlyn Cooper, a former manager at subprime lender Secured Funding based in nearby Costa Mesa. Now they’re being offered low-paying jobs in call centers”
http://www.bloomberg.com/apps/news?pid=20601109&sid=alOjASNOLKcQ&refer=home
July 20, 1969