“A Second Leg Down” For California
The LA Times reports from California. “New Century Financial Corp., once the largest independent maker of mortgages to high-risk borrowers, sank into bankruptcy proceedings today, swamped by demands that it buy back defaulted loans. The Irvine company also said it would eliminate 3,200 jobs, or about half of its workforce. Its fall epitomizes the collapse of the sub-prime lending business.”
“In recent months, forced sales and outright shutdowns of lenders have plagued the industry, woes that threaten to depress the entire housing market. ‘They were big, strong, gigantic, and arrogant too, cocky,’ said analyst Matthew Howlett. ‘It just seems like the whole operation was fast and loose, and it finally caught up with them.’”
From CNN Money. “Geographically, California’s overheated housing market figured centrally to New Century’s business. In 2005, according to its annual report, 37 percent of New Century’s business was in California. New Century made $51.6 billion in subprime loans in 2006.”
“Dr. Greg Hallman, who lectures on real estate finance at the University of Texas, said the New Century bankruptcy put an exclamation point on the era of investing in securitized subprime debt.”
“‘It’s probably over for time being,’ said Hallman. ‘That market worked for as long as investment banks provided funding. [The banks] have cut the money off.”
The Orange County Register. “The troubles in the subprime mortgage industry could bring stagnation to California’s housing market, but Orange County should be spared the worst fallout, according to a UCLA economist.”
“In a report to be released today, Ryan Ratcliff, an economist with the UCLA Anderson Forecast, points out that markets with a higher proportion of first-time buyers and new homes,– such as the Inland Empire and Ventura County, are seeing a bigger surge in defaults, or borrowers who fall 90 or more days behind on their mortgage payments, than areas like Orange County.”
“‘Since the subprime market was almost the only thing keeping sales volume buoyant in the last years of the boom, the drying up of subprime credit suggests that home sales in California will be stagnant for some time to come,’ he writes.”
“The median price of an existing single-family home in Orange County has fallen in six of the past seven months compared to year-earlier levels, according to the California Association of Realtors.”
“Although Orange County is home to a number of subprime lenders, the job losses at those firms aren’t likely to be enough to push the local economy into recession, Ratcliff said. In 2006, non-bank mortgage lenders employed 22,300 people in Orange County, down from a peak of 23,800 in 2005, according to California’s Employment Development Department.”
“‘If the carnage in the sub-prime markets turns out worse than we expect, job losses in Southern California could make things a bit worse,’ Ratcliff said in his forecast.”
“The effect was concentrated largely in Southern California, and Irvine in particular, where many sub-prime lenders are based. ‘Our forecast is definitely that the job loss in that sector is going to deepen,’ Ratcliff said. ‘But is Irvine going to turn into an apocalyptic wasteland? I don’t think so.’”
“‘The surge in notices of default is completely unavoidable,’ Ratcliff said. ‘They were baked in the cake of the loans they were making in the last two years. The question is how many will turn into foreclosures.’”
“In February, the number of trustee sales — the last step in the foreclosure process, was 1,850, about 10 times the number a year earlier, according to DataQuick
The Press Enterprise. “Several areas around the state, including Riverside County, have seen default notices rise more than 150 percent.”
“‘The reason the Inland Empire is seeing an above average (rate) of…defaults is that new building is a big deal,’ Ratcliff said. ‘So you get the combination of builders and their lending partners wanting to keep the party running as long as possible, even when the market is running out of steam.’”
The Daily News. “Tighter credit standards will depress sales totals for some time to come, Ratcliff said. ‘Is there going to be something that comes along and picks up the slack from real estate and provides some kind of a cushion?’ he said. ‘That scenario is still going to look good.’”
The Mercury News. “‘We are still forecasting a significant slowing of the California economy in 2007, as the double whammy from construction and mortgage finance creates drag on the rest of the economy,’ economist Ryan Ratcliff wrote.”
“Already, there is a swell in the number of notices of default, filed when a borrower’s payment is 90 days late. The increase in notices between the fourth quarter of 2005 and the same period last year reached more than 200 percent in some counties, and is higher than 150 percent in the East Bay.”
“Employment decreases at non-bank mortgage lenders and the broader real estate category led to a revision of the financial activities sector from 10,200 new jobs to a loss of 1,600 positions.”
From NBC 4. “‘We are becoming increasingly nervous about the economic outlook as the period of below trend growth grinds on,’ economist David Shulman wrote in the forecast. ‘Put bluntly, the credit crunch in the subprime mortgage market will likely trigger a second leg down in the housing market in terms of output and prices.’”
“The largest increase in mortgage defaults was seen in the East Bay and Sacramento areas and Bakersfield, Ventura and Riverside counties.”
The Red Bluff Daily News. “Around the West, apparently including Tehama County, the philosophy in recent years has been a bit like what Kevin Costner did in the movie, ,Field of Dreams., ‘If you build it, they will come.’”
“Developers came up with grand plans to swell the county’s population by at least half over the next 10, 12 or 15 years.”
“Sun City Tehama, which was looking at creating what would amount to the county’s second largest community, with some 3,700 homes south of Cottonwood. Now? The project is on hold, and some doubts have been raised whether it will ever be built. Because if the people were out there, the developers would be turning dirt at the edge of Interstate 5 right now.”
“A rough count comes up with somewhere in the neighborhood of 10,370 planning units that were at some point in development in Tehama County at the beginning of 2007. For the sake of more discussion, toss in nearly 2,000 acres of land being offered for sale as residential property on which the listing says 1,000 homes could be built.”
“That figure does not include homes planned or under construction on single lots. For the sake of discussion, figure on perhaps 500 more homes. That’s about 12,000 more homes in the county over the next 10 to 12 years. And no doubt other development plans will surface in the years to come.”
“Homes aren’t selling very well and several hundred of them are on the market right now, and a large number of others are for rent, some of those brand new.”
“Those who sell real estate for a living are reluctant to concede that the bloom is off, not only in California, but in most of the United States. But the headlines and the signs have been and still are there for all to see.”
“All in the third-of-a-million dollar range, ‘For Sale’ signs abound for both new and already occupied dwellings. A drive down one of the streets a recent day showed a dozen houses in a row all on the market. A never occupied three-bedroom, two-bath, 1,731-square-foot model showed on the listing sheet it was being offered for $334,201. On the same street, the same model that has been occupied for a year and has ‘nearly $30,000 in upgrades’ is being marketed for $325,000.”
“Simple math indicates the first buyer may be taking a financial hit just to get out of the home.”
‘Once-robust public school enrollments have ground to a halt in many San Bernardino County districts, with the county facing an unprecedented overall decline that experts blame on high housing prices.’
‘But is Irvine going to turn into an apocalyptic wasteland? I don’t think so.’
Now that’s forecasting. Almost as good as ‘you’ll be OK Orange County, because it’s worse elsewhere.’
Now that’s forecasting. Almost as good as ‘you’ll be OK Orange County, because it’s worse elsewhere.’
But that is precisely the sort of argument that housing bulls make here in Marin County, CA. It goes along the lines of “it won’t be as bad here as over there in X”. So I have to ask, how bad is bad enough?
‘But is Irvine going to turn into an apocalyptic wasteland? I don’t think so.’
I think the jury is still out on what areas become apocalyptic wastelands. We just have no idea how many empty homes there will be when the flippers collectively realize how stupid it was to buy multiple SFRs at prices they could only afford with double-digit price appreciation forever.
What are you seeing in your neck of the woods Stucco? Does it square with what “Jim the Realtor” has been saying on his site? See his second topic…”Surges of Sellers” http://www.bubbleinfo.com/ he is still pretty upbeat about your area I think…
“Jim the Realtor” is a seller of real estate first and a bubble blogger second. He spins in the most subtle ways, but it’s still just spin.
He systematically deletes comments that suggest a more severe downturn is in the cards.
Jim, as a flipper himself (see his own post from about a month or two ago about losing ~$100K on a house), doesn’t want transactions to stop.
Thanks for that John. He seems pretty positive on Carlsbad area sales. I didn’t realize he lost 100K on a flip…interesting…
“He systematically deletes comments that suggest a more severe downturn is in the cards.”
This seems to be commonplace among all the ultrabulls. I posted on the ActiveRain website and the Seattle realtor shill deleted not only all of my comments, but every comment which did not share the same sentiments as his gay little piece.
Was going to take a walk, drove into the belly of the beast to blow $500 on food, instead.
Saw the first of the new middle class homeless, just the other side of nowhere, somewhere in a Central Valley California town.
It was a husband and wife and they looked new to the game.
A bit on the chunky side, sitting on $9.99 folding chairs, with their worldly possessions scattered about.
Far too much stuff.
I had a business in Santa Monica long ago and got to know the homeless characters enough to realize 99% of them they were either mentally crazy, hooked on alcohol or drugs or maybe just the trifecta, all 3.
This is a whole different breed of cat.
Dukes,
Jim is right in that houses are selling at a faster rate than at any time since 2004 — based on what I’m looking at on the street.
I don’t know what’s caused the shift (fraud????), perhaps a new corporation relocating many new high-paid workers, but it is what it is, for now…
I was expecting to see a lot of BOMs, but that’s not been the case so far. However, the lower-end stuff (O’side, Escondido, parts of Vista, etc.) seems to be priced at late 2003 prices, and still not moving.
Been watching certain zips in No County SD for many years, and it’s showing odd trends right now, IMHO. There is a lot of price compression — you can buy a nice house in a nice neighborhood for $50K more than a bad house in a bad neighborhood. Since we’re renting in a better neighborhood, that might be why we’re seeing fast-moving sales.
Though the bubble has certainly begun to deflate, it seems there are many forces trying desperately to prop it up.
Ca renter,
It really is quite amazing to think that people are still buying like you and Jim say in these areas. Are all of these people the ones with stellar credit. We know that sub-prime has been cut off to a good extent. It is disheartening to see people still shelling out 700K-1Mil for a home in N.County.
Maybe they bought the NAR’s last attempt at propaganda.
“What are you seeing in your neck of the woods Stucco?”
Not being a realtor, I don’t have the direct evidence that “Jim the Realtor” has to press his case. But I can say that San Diego inventories of homes for sale are up by 1270 (8.5%) in one month, off a base of 15,000 at the end of February.
In my own zip code (92127), Camino del Sur recently opened as a link between I-15 and SR 56. The number of recently built homes and homes currently under construction in this area is staggering, and though I have no way to estimate the number of new completed homes sitting vacant, I am guessing it is large (1000+), given the relatively low volume of traffic for a very large number of homes built out in every direction.
There are also currently about 1000 homes listed on ziprealty.com inventory for a six-zip-code area including 92127; they have a combined value (by list price) over $1.5b. I am wondering where the buyers will come from for all of this high-end inventory given a substantial rate of current outmigration from San Diego and the end of price appreciation that until recently helped move-up buyers climb the property ladder?
SD zip inventory = 16,350 as of this evening …
For what it’s worth, my casual observations and notes from the areas I watch, are trending toward increases in listings each week, not declines. These are the CA zip codes I monitor and the percentage of increases in inventory from 2/5/07 to 4/2/07: 92056 Oceanside(Rancho del Oro) +10%; 92592 Temecula South +27%; 94019-San Mateo Coast +11%; 95051-Santa Clara +18%; 95122-San Jose East +14%.
the end of price appreciation that until recently helped move-up buyers climb the property ladder?
Well actually it doesn’t. Think about it - is it easier to move to a more expensive house if the price of both houses has gone up 10%, or down 10% ? Which scenario gives you the smaller increase in your mortgage balance? The smaller increase in your property taxes?
Unless of course you’re upside down and can’t move.
‘But is Irvine going to turn into an apocalyptic wasteland? I don’t think so.’
ROTFL
New century *just* sent a fresh 3,200 out the door. How many of those were owed a month’s worth of their $200k+ previous broker paychecks? How well can Irvine housing sustain prices after a large number of $200k+ paychecks become ~$100k or zero?
Irvine is toast, they just don’t know it yet and won’t for 60 days. Cest la vie.
Got popcorn?
Neil
la vie sucks, I starting to hear from friends who were always upbeat but are now disturbed about all these companies going bust in Irvine and socal. Orange county will be hit very hard.
who is it (auger-inn) that says some major a** pounding is coming orange county’s way.
Just so FBs know what to expect, AMC (that free movie channel) has been running “Deliverance” fairly often in the last month or so.
Are you hearing banjos in SoCal yet?
Hehehe, that low moaning you just heard from the OC coastal area was the bulbous head of subprime reality pushing past the sphincter of default denial. The remaining Alt-A and prime “shaft” to follow shortly.
I fully expect that by the time the bankers hit their stride humping these FB’s, it’ll make M.C. Hammer’s “Hammer Time” seem like a waltz. These folks are getting prepped for the ass-pounding of their lives.
Yes, I do have my popcorn!
bwahahahahahahahahahahahahaha!!!!! rootbeer all over the screen sparkles very pretty! ;-D
Welcome back Auger-Inn.
I knew you were waiting for just the right time.
I think that might have been it, please don’t overdo it though.
Auger all I can say is
“Wow, that’s brisk, baby!”
Soon to be in-law (her cousin) was saying on Sunday how NEW owed him over $40K in back-pay. He wasn’t worried about getting paid saying how confident he was that NEW would ante up. We were shocked. Of course, he’s been in denial since since he joined NEW about a year and a half ago. He was so confident that he went out and bought a $600K POS in Santee (near Santana HS) a few months ago (yes even when the market was falling) just because he had money to burn and bought into my Father-in-laws BS about how much he was giving the govt in taxes since he didn’t own.
I’m going with Thornburg on this: OC is different, it is going to get hammered. Maybe not an apocalyptic wasteland, but a severe reduction in housing prices. Sad to see the UCLA boys bowing to their REIC masters. (I am a UCLA alum, so it really does depress me - especially since they were originally in the bear camp). NODs and REOs are going to continue soaring. Personally, I think OC will break its quarterly records for NODs and foreclosures set in 1996 during 3Q07.
OC got hammered in the mid 90’s. I lived in Mission Viejo at the time, and can tell you I saw many brown lawns and doors with yellow tape and notices attached. Losses averaged at least 40% of the previous peak. I remember in 90-91 - If you don’t buy now you’ll never get in .. Many held out and ate ramen for years, others made so much they did not really care, but a great many ended up losing their homes, and at that time affordability was at least twice what it is today, so go figure. SubPrime is only the beginning - Next Alt-A, then Prime. The bottom line is if you paid more than you can afford, you are F’d
I remember when Mission Viejo was the foreclosure capital of America during the 90’s. It was all about appearances then, but not now because things are different now. Easy come, easy go.
Irvine is toast, they just don’t know it yet and won’t for 60 days. Cest la vie.
Not so fast, retail is picking up the slack with the $8 an hour jobs, so unemployment will go down.
“But is Irvine going to turn into an apocalyptic wasteland? I don’t think so.”
It would sadden my heart to see Irvine/s OC turning into an apocalypic wasteland! Who will be left to drive on those wonderful OC tollroads, which are virtually empty of traffic as it is. S OC/Irvine must be getting desperate for revenue these days:I saw plenty of traffic ticketing against drivers illegally driving on toll roads in the few times i’ve used them.
Now that i flung my sarcasm out, OC and especially S OC wil not turn into a wasteland( still plenty of other hi-end/hi-tech corp job sectors located out there), but there might be some major pain in the economy and jobs market in the Costa Mesa/Irvine commercial hub around John Wayne Airport/Jamboree/Macarthur blvd Corp district.
BTW: I have a New Century Business card i picked up last time I went into the big Blue whale-like building which housed the now Defunk New Century Mort Corporation, 3337 Michelson, Irvine Ca 92612. Will keep it as a momento.
Talk about a straw man. I don’t think that many of the bears here have been predicitng Mad Max. Now Grapes of Wrath on the other hand…
Combine the RE complex job losses with a drought in MEW that fueled consumer spending where affordability numbers are the lowest in the nation and that starts to look pretty apocalyptic. The CA pasttime is spending HELOC money at the mall or the BMR dealership. What will take its place? Lamenting and standing in line at credit counselor offices?
A lot of people talk about HELOC money like it’s free money, with no monthly payment. But once you tap it, you’ve got to start paying interest immediately. I suppose these dolts are paying the interest on the loan with the loan proceeds, but when you make a purchase such as a BMW, you could be wiped out fairly quickly. I’ve got to believe that those who foolishly live off HELOC’s can only survive months, not years.
I’ve got to believe that those who foolishly live off HELOC’s can only survive months, not years.
This time its different… in a big way. Instead of 3 years of savings (1990 recession)… it might be 3 weeks of savings today.
I agree, Orange County won’t be as bad as being on the surface of Venus! Whew! the OC sure dodged that bullet!
What would be less then an apocalyptic wasteland?
A longterm housing recession, and 40% haircut will be less that that, right?
Geez
ROTFL
A longterm housing recession, and 40% haircut will be less that that, right?
Don’t take away that economist’s wiggle room.
Got popcorn?
Neil
What happens when prices in Irvine revert to trend, which is what, at least 50% less than now?
I predict a snowball effect - foreclosures then price drops then foreclosures then further price drops etc
Affordability will matter once again.
I think it would be fun to have some new apocalyptic wastelands. We haven’t made a good one since Detroit, and some of the old ones (such as the South Bronx) ain’t what they used to be. Imagine all money Hollywood would save by just filming in Miami instead of creating their own sets.
I hate double posts, but…
FMT and LEND auditor Grant Thornton resigned from both engagements AH.
http://www.bakersfieldbubble.blogspot.com/
All links
Oh, that’ll do wonders for their stock prices tomorrow. I’m amazed that anyone would hold their stock right now, when it’s so obvious they’re both toast.
Here is some more info about this event from Bloomberg:
Thornton’s departure will cause an “additional delay” in the filing of the lender’s annual report, Accredited said in a statement on its Web site.
http://www.bloomberg.com/apps/news?pid=20601170&sid=aTnSpc2fM3QM&refer=home
What do the accountants in the virtual room think is up here? Is LEND’s management putting on pressure to cook the books?
“What do the accountants in the virtual room think is up here? Is LEND’s management putting on pressure to cook the books? ”
Well, yes. Good for Thornton on washing his hands of it.
Good for Grant Thornton. Maybe they recall that the demise of Arthur Andersen was brought on by AA’s signing off on Enron’s books.
SF Bay, My thoughts exactly..To me, even a ringin’ of the bell moment. Stuck their nose in the room, and said to themselves ‘it stinks so bad I can’t possibly do business ‘….~Watching this show intently.
Smart people…saw too much risk and pressure - not worth the fees.
“Although Orange County is home to a number of subprime lenders, the job losses at those firms aren’t likely to be enough to push the local economy into recession, Ratcliff said. In 2006, non-bank mortgage lenders employed 22,300 people in Orange County, down from a peak of 23,800 in 2005, according to California’s Employment Development Department.”
Right. And all the construction workers, realtors, loan officers, and brokers are all going to put on pirate costumes and work at Disneyland?
How many of those people are paid by commission, and so won’t show up in the unemployment stats, OR be able to collect unemployment benefits?
It will further the false numbers which cause the ‘economists’ to say that things really aren’t so bad. Hey, the reason why people talk about the tip of the iceberg is because it’s an ICEBERG!
“And all the construction workers, realtors, loan officers, and brokers are all going to put on pirate costumes and work at Disneyland?”
And a lot of these folks will go from being buyers/investors to sellers. So with all these job losses and tighter lending standards, how many are left to buy all these houses?
I love how NOTHING is enough to make the situation really bad for any one area. In the Bay Area, it’s “pent up” demand for housing. In the OC, it’s job losses but not too many. In other markets, it’s the safe stream of retirees continuing. Really now.
Where was the UCLA Anderson Forecast a year ago? I don’t remember them predicting this housing bust.
All these economic forecasters and experts are full of crap. Not one of them saw this coming, although many on this blogsite did, and now the experts want us to believe their predictions for next year. What a joke.
Thornberg. But he had to go last year, when the Anderson Forecast realized who they worked for.
Exactly. I’m listening only to whom predicted the current market status. Oh, I’m putting on wide error bars; but everyone who’s previous analysis was “caught by surprise” by 2006…
So I’m listening to Thornburg, USB (bank), HSCB (bank), Merryl Lynch (late to the game but very bearish now), and a few others. If one changes their mind… I’ll consider that noise. But when all of them tell me 2009 (2010? 2020?) won’t be too bad of a year, I’ll believe them.
Got popcorn?
Neil
Roubini and Krugman. And still nobody takes them seriously.
Actually, Ed Leamer (UCLA) seemed pretty bearish in 2004 or so, IIRC. Also, Robert Shiller, Stephen Roach, Dean Baker, and the esteemed Douglas Duncan (chief economist of the Mortgage Broker’s Assn) who sold to rent in late 2004/early 2005 because he wanted to “take a little money off the table”.
Then, there’s Roubini and Bill Gross (PIMCO), who was talking about a housing bubble in 2003, IIRC.
There have been quite a few economists talking about the housing bubble, even since 2001. Problem is **nobody was willing to listen** (sound familiar to many of our personal experiences?).
Robert Shiller, of course.
Gary Shilling saw it too. And Roubini gets ad hominem attacks as the bearer of sad tidings.
One problem most of us (including the economists) have, is that we couldn’t believe that the bubble could stay inflated as long as it did. So the trolls said nyaa, nyaa, nyaa; there’s no bubble; you were wrong.
Being early has its drawbacks, but being late is a lot worse. If you get out early you incur some opportunity cost. If you’re late, you might not get out at all.
‘But is Irvine going to turn into an apocalyptic wasteland? I don’t think so.’
Try not to set the bar too high.
and he was non-committal…. it still COULD be an apocalyptic wasteland….
He also ask and answers his own questions. Reports should refuse to print such nonsense. Answer my questions. Not yours.
Note the deliberate false dichotomy: either soft landing or “apocalyptic wasteland”. No mention of the vast range of possibilities between those two extremes.
God, I miss Thornburg.
talk about false dichotomy, this cnbc guy does it pretty well.
http://www.europac.net/Schiff-CNBC-3-30-07_lg.asp
thanks for reminding me why i don’t watch CNBC.
Anybody got a sense of which lenders should be shorted?
Think you are a bit late to that game…should have asked that question a couple of months ago.
Couple of years ago!
odd-lot short sales are near a record.
I would say you probably have to move up the up the food chain into alt-a/prime and whomever on wall street sells these things.
I agree with Chick. We are too late to the lender party. Look to the future. I will be shorting the American Consumer/Drone in the coming months. There are a lot of consumer/electronics/gadget stocks that are way up there right now. Here is a short list of stocks I think could get hit.
TGT
AMZN
HOG
BBY
RIMM
AAPL
The builders are off 20 - 25 percent in the past few months. They are back to their numbers of last August. WCI is a pig waiting for the killing floor. Will Icahn really pay top dollar for that jewel?
I just bought a Harley. They’re well made, the Sportster is affordable, and they get good gas mileage (my XL1200R gets 40+ mpg as a daily driver). So I’m not sure about HOG just yet. I think they’ll be OK. They’re not the oil leakers of the past.
Countrywide is a given. And possibly WaMu.
Countrywide is a given. And possibly WaMu.
Countrywide… given
WaMu… just sold their sub-prime to Wells Fargo. So they have a chance to survive 2007. Since WaMu’s lending practices were so out of whack… I’m not sure about them, even sans subprime, in 2008.
Got popcorn?
Neil
I read a interview with a CEO of a company that supplied candidates of loans to mortgage brokerages. Enablers. He was talking about how all these lenders were toast, except Countrywide. His reasoning was that they pretty much avoided selling the riskiest loans to the riskiest people.
I realize now he wasn’t including Alt A among his definition of “the riskiest people”. Oops. WaMu– I thought WaMu was second-biggest slinger of the Alt A Surprise.
‘Is there going to be something that comes along and picks up the slack from real estate and provides some kind of a cushion?’ he said. ‘That scenario is still going to look good.’
Translation please. What is this person saying?
He is expecting cargo drops from the government in some unspecified form?
http://en.wikipedia.org/wiki/Cargo_cult
Maybe in the form of bales of dollars for Potemkin lenders like New Century. Reserves? We don’t need no skink’in reserves!
something = government?
cushion = socialized losses?
I thought the same thing, a scenario that something is looking good, implies you have something in mind. Me fears this guy has nothing in mind… literally
“….but Orange County should be spared the worst fallout, according to a UCLA economist.”
——————————————————————————–
Isn’t this what we’ve been hearing for years now? It’s impossible to have RE price declines in the OC! We’re not even in a holding pattern much less a landing approach (ala Gary Watts). Everyone’s rich in the OC! Subprime’s not gonna hurt us too bad. The local economy is booming!
Denial runs deep inthe OC!
No kidding. So the OC won’t have rampaging hordes of hungry mutants like the IE, but is this suppose to be comforting?
“The troubles in the subprime mortgage industry could bring stagnation to California’s housing market, but Orange County should be spared the worst fallout, according to a UCLA economist. In a report to be released today, Ryan Ratcliff, an economist with the UCLA Anderson Forecast, points out that markets with a higher proportion of first-time buyers and new homes,– such as the Inland Empire and Ventura County, are seeing a bigger surge in defaults, or borrowers who fall 90 or more days behind on their mortgage payments, than areas like Orange County.”
I personally expect the OC to suffer some of the worst fallout from the subprime collapse, as their economy was subprime central, and what we have read here for the past couple of years strongly suggests their collective level of irrational exuberance was off the scale. Does Dr. Ratcliff have any logic to back up his soothing reassurances?
> Does Dr. Ratcliff have any logic to back up his soothing reassurances?
The fall-out should be worse far way from the coast, IN PERCENTAGES. It’s a logic, but not soothing.
You know it. Relatives were in town couple weeks ago from Wisconsin. FIL said he wants a new Chevy Malibu or MonteCarlo, i forget, says the are great looking cars. Hmmmm. I have no idea what one looks like. But nearly every driveway around here has a new Benz in it! What’s up with that? We deduced everybody in Costa mesa must be rich except me…
A couple of weeks ago even Wisconsin DIDN’T feel the pain…
Now …HELLooooooo Wisconsin
http://www.jsonline.com/story/index.aspx?id=581164
Anyone can afford a Benz when its amortized over thirty or more years! Just don’t ask what happens in a decade when your still paying for it. Oh wait: You just get another Helloc and pretend it never happened.
Or maybe not. You can rent and buy a Benz
Just did and got a loaded one too. By the time I am ready to buy a house, car will be paid off.
Anyone can LEASE a Benz, too, which took all the prestige out of it. In the Fifties, a Cadillac was a four-month wait for your order.
“‘The reason the Inland Empire is seeing an above average (rate) of…defaults is that new building is a big deal,’ Ratcliff said. ‘So you get the combination of builders and their lending partners wanting to keep the party running as long as possible, even when the market is running out of steam.’”
Did Ratcliff address
1) The effect of a 40% construction haircut on the level of regional economic activity?
2) The impact of the end of home equity cashout financing, which goes hand-in-hand with falling home prices, on consumption spending?
3) The ripple effect of the above on regional economic activity around The OC?
I guess if he did not address these, then they must not pose a problem…
Oh all the spinners are going to say that their area is different . The lower priced areas will say that they still have affordability going for them and the higher priced areas will say the loan risks were better in their area .
Time will tell the degree of meltdown in any area .
“…higher priced areas will say the loan risks were better in their area.”
I saw some recent evidence that calls this myth into question, in the form of five foreclosures in Rancho Santa Fe ($3m+ median price area of San Diego) since the beginning of the year. I expect expressions of shock and awe from financial journalists when the full penetration of high risk lending finally comes to light.
I think the lending was faulty in the high end areas also .Borrowers in all price levels got into more house than they could afford .
I think it reached a point in the mania that buyers felt if they bought a more expensive house they would make more potential appreciation per year . You saw alot of borrowers buying a house for 1 million and than asking 1 1/2 mil for the place just one year later . There was a total breakdown with the appraisal process and the lenders allowing these kind of absurd increases .
I saw areas that went up 100% in one year with the lenders going on those loans . Its some kind of a nightmare joke to me .Lenders should of know it was a speculation bubble and refused to lend .
Is it time to resurrect the x-locked jokes?
Flagstaff can’t have a bubble it is land-locked.
San Francisco can’t have a bubble, it is ocean locked.
etc.
Gotta admit that was some great logic they had. Prices can’t rise because we’re “land-locked”????
What’s scary, is some morons will spread this myth as reality & eventually the sheeple will think that having empty land all around will, you know, convince people to buy now, because they aren’t making any more land!
Makes about as much sense as being “priced out forever!”
But it IS probably true that different market segments will fall at different speeds and times.
Bloomberg is running a story about New Century. Interesting assertion was that New Century underwrote about $120 billion of loans which subprime accounted for 86 percent of all New Century loans last year. Seems a bit risky to me. But what do I know, i have never filed for bankrupcy.
- The Open House Network - ROpenHouse
New Century made a lot of really stupid piggyback 1st and 2nd 100% LTV loans in orange county. don’t know how they got the properties appraised, but they evidently did.
they deserver all the hurt they’re getting
two slightly OT stories from San Jose–>
one of my friend wanted to buy a home in north SJ for 750K, I tried to convince him not to buy right now, but couldn’t. When he is getting ready to give his down payment check, Realtor told him to think about buying again, She mentioned him to talk to another realtor/loan agent for second opinion. He agreed to talk with another agent, and new agent mentioned about all the hidden costs ( main reason –> maintaining your swiming pool could cost you another 250$ per month) and this guy immediately backed off. decided not to buy.
I am happy for him, but what amazes me is that he didn’t listen to me as a friend, and how he would be living paycheck-to-paycheck that he couldn’t spend 250$ extra for swimming pool maintenance
in second story, my bike got stolen this weekend from my patio. I live in a nice apt community with 24 hr security. This is the first time it happened to me and I have been living at same place since 2001. When I mentioned this to one of my relative, he said “Many are having tough times as market going down, so you will see this kind of activity going up. Be careful”.
I heard on the radio small crimes such as breaking into cars are on the rise in San Francisco. Many people leave a note on the car window with a list of things in the car and a plea “Don’t break the window, the car is unlocked.”
AM 740 SF
The fallacy here is assuming the kind of guy likely to steal stuff from your car can read…
I find that very hard to believe in a socialist utopia like San Francisco.
SF has had this kind of petty crime since I was there in 1991 and it persisted through the boom and bust.
Many homes in SF have bars on the doors and lower windows.
Your bike will be stripped and sent to China. You see it’s the trade imbalance.
There has been an ongoing rash of high end bicycle thefts in the San Jose/Campbell area over the past few weeks. In some cases the thieves have been climbing up to three floors high to take the bikes off apt/condo balconies. Generally they are targeting the expensive MTB and road bikes. What they are doing with them I have no idea unless they are ending up on Craigslist or E-bay.
There were two bikes recently stolen from our parking garage in Cupertino. And we live in a “security” building.
dbdn: Your friends’ realtor behaved appropriately. If there were more like that, we wouldn’t be in this mess now.
I guess even realteors want now the price to go down. But it’s amazing that friends don’t listen to friends, but listen carefully to some strangers.
> my bike got stolen this weekend from my patio
Did you lock your bike? I certainly don’t want to give you feelings of guild, just want to know if it’s time for a better lock for my bike.
Just last week I saw a bicyclist smash in the window of a jeep, rummage thru the glove compartment, and take off, all in the space of 15 seconds. Found out today that the Jeep’s owner went home that evening to find her house burglarized. This is in Walnut Creek/Pleasant Hill, on a busy street by the Renaissance/Club Sport, at noon, on a weekday. Brazen little sh*ts, aren’t they?
“I certainly don’t want to give you feelings of guild”
People who’s bikes are stolen now have a union?
Sorry, non-native speaker and writer here.
No, I didn’t lock my bike. But that’s how it has been for years, as I didn’t expect people to jump in my patio. Definitely time to lock now.
‘”They were big, strong, gigantic — and arrogant too, cocky,” said analyst Matthew Howlett at the investment firm Fox-Pitt, Kelton.’
They sound like poster children for Taleb’s book:
http://www.fooledbyrandomness.com/
“My major hobby is teasing people who take themselves & the quality of their knowledge too seriously & those who don’t have the guts to sometimes say: I don’t know….” (You may not be able to change the world but can at least get some entertainment & make a living out of the epistemic arrogance of the human race).
“Around the West, apparently including Tehama County, the philosophy in recent years has been a bit like what Kevin Costner did in the movie, ,Field of Dreams., ‘If you build it, they will come.’”
Updated advice: If you lower the price enough, they will come.
He also made a movie called ‘The Postman’. Could be another version of the truth.
Mortgage brokers are starting to sound like Cuba Gooding Jr -
“Show me the money!”
Sellers are barking at their Realtors:
PUT THAT COFFEE DOWN. Coffee is for closers.
You must give a warning on that!
Luckily my water missed the laptop.
Got popcorn?
Neil
has anyone forced a seller to eat a squirrel as a condition to the sale yet?
“but Orange County should be spared the worst fallout”
my take…it has been so good for so long that people in places like OC just can’t conceive that they’ll get hit too. But they will.
Soon, if it already isn’t happening, people will start equating home ownership with some very bad things…like bankruptcy - losing everything you have. The entire psychology behind real estate (always goes up you know!) will do a 180 degree turn to ‘my parents lost everything in 2007 when the real estate bubble burst’.
Over the next few years I’m expecting at least a 50% drop in the bubbliest areas like FL, CA, AZ, and NV and at least a 25% drop elsewhere. Either that or a hyperinflation that keeps the nomial home price up but makes everyone else (savers, etc) poor as the purchasing power of their saved dollars plumets.
Gold is protection against the hyperinflationary scenario.
“…hyperinflation that keeps the nomial home price up but makes everyone else (savers, etc) poor as the purchasing power of their saved dollars plumets.”
I doubt this will be the policy choice, as Americans might become very unhappy in a future world governed by Chinese, Japanese and Middle Eastern landlords… (these are some of the countries which would be able to invest in real estate if the value of the dollar were hyperinflated to nothing).
“New Century made $51.6 billion in subprime loans in 2006.”
It’s raining free money!!
Just think how much of that $51.6b (plus similar quantities loaned by other subprime players) rolled into cashout home equity ATM financed consumption spending in the markets where values were artificially inflated in response. I am wondering if the multiplier effect on expenditure might have actually exceeded 1.0, given that all homes in subprime-infested areas would have been artificially inflated?
No no, we don’t talk about the multiplier effect now that we’re in a downturn. Mulitplier? What multiplier? All the local problems will be contained.
Actually, I was talking about the multiplier effect on the way up, as in $1 of subprime lending = $X of home equity cashout financed consumption. I am wondering whether X was bigger or smaller than 1, given that only a few subprime-inflated sales would have affected the valuations of all the homes in the neighborhood.
When you get right down to it, they were “so” Last Century.
Yeah, it won’t be as bad in the OC. None of those 3400 workers from New Century that were canned today owned a home. None of the 2000 workers canned from Fremont are paying a mortgage. None of the fired workers from Resmae were paying a mortgage. I am sure none of the employees of Ameriquest that make 20% of what they were making a couple of years ago had any mortgages.
And the CEO’s will be offering pay living expenses for all fired employees for 3 months to give them time to find a job.
Yeah, these economists just keep whistling in the dark about this mess. Everyting will be just fine and dandy. Nothing wrong here, just keep moving along.
there was an article in Bloomberg just last week about all of the businesses around the New Century office and how badly they were faring- Porsche dealer, restaurants, etc.
Ben, I love when we get the OC reports as I live here. Well, this is gonna get messy in South OC. I was out and about yesterday. An absoultely gorgeous day. Well, within 3 different directions and trips, I must have seen about 40, YES, 40! stickin’ different Open House signs. About half condos and half homes. This is going to get real messy, esp. for those that absolutely have to sell even if foreclosure is the reason. South OC is going to be GROUND ZERO number four behind Colorado, Florida, and San Diego (maybe not in that order), but we will be solidly in the four spot. People are just not going to be able to afford thiese gazillion dollar faux chateauxs that are on lots the size of a pstage stamp. With all the funny (phoney) money out there people are going to feel the hurt this summer. I realize we talk about ‘08 and ‘09 as bad, but if this weeked was any indication, ‘07 is gonna’ be bad and I don’t even want to think about the next 2 years. It might actually get VERY VERY ugly as people become more desperate.
From the front lines, this has been Dan De Neve.
“People are just not going to be able to afford thiese gazillion dollar faux chateauxs that are on lots the size of a pstage stamp.”
I had the same exact thought during my morning (SD) commute today. How long until the conundrum gives way to valuing big homes on tiny lots at a price that reflects their relative unattractiveness compared to big homes on big lots?
Hey Dan, quit trying to steal San Diego’s thunder. Remember no esteemed economist has said we won’t be a smoking wastelenad. Only you of the OC are to be spared that fate.
Northpark condo conversions, need I say more?
Josh
Not trying to steal any thunder (know you are writing w/sarcasm), but, hey, I have to state the facts. Our problem here is that we don’t have enough apartment housing, let alone enough that is reasonable. This is another reason this area is gonna get hit. When people who have to live here begin to wake up and realize that housing is in the tank, they will offer accordingly. For example, my family. I hate the HOAs, but I will look for one without. Now, multiply my family be thousands of others and sellers are going to get raked over the proverbial coals, esp. the desperate ones! Once they begin to realize that not one of the “many” offers is within 50% of their wishing price, are they going to get it. At that point, let the feeding frenzy begin!
I also went driving on Sunday after service with my girlfriend and decided to go to - of all places - Long Beach. Drove past that condo complex where that terrible fire took place and a resident died falling from his balcony. Also noticed a HUGE volume of “For Sale” signs…realtor signs, usually in threes, on nearly every corner as I was driving down Ocean Blvd… I knew it was going to get bad, but it’s still kind of shocking just how much inventory is there…continued into Seal Beach/Huntington Beach and saw more of the same.
im going to try to count the forsale signs in carlsbad today. im going to check out the new empty mansion area too. i was agitated now im frenzy.
Are the subprime problems still contained?
——————————————————————————–
“Market Scan
M&T Filing Highlights Mortgage Squeeze
Joshua Lipton, 04.02.07, 1:50 PM ET
Last week, Federal Reserve Chairman Ben Bernanke marched up to Capitol Hill where he said he didin’t see any significant indications that the headline-grabbing problems in the subprime sector had leaked into the prime loan market, mortgages made to creditworthty borrowers.
But recent news from Buffalo-based M&T Bank (nyse: MTB - news - people ) could cause the Fed chief to reconsider his opinion.
The bank reported in a Securities and Exchange Commission filing that its first quarter financial results will be impacted by what it said were “current adverse market conditions.”
What’s the reason for the bad news?
M&T told investors that problems in the subprime residential mortgage lending market have had a negative effect on the rest of the residential mortgage marketplace, specifically with regard to alternative, or Alt-A, residential mortgage loans that M&T originates for sale in the secondary market.”
http://www.forbes.com/2007/04/02/mt-bank-subprime-markets-equity-cx_jl_0402markets13.html?partner=links
“Last week, Federal Reserve Chairman Ben Bernanke marched up to Capitol Hill where he said he didin’t see any significant indications that the headline-grabbing problems in the subprime sector had leaked into the prime loan market,”
Did he say anything about Alt-A? In a matter of speaking, Bernanke was right. The problems haven’t leaked into prime lending. YET!
I watched the last 15 or 20 minutes of the hearing on C-Span. It seemed to me that a few elected officials “get it” and were biting their lips in a desire to be polite.
Bernanke was dancing around questions the whole time.
I’d gladly lose me to find you
I’d gladly give up all I had
To find you I’d suffer anything and be glad
I’d pay any price just to get you
I’d work all my life and I will
To win you I’d stand naked, stoned and stabbed
I’d call that a MORTGAGE
The worst I ever had
The worst I ever haaaaaaad !
“The Irvine company also said it would eliminate 3,200 jobs,”
————————————-
I wonder how many of these employees have RE investments in addition to toxic loans on their principal residence?
Cali property taxes due Apr 30, right after Income tax
Sweet dreams are made of this
Who am I to disagree?
Travel the world and the seven seas
Everybody’s looking for something
Some of them want to use you
Some of them want to get used by you
Some of them want to abuse you
Some of them want to be abused
Completely off-topic, but it just warms my heart. Actually, the company’s sales may benefit from the coming downturn if things get really ugly.
http://biz.yahoo.com/ibd/070330/newamer.html?.v=1
Nothing makes Slim happier than a good, tight group in the x-ring.
We’ve said it here before, but it merits repeating. If this economy and country do down the long, slow road to deep recession, if not flat out depression, it might not be a bad idea to have a few of our friends, Smith & Wesson at home protecting the family, ranch, and canned goods from the mob scene that will unfurl.
Just watched “Children of Men” on DVD. Pretty good approximation of certain LA/OC environs in a few years…
Better yet try a classic, Bladerunner. Post-modern industrial version of L.A., anyone?
Just got off the phone with my husband who got pulled aside today by a former RE bull (co-worker) who’s been harassing us to get back into the market.
Co-worker’s son has been renting in San Diego county & his LL is in foreclosure. Our friend was trying to convince his son to buy the house, but was talked out of it by another friend who owns a local escrow company.
She (escrow company owner) said that only idiots “who don’t qualify to buy a piece of bubblegum” have been buying lately, and that the renter-son should wait because the house going for $450K today will be “worth” $150K in six months.
Obviously, she exaggerated a bit (only in the timing, not the price, IMHO), but shows how someone “in the business” is seeing things right now.
It’s interesting because our bullish friend sought out my husband to tell him this. They have been **very** bullish until that story was relayed to them by the escrow company owner.
Excellent post CA. If those numbers are close to correct, we will be looking at 67% haircuts. OUCH, THAT IS GOING TO REALLY HURT!
OCDan,
I have no doubt that we will see 67% drops in a number of areas around the country — IF our dear govt allows the credit bubble to fully correct.
As you & everyone else here already know, there is no reason (except for a credit bubble) for a house in Compton that sold for $80K in 1997 to be selling for $500K+ in 2005.
To add to the above posts re: S&W, those who own defendable agricultural land with access to plentiful, clean water will be the least affected if we experience a severe depression. “Defendable” being the operative word.
Well, I’ve got some land, plenty of clean water and lots of ammo. Will that help?
“Defendable”
Pardon my scepticism, but does anybody really think a starving mortgage broker, or inner city gang banger could even find agricultural land.
Just get out of the city, and the accountants, and grocery store clerks will never find you.
Paul
Yep, and if by chance they do make it out, they’ll be really easy to spot.
The housing crooks continue to party on under the watchful eye of government…
http://custom.marketwatch.com/custom/excite-com/news-story.asp?guid={AA2879A8-4495-4C1D-A8CC-E679599DD3DB}
“They’re buying a membership to increase the value of the house because the buyer has requested that they do it and because the buyer wants access to the membership…We recognize people buying a home are in a great position to sell a membership to the seller.”
“‘It’s probably over for time being,’ said Hallman. ‘That market worked for as long as investment banks provided funding. [The banks] have cut the money off.”
It’s astounding to me how that statement threw me back to the year 2000 during the dot-com bust! The New Centurys, Countrywides, and Fremonts are playing the role of the internet venture capitalists to a T.
You’re right - it is like the dot bomb. The venture capital for toxic lending is being cut off even faster than it was for dot coms.
Another similarity: Many mid-level insiders (e.g,, project mgrs, software engrs, loan “officers”, realtors) double-levered in their industry. The dot commers held mostly tech stocks, and the RE people bought “investment” properties. Ahhh, leverage - when it’s good, it’s very very good; when it’s bad…well, you know.
“..a house in Compton that sold for $80K in 1997 to be selling for $500K+ in 2005″
Just like the last RE bubble, marginal properties reached ungodly values. Thats the sign to look for when determining a bubble.
We are only at the beginning of this bust. This may take a few years to play out.
We have alot of resets coming in the next few years. Also, boomers looking to dump to get out their big houses, big loans & HELOCS, vacation props.
Local realtor drivel emailed to me… A glimpse of the L.A.westside mindset
Might the age old adage hold true? In real estate it’s all about location, location, location. While some parts of the city (Los Angeles) and nation at large have and will continue to experince slumps in sales volume and annual appreciation, the market segment known as the Westside has a robust heart beat. With enormous amounts of wealth created and residing in this micro market, it is much more insulated from fluctuations in the market place in general. When asked “How’s the market doing?”, it’s good to clarify with “Which one?” in that they differ so much and when speaking of the pocket west of Beverly Hills and north of the 10 freeway…we’re rockin’ and a rollin’
Annoying huh?
That wonderful area must be the RE equivalent of the Alamo. Be sure to save that email to shove it back at him when the time comes.
LOL… yeah, people here think so. “Location!” “Wealth!” “Different!”
It’s tedious listening to all the reasons that what *is* happening, *won’t* happen here.
I’m impatiently waiting to say “I told you so”… It’s like watching paint dry on growing grass though…
This realtor crazy from sniffing his dog’s farts. Needs to either change dog’s food source, or get new “hobby”….
Uh yeah, this is realtor is so darned busy selling houses in the vaunted West Side that he/she is sending out random e-mail solicitations. Uh-huh.
There can be no doubt that the financial would is liable to get a little “Hairy” out there from here on out.
If you’re in business or in the habit of sitting on a sizable chunk of change, it might be worth checking your Banks CAMEL score and seeing how many stars(1-5) your local financial pirates have flying over their VAULT. Check out their friends( parent companies), affiliates and holding companies too.
Please don’t RUN or be sure NOT TO SAY mikey sent you as I could get in trouble. ha ha
http://www.fdic.gov/bank/individual/bank/index.html
*#@$* strike “would”…insert “world”
wow…that was easy !
You guys are gonna LOVE this. From a Help-U-Sell flier (sp?) I received at my home in the South Bay today (yes, the realty companies are using fliers again!). From an article entitled, “It’s a Good Time to Be a Buyer — If You Make Good Choices,” –ahem:
“Finally, use the current dip in the market to get as good a deal as possible. Be wary of overpaying for a property because if you have to sell for some reason, you don’t want to lose money on your purchase.
“Use your newly-acquired market knowledge to construct a fair but perhaps aggressive offer (depending on where you live, of course). I’m not suggesting you offer 50 percent less than the list price, UNLESS CURRENT MARKET CONDITIONS DICTATE SUCH AN OFFER.”
Bwahahahahaha!
“UNLESS CURRENT MARKET CONDITIONS DICTATE SUCH AN OFFER.”
Was this really on the flier… that’s too funny. BTW tell me you live in Palos Verdes…
BTW tell me you live in Palos Verdes…
Soon… PV has an elderly population. If they’ve HELOC’d at all… they’ll have to move out. And every time the streets of PV fill up with Ferrari’s… home prices fall shortly afterwards (people HELOC for driveway jewelry).
Got popcorn?
Neil
Well, I live in PV and I can tell you this, home prices are easily off 10-15% but off some pretty lofty highs… While our population can be quite old … it seems like people don’t move until they die… I just don’t think the heloc thingy is as prevelant among the older crowd.
Streets filling up with a bunch of Ferrari’s and the jewelry comment are just salacious. Very conservative crowd here. Unless you can give me some specifics - I call bull!
That’s nothing, I have a Realtor that must really HATE me as she wants to refi me. ha ha
Is Refinancing For You?
Dear :),
When mortgage rates are low, you may want to refinance your home loan. Many homeowners have taken advantage of recent low interest rates to refinance and cash out some of the equity from their home to:
* Buy a rental or other investment property
* Remodel their home, such as creating the dream kitchen they’ve always wanted
* Buy a vacation home on the beach or in the mountains
* Pay for college tuition for a family member or meet other special expenses
If you’re interested in refinancing, a home evaluation can give you a good idea of what your home is worth. I would be happy to provide you with a general price range based on recent sale prices of comparable homes in your area.
Or, for a more precise estimation of value, I can drop by for a quick review of your home. With this more detailed information, I can research the sale prices of properties similar in size and features to yours and provide you with a more accurate estimated price range.
Please don’t hesitate to email or call me if I can help you in any way or answer any real estate questions for you.
SPARE ME !
Slightly OT…but I logged on to my ZipRealty (LA Westside and south SFV)search early this morning to see the normal amount of listings - around 2624. when I logged in just now (around 6pm) the listings have gone down to 1978!
Zip just ‘lost’ almost 500 listings in one day…..wonder if this has anything to do with the news about New Century..??
Anyone know why?
end of month expiration?
End of quarter expiration.
They’ll be back within 21 days.
Got popcorn?
Neil
“The troubles in the subprime mortgage industry could bring stagnation to California’s housing market, but Orange County should be spared the worst fallout, according to a UCLA economist.”
Good lord … Hey OC, you’re losing all of your jobs because the scamming mortgage corporations that buttered your bread by pimping unaffordable loans for big commissions are going away.
Don’t worry, though - you’re housing market will be fine. After all, you guys can all afford what you’ve bought. …and OC’s economy is … diversified.
Hey, Alt-A’s still around … for a few months atleast.
The Bermuda Triangle is growing ? The Naples, Florida MLS sale prices JUST disappeared because they DIDN’T like their Facts and Figures. Like poof…just swallowed them up.
You can have all the market cheerleading you want. But if people simply cannot buy, the market will slow.
Sales types think they are solely responsible for sales - that they control the market and the buyers. Reality is that while they may influence some people, it’s larger market forces at work that determine whether people buy or not.
‘More than two dozen subprime lenders have shut down in recent months and others are scrambling to stay in business as a spike in defaults caused by borrowers unable to make payments has rocked the mortgage industry.
Now, as lenders tighten credit standards, the housing market will likely see further declines in price and output, senior economist David Shulman wrote in the quarterly Anderson Report released Monday by the University of California, Los Angeles.
“We suspect the problem in the subprime area is just the tip of the iceberg for the mortgage market as a whole,” Shulman wrote. “For all practical purposes, the subprime market is in the process of shutting down.”
A tougher credit environment will limit the number of first-time home buyers entering the market and make it tougher for others to refinance their subprime loans before they face a default or foreclosure.
Shulman expects housing starts to hit 1.33 million units this year, down from a previous forecast of 1.48 million units.
“For a housing market that has already witnessed housing starts decline by 36 percent, this is not good news,” he wrote.
Still, he does not forecast a recession but only a softening of the economy.’
New homes were selling at an 0.848m seasonally-adjusted annual rate in February ( http://www.census.gov/const/newressales.pdf ), and that was obviously before the impact of New Century’s bankruptcy and other recent developments took their toll. So if Shulman is right, new home starts will be running at just 1.33m-0.85m = 0.48m = 480,000 homes greater than the recent sales rate. I am hoping I am missing something here, as a 480,000 annual rate of increase in the number of vacant homes sounds mighty expensive.
Link to the news story I referenced above:
http://cbs5.com/local/local_story_092195843.html
I’m actually not going to disagree with the sales figures or the start figures. In other words, the inventory will continue to grow.
But not all empty inventory. What do I mean by this? In certain non-bubble area companies are transfering workers. e.g., Houston & Austin TX, Mobile AL (manufacturing), Huntsville AL (Government agency, MDA moving there with aerospace following), Tucson AZ (aerospace), Albequerque NM (movies) and a few other places.
There… they will continue to build for the people leaving other regions to pursue work. So those builders won’t hurt too much. But they will drain other regions of qualified buyers!
With today’s mobile work force, so much for “real estate being local.” This time its different… this time too many live far from their roots; so they’ll move again.
Got popcorn?
Neil
“There… they will continue to build for the people leaving other regions to pursue work.”
If they build at 1.33m units per year and purchases run at 0.848m units per year, then net vacant new homes would grow at 482,000 per year, end of story. Variation in distributional impacts is a separate issue.
True, builders overall are toast.
But variation in impact will be very regional. Seperate issue? Depends where you live.
The problem is that there are 43,000 homes for sales in the Dallas area including 11,000 empty and they are still building
True… But a Great number of American people will have to get financially picked up, body-slammed and kicked hard to the curb before they’ll even think of giving up their Buying Addiction.
Pain is one Hell of an Instructor for stupid people.
Prepare for the Storm- CATO
http://www.cato.org/pub_display.php?pub_id=8166
My wife’s friend’s hubby quit a 100k job as a cop last year to become an RE agent. Every single week we get a nice glossy hallmark card from him, extolling the virtues of the holidays, Springtime, or the like, with a hand-written note that says:
“And don’t forget if you or anyone you know is in the market for real estate, please refer them to ME.”
In a couple of months, I’m expecting it to read “Goddamn won’t someone pleeeaze freakin buy something from me already, pleeeazze.” So sad.
“My wife’s friend’s hubby quit a 100k job as a cop last year to become an RE agent”
Stupid cop, no donut. And no job either.
i actually thought spec house meant special house for a while ( and by special it meant substandard or something you know like “special people) until I realized it was based on speculative demand…
I do not believe that the American people will find acceptable a 50% reduction in their real estate assets. This would result in the Government being blamed and thusly removed from office. I do believe that the dollar will be allowed to plummet in value causing hyper inflation. Such inflation would give the population the illusion that property values have only declined slightly. Imports will simply cost more. Oil, imported cars, imported beers etcetera will cost more while houses ‘appear to’ stay at the same price. This scenario will suit the US economy because imports will become prohibitively expensive giving domestic manufacturers a much needed boost. The dollar dept of the nation will also effectively shrink with the value of the dollar. The government will be able to use foreign currency and gold reserves to pay off the dept more effectively. Moral of this passage, if you really want to profit from this bubble madness, then buy foreign currency. Do not buy currencies of countries that rely heavily on exporting to the US (that would be silly). This is all based upon my own guess of what will happen, please correct if what I have written appears to be nonsensical.
I agree. I fear the dollar is already practically worthless and this run-up in prices was greatly due to the dollars’ purchasing-power dropping as much as home=prices increasing.
Here I am now, renting and stuck with significant cash savings that’ll probably be as worthless in a few months as the Deutsch Mark was in the 30’s. How does the Euro look , Englishman?.
I’m thinking of moving all my cash assets into foreign currency right now.
And I mean RIGHT NOW.
Flippers are a hearty bunch, a complete wrecked house with a green pool? Brown grass? green weeds?gates that fall off? was just listed for 1.3mil. The investor told me this was a bargin at this price. One third of the area is empty and the homes that were listed at 1.3 or less ending up selling for 775-800k (which is what he paid). Either this guy is waiting for the turnip truck and a person to fall off or he knows something nobody in the free world knows? BTW he said, he knows a lender that can get good cheap rates and interest only loans back east. I should have ask him if he knows where to buy snake oil?
Comment by bedub
2007-04-02 21:14:34
“Just last week I saw a bicyclist smash in the window of a jeep, rummage thru the glove compartment, and take off, all in the space of 15 seconds. Found out today that the Jeep’s owner went home that evening to find her house burglarized. This is in Walnut Creek/Pleasant Hill, on a busy street by the Renaissance/Club Sport, at noon, on a weekday. Brazen little sh*ts, aren’t they”?
I know Walnut Creek and Plesant Hill areas, they are both very nices areas Bedub, unfortunately, these kinds of crimes are going to get a whole lot worse. A good friend of mine told me a similar story about 6 months ago. She lives in Lafayette, and know a woman who always goes walking at the Lafayette Reservoir on regular basis. God only knows why this woman always hid her keys under her front car bumper…well, someone had been watching her and knew her walking schedule. When she left her car for her walk, they stole her it, took a big truck to her home and cleaned her out completely while she was still un-aware,walking around the reservoir.
I’m going to try to remember to take all personal info out of my vehicle when taking hikes and walks. Whats scary is…this could even happen while shopping anywhere.