Bits Bucket And Craigslist Finds For April 3, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Petrodollars, the Savings Bust, and the U.S. Current Account Deficit / PIMCO
plus
India’s Mortgage Borrowers Face the Big Squeeze / at least one central bank isn´t kidding….
http://immobilienblasen.blogspot.com/
A recent posting concerning the Plunge Protection Team at indexcalls.com, a board where traders exchange views:
…the “Dr. Pepper” market.
Those of you who are old enough may remember the old Dr. Pepper bottles and slogan “10 2 4″, which showed a clock face and suggested that you drink the flavorful concoction at 10 am, 2 pm, and 4 pm.
Well, the PPT has taken a page right out of the Dr. Pepper marketing book and gooses the DJIA every day, right on cue, at 10 am, 2 pm and 4 pm!!!
Sounds like sore losers to me. Anyone who has traded for any length of time knows there are certain times of the day when things happen. On gap up days, you usually see the LOD at 9:30 - 10 a.m. CST. On trend days, you see a “contra hour” thing from 1-2 p.m. CST. I don’t know why people bitch about it instead of recognizing it and using it to make money.
I couldn’t agree more.
whenever the markets don’t go according to plan, people bring up the spectre of PPT.
I doubt the PPT has the time or energy to manipulate for SO LONG now. Sure, they manipulate. Sure, so what? They are a known entity. And if they are so clockwork, trade around them!
It’s like getting angry because the sun manipulates the darkness every day between about 6am and 8pm. Why not plan your 24 hour period around the sun’s manipulation? I know I do.
What? The sun’s not up yet by the time you guys start posting!
Could you explain this a little more? I would love to trade like this.
it’s not the PPT, but probably short covering. there are still a lot of shares shorted out there and they have to be bought back before the next leg down in order to reduce risk. buying at the low point of the day is a cheap way to cover.
if you look at any correction there is always weeks where the market is flat before the next leg down and sucker rallies that sometimes take the market back to just under the old highs.
read this. the website was started by someone that used to run stocks with Sandy Weihl and Arthur Levitt and made a lot of money back in the day
http://www.investors.com/learn/default.asp?tn=left
Dawnal, the US stock markets trade in tandem with the Japanese Yen. The reason for this is the “carry trade”. When the Japanese Yen falls against the dollar the US stock markets rise and vice versa. For example today the dollar is strong and makes the “carry trade” a valuable trading ploy. At some point, the Japanese economy will see inflation and raise their interest rates. The “carry trade ” will unwind and the hedgers will sell Yen, sell stocks.
“Do Not Meddle in the Affairs of Dragons, For You Are Crunchy and Taste Good With Ketchup.”
T-shirt slogan
I think you’re spot on there. In fact, it’s uncanny how it seems all asset values are being driven by the yen. I just put up a chart and a post on the subject here:
http://interestrateroundup.blogspot.com/2007/04/how-im-measuring-risk-appetite.html
This Bloomberg story also sheds some more light on the yen and the constant ebb and flow of risk appetites:
http://tinyurl.com/25d5k7
When we don’t get what we want (including prices) it’s because people are secretly conspiring against us.
And another one: Alice Cooper has a radio show 6 nights a week from Phoenix and he said something profound: I won’t quote him: Many people say President X is stupid, not because they think he is, but because it’s fashionable to do so.
Ya, but our guy really is a ripe idiot.
Hear, hear!
There you go. No words to back it up. Who are you parroting?
Seattle Renter, apparently.
But really, I never liked the guy to begin with. I do however, agree that there are many who really secretly voted for him and just won’t admit it now that he’s unpopular.
I thought you said you were a Libertarian. I think you are just a Republican in Libertarian clothing.
The only time I voted for a Republican candidate for Pres. was in 2004. If the same two candidates were the top contenders, I would repeat my mistake (LOL). I held a minor Libertarian party office at age 23 in 1982. I was the campaign manager that year for a California state Assembly candidate on the Libertarian Party ticket. I started being active in LP politics in 1980 when I distributed Ed Clark for Pres. brochures in Fresno. I met Ed Clark and his lovely wife Alicia twice in 1980. For the next 20 years I voted solidly Libertarian. In 2001 I realized I agreed with Thomas Jefferson’s idea to send foreign troops to protect American interests. Thomas Jefferson is a big hero for Libertarians, but they forgot about the Barbary Pirates. If not for 9/11/2001, I would have been voting LP in 2004. In 2008 it will be all LP unless Ron Paul wins the Repugnant nominee for U.S. Pres. Ron Paul is a “l”ibertarian and not really for the war on terror, but he is very much a fiscal conservative.
John Crudele of the New York Post on the subject of the Plunge Protection Team:
So on July 25, 2006, my lawyer drafted a request under Section 552 of the Federal Code called the Freedom of Information Act asking for documents generated by the President’s Working Group on Financial Markets.
Around here we call it the Plunge Protection Team.
That request was ignored, although we did get a phone call from someone many months back saying they were working on it.
So on Feb. 28 I had my lawyer file another request. This time we asked for minutes of meetings that might have taken place that day and the day before.
My poor lawyer is getting a little frustrated, but I told him maybe the requests got lost in the mail. That’s why I’m sending this parcel Post, pardon the pun.
It’s only April, but I get the feeling that you’re going to ignore me again.
Perhaps you missed it, but around the time of the first FOIA request, I documented what I believed the Plunge Protection Team was up to.
I believe this group you head, and which includes regulators, brokerage firm chiefs as well as major market players, tries to protect the stock market.
Here is the full article: http://tinyurl.com/2wjvwx
The bottom must be in! An afternoon/overnight California thread on Ben’s Blog received only 162 comments!
Watching the hoops game?
Yes — now I won’t have to watch the movie.
You know, a few years ago, you could make a comment on a post from days ago, and still get a response. Now there are so many comments that if you miss a day, there is no way to go back and read all the comments that you’ve missed. Times they are a-changin’.
shoot:
you can’t even post on a thread from earlier in the day and get it read!
success breeds its own problems I guess. Great problem to have! Congrats Ben.
Yeah, its a problem. Do I read quickly and be able to leave (hopefully) useful comments, or do I read later, see all comments, but not have the chance of anyone seeing mine. (Y’all ain’t really missin’ much.)
Be nice to track names and responses.
Paul
I saw your post about your difficulty with your landlord. You did the right thing by filing a police report. I used to own rental units. What your landlord’s rep did was way over the line.
I hope it works out well for you. I wouldn’t worry too much about the guy who “took a swing” at you. If he were serious about hurting you, he wouldn’t have missed.
Let us know what happens.
“…success breeds its own problems I guess.”
Right — for instance, like home prices going up 10 percent per year, year after year after year…
Yes, and all these new names/handles keep showing up. Some of these new whipper snappers don’t remember what it was like here way way back in 2005 when the general masses all knew we were just a bunch of crazy bitter renters.
My how the times have changed!
The most wonderful thing is that the newbies have a uniqueness that gives me renewed vigor.
Ben should change to forums. REALLY.
Outside of lenders, agents etc, etc….Who benefitted form the bubble?
If a homeowner refinanced at a low interest rate without buying a second home or taking out a HELOC to buy a land rover, then they might be doing pretty well. They might have a few more hundred dollars a month in disposable income. That’s some fuel for the economy.
How many homeowners simply took advantage of low interest rates to reduce their monthly payment? Anyone know of any stats on that?
a lot of people did the 2 year ARM thing in 2003 and 2004 on an expensive house and sold last year by pricing it right and moved somewhere affordable. a lot of other people who bought in the 1990’s also did the same thing. my mom and her husband paid cash for an apartment in NYC in 1997. Sold it for 4 times as much in 2005 and paid cash for a house in colorado.
the latest numbers i saw are 37% or so of all homes have no mortgage and are owned completely. 57% have a fixed rate mortgage and 10% have an ARM. My guess is at least 10% of the fixed rate mortgages also have a piggy back loan.
last few years we have seen around 8-9 million in home sales per year. call it 6 million or so per year for the next few years with a lot of extra inventory.
What you are failing to capture with selected statistics is the simple fact the aggregate equity percentages have plunged to an all time low while prices soared. Secondly the number of people who own their house outright is also at an all time low.
This to me says that the leverage employed is off the charts and huge numbers of homoaners are extremely susceptible to small declines in price.
The days of rose colored glasses being able to obscure the reality are numbered.
I agree. In 1990 total equity % of all houses was ~60%, today the total equity in all housing is no higher than 55% (using CME Nos.) and 37% (using Census bureau nos).
Either way it is a plunge in equity in the greatest house bubble of all time.
rvdoc: I love your word “homoaners”. We’ll see more of them as this thing winds down.
dba, 57 + 37 + 10 = 104 ? What am I missing?
Seniors who sold and downsized benefitted. First time young homebuyers who stretched to buy before being priced out forever lost.
Mortgage originators and executivews who took their bonsues and commissions and laughed all the way to the bank won. Investors in mortgage backed securities lost. We’ll have to see who those are.
Well I haven’t sold, so I haven’t really benefited from the bubble per se. But I bought in ‘99 so I benefited from the bottoming out in interest rates that was the genesis of the bubble. 4.875% 15 year fixed baby! I probably should have sold and rented, but I was more sure that I could continue to make THOSE payments than I was of a greater than 35% price decline.
no reason to play investment with your home and sell to rent. the selling costs, moving costs and the costs to buy back in will probably eat up most of any gains you might make
That is BS and at any rate depends entirely on the numbers. The run up of the past several years has been far higher in many regions than is generaly understood. The numbers can be breathtaking - I am aware of entire neighborhoods that rose 700% in under a decade, with no value added, like a new subway station, etc.
I bought in ‘97, sold in ‘04 and put the tax-free profit (after transaction and moving costs) in a money market account. The monthly interest pays my rent. So, in a sense, my housing expense was eliminated by selling. I am not alone. And I am watching material price drops all around me, that began before the subrime implosion. Heck, I hear lenders are insisting on 5% downpayments now. Wipedy-do-da.
Let’s see what happens when buyers need 20%.
the 6% growth in housing is always over a 10 year period. in reality on the coasts it has always been 300% or more gains in a few years followed by 50% or so average losses for another few years, then flatness and it averages out to 6% to 10% gains per year depending on the market. As of a few years ago the average gain in NYC was 10% per year over a long period of time including the early 1990’s crash
Boy, that worked out. All the HELOCers out there have forgotten that the reason to buy instead of renting is to have no house payments at some time in the future. You did it in 7 years instead of 30. I didn’t have the courage of my convitions to sell in ‘04. I’m just not going to worry about all the “money” I’ve lost by not selling at the peak.
DBA’s post just spurred me to run some calculations.
Assume a buyer buys for $500K and sees 5% appreciation for 8 years:
$500,000
$525,000
$551,250
$578,813
$607,753
$638,141
$670,048
$703,550
Then a 30% drop in prices, brings that $703K to:
$492,485
All that “equity” wiped out in one fell swoop.
20% down won’t be a requirement ever again - we are to embedded in the debt culture for that to happen.
I plan on putting down 20% when I buy - but I can’t think of a single other person my age I know that could / did do that when buying a house (I’m 34).
34 and renting sucks - but I got married right in the middle of the boom and didn’t want to jump on that trainwreck - so we rent a nice house and save.
If you believe the market either is going to fall or remain flat for many years(6-8 years from 2007), why on earth put 20% down on a home falling in value? It seems to me, if affordability improves, put down less : 5-10% and keep the rest in savings. I have always been a 20% min guy, but I am beginning to believe this may not be wise going forward.
Carmichael: Nobody should put 20% down on a house falling in value for the next few years. Nobody should even buy a house now unless they are wealthy and don’t mind disposing of the money. The idea for you, however, should be to have the smallest loan possible, ie when prices have fallen and you can afford a large down payment.
I know a guy who sold his house for a $500,000 profit (bought for $180,000 and sold for $680,000). Of course, that number probably doesn’t subtract the interest and taxes that he paid on his previous mortgage, so let’s say his true profit was only like $400,000. He could move to Hawaii and use the money to get that oceanography degree he always wanted. Nice! Now let’s look at what happens if the price drops while he’s in Hawaii, then he comes back and repurchases the same house.
If he pays $1500 for movers to move in and out of a rental, then pays $20,000/year to rent for 4 years, then buys his house back for $136,000 less than what he sold it for (that’s a price decline of 5% a year over 4 years), then he gets $53,000 profit and his house back.
You’ve obviously kept your wits! Few around here who bought in ‘99 got 15-year fixed, instead they took out another ARM for 30 years and PART-TAYED. Because God loves you, and pays you to live in California. Unless your a devil-worshiping renter.
My brother paid cash (120k) for his small bungalo in the early 90’s here on long island and renovated it through the years to make it quite nice evan adding a 5 car garage. 3 years ago he he refinanced 500k out of it and built it up into a Monstrosity (sp?) and his taxes went from about 4k to over 15k annually… what a dumbass!
Downsizing. A concept that was foreign and quaint for much of the past years.
The whole psychology of current thinking needs to change.
What’s wrong with maximizing a smaller space and having monentary security? Rather than having a master closet the size of Rhode Island and having debt the size of Texas?
There are great reasons to downsize, not because it will be the new trend, but because you have fewer worries. If you don’t look like you have much, would-be burglars pass up your place for the mcMansions, for example. If you wear average clothes and a cheap watch (I do), people will look upon you as average and not try to prey on you.
There may be a time when you really have to move fast. Either you leave a lot of valuable possessions behind, or you hopefully sold them or gave them away already. Job opportunities are usually the reason to move fast.
The observant people with the world view notice that they are competing with maybe 100 million people these days around the world doing the same type of work at perhaps lower wages, when 15 years ago the number could have been 5 million at high wages. With that in mind, the smart professionals would stay unencumbered and especially not establish roots in a community by buying real estate. Buying a home with ARMs was a huge trap, and now millions of people are stuck and won’t be able to move to another city with better opportunities.
There could be bad times ahead where you have to flee urban areas for lower crime rural areas such as Vermont or New Hampshire. You cannot carry a house on your back.
Liz: I knew your post was going downhill when you said that he built a five-car garage!
Bill: you reminded me of the time we returned from vacation and a burglar had visited. He left a broken screen and an empty can of soda, but couldn’t find anything he wanted to take! That was a good lesson - you can’t lose what you don’t have.
For soem reason, California, I suppose, that reminds me of an article I read yesterday. The writer was talking about median prices. How many times have we seen median incomes written about? 10% of the time? Possibly less than that. When the reality of realistic income-to-mortgage ratios returns to regular “print,” there will be an even bigger collective OMG than we’re seeing now, and here in Florida, acknowledgment of the price declines finally is being grasped. Gaping jaws all ’round.
Well when I bought, I got a 30 year fixed and paid $100 extra every month. REFI’s in ‘01 and ‘03 to 15 yr fixed. I was really gunshy on buying because my old college roommate was foreclosed upon. Which brings up the question, will the children of all these idiots who will be kicked out be reluctant to buy houses? That sort of thing can create a big impression.
We are seniors who benefitted. We sold our Sarasota house in June 2005 (80% price rise in 3 years) and had enough money to pay cash for the foreclosed house we bought here. I wish I could say it was bubble awareness that drove our decision, but it was just the desire to avoid hurricanes.
no because alt-a loans have always been there and will always be part of the market. my inlaws bought in 1994 with only 10% down or so.
we had us a nice revolution in the way mortgages are originated and risk is spread. every revolution has a bust and then things get better again. railroads, internet, etc. MBS, subprime, alt-a, etc aren’t going away. next decade they will be back in force and the spread of risk will keep rates down for a long time to come.
Excellent question! House we live in now was bought early 90’s, refied to a 15% loan a few years back taking no money out. The only way we benefitted form this blip was locking in some historically low rates. That, and I guess, the oppurtunity to go shopping for some pretty good deals shortly…
Some will look back at this time in history and just shake their heads mumbling something like — What the hell was I thinking???
I sure did. Bought at $165K in 1993 and sold at $450K in early 2006. 15-year mortgage so I banked almost exactly $400K. Renting and waiting now. Might have gotten $470-480 if I had put it on the market six months earlier, but I’m NOT complaining……
Good job, Doghouse. You’ll end up with a nicer house for less money. Who could ask for more?
I don’t know how many homeowners just refinanced at a lower rate, but I did, from 7 3/8% fixed for 23 remaining years, to 5% fixed for 15 years, taking 8 years off my mortgage for an increased payment of about $50/month.
We benefited: bought for $252K in 1991, sold for $775K in 2005; moved from CA Bay Area to AK and paid cash for current house. We could have gotten more if we’d sold a month earlier, but it’s hard to complain. We’ve ‘retired’ early for the moment. We may move back to CA one of these days–we’re burning a lot of heating oil up here!
JA,
I take offense at your Land Rover comment. I drive a 1966 Land Rover 2A 109 Ambulance, and it the one of the finest vehicles ever built. Pick on Hummers, Escalades or other horrid SUVs, even the new Land Rover offerings, but don’t make a blanket statement about my fine vehicle.
I did. Re-fi’ed in ‘03 (a year after buying) with a 5.125% 30 year loan. NO increase in debt amount, just lower payments, month after month after month.
Someone I knew at the time said ‘02 was the “top of the market, don’t buy a house.” But around here (maryland) stuff hadn’t seriously started getting crazy until until ‘ 03 or ‘04.
for all of you who saw leatherface on cnbc yesterday morning
http://www.thestreet.com/_yahoo/pom/pomrmy/10348068.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
Interesting observations. I agree that there is another pause in the decline of the shares of ALT-A lenders. And I don’t realy care if they have good FICO scores (aka prime). If you’ve got a neg-am, NINJA, option ARM….you are *much* more likely to default.
Leatherface = Mozillo?
hahaha sounds like the name of a Dick Tracy villain. I like it.
Port St. Lucie - Flipper Capital of the U.S.
http://www.foreclosure.com/search.html?st=FL&cno=111&z=&tab=p
I looked over that link and noticed that for Real Estate agent that is offering info on the home on Sw Janette Ave had his own personal address in PSL displayed as his business contact info. I looked it up on the County site and guess what? The Realtors taxes for 2005 are not paid for 2006, and his delinquent 2005 taxes have been issued a tax certificate.
I guess his home will be the next one listed in that site.
Does anyone here actually pay for this site or any other foreclosure sites? If yes, what are you opinions on them? It seems quite steep at almost 40.00 a month.
I think it’s to early in the game to bother buying memberships like this?
Thoughts?
SKB
I don’t pay for the service, but I like to keep track of areas in FL that have high foreclosure rates. I use foreclosure.com, realtor.com, and zillow.com to track the castastrophe.
It truly has become a catastrophe. I am watching the builders though I have my eye on my particular dream home and have been watching the builder’s discounts on this house since October. They have not updated their “limited time” deals for the month of April yet. I wish I had a crystal ball to see what their “limited time” specials will be Oct 2008.
I really want to buy a quarter acre in Wellington and build my house there and I am hoping for a price of 150,000 to 200,000.
This is my dream home: http://www.turnkeyhomes.com/specials-promos/olivia_2700/olivia_2700_fp.htm
No problem. Wellington is loaded with land. I used to ride my motorcycle out there all the time. Don’t worry, when the dust settles, you’ll get a nice lot, cheap!
Dude!!! I cannot believe that house is only $351,000. A spread like that would set you back $3 million easy where I live. No wonder why everyone hates us California locusts
For me this house in Florida is only worth a pre bubble price of 150-200k. There is NO WAY I would spend 351,000 on it. It is simply not worth that.
Florida was always a really wonderful and reasonable place to live until the bubble came and ruined it. Stupid bubble…kick..sigh…………
I need to stop looking already, it is like trying to watch water boil or paint dry.
SKB
SKB: I know that tastes differ, but it looks like that house has a lot of wasted space. And of course, there are a lot of concerns about the quality of construction nowadays. Over the next two years while you’re waiting for your price, you should thoroughly research the builder. Take some positive action to prepare yourself, the next two years will fly by, and it will be worth the wait.
If I was in the market looking to buy a house, it’s always to your advantage to know all you can about the seller. There is every reason to check out the deed, mortgage, foreclosures, bankruptcy filings, property tax documents, etc.
It’s all public information and the sellers and r/e agents are remarkably quiet about it - just never seem to get around to getting you the info, so you have to look it up yourself.
If the mortgage on the house is equal to the selling price, well, as a buyer, I’d be wasting my time making an offer below the mortgage amount. Likewise, if the seller/owner has filed for bankruptcy, foreclosure proceedings have started against the seller, etc, it makes buying/selling alot more complicated, despite the smooth talking r/e agents.
Foreclosure.com seems to be a “data aggregating” type company, and if I was active in the market, I think I’d probably fork over the $40/month for the service for a few months. Probably money well spent.
All I can say is…..Sweet Jesus! I’ve never seen such a concentration of FF, FB, and simply F’ed market.
EU bubble news:
my Dutch newspaper reports about a UK tradeshow for foreign properties. What a contrast with the US market - foreign homes are still selling like hotcakes! UK buyers are scrambling to get on the property ladder - or get higher on the ladder by spending their increased home equity. For people attending the show, RE is the sure way to get rich and retire early. Because (extra) UK properties are now out of reach for many, attention has shifted to foreign properties. The number of Brits owning foreign properties increased 45% over the last two years. Most popular countries for buying are currently France, Spain and Australia; many of these buyers plan to emigrate, stop working and rent out their former UK home for income. For starters properties in Hungary are popular. For the same amount as the minimum downpayment on a UK home you can buy a complete home over there (never mind you can’t live there when working in the UK …). The situation in Netherlands is similar, with huge crowds at the last second home tradeshow; apparently the current downturn in the US goes unnoticed and of course, Europe IS different
I think the US realtor mob could do a much better job selling their properties to EU speculators!
When visiting the mouse (Orlando) a couple of years ago, we were staying close to a shop specializing in selling real estate to Brits.
Are you sure they didn’t say “twits”?
LOL!
So this is what I still don’t understand: HOW are people still buying?
The problem over here is that our income simply doesn’t support the prices (in the bubble areas that is). Even with toxic and rediculous loan products, people can’t even afford the monthly payments.
As it is, many people here have mortgage payments for MORE than they bring home. so they of course go into foreclosure. As teaser rates are expiring, more and more are going into foreclosure.
this is why we’re seeing the subprime blowup right now, because the early default rates are so high. (people are defaulting on the FIRST loan payment because it’s simply more than they make)
so how can Europe keep their prices so high?
My only thoughts:
-Is it some form of tax strategy???
-is it due to you not having to pay for healthcare, that frees up some disposable income?
-Or perhaps your savings rates? (you’re using your savings to buy RE). Because we don’t have a savings rate here. (well we do, but it’s a NEGATIVE savings rate)
-or is your economy doing well? here ours is not, which is why our RE markets don’t make sense. RE goes up 10-20% while incomes fall. Well, not any longer. Now RE is stable to falling while incomes fall.
I would assume that the investors in American MBS are the same investors in the European version of MBS as well. (think HSBC which is getting spanked right now…) I have a hard time believing they’re not reviewing their English mortgage holdings now. so perhaps this is your last hurrah as well?
I’m going to be in So. Fl (Ft. Lauderdale/Miami) for a few days at the end of May. Anyone want to get together for a So. Fl bubble happy hour? I think I can bring at least one FB with me for you all to laugh at.
Txchick:
now that is just wrong! I rarely truly laugh out loud, but that one made me do it for real. In fact, I can barely type right now because my fingers are weak with the laughter! I may fly down there just so I can see this poor schmuck’s trout-slapped face.
TX,
DAP and I keep trying to get together, but have both (more my fault) kept missing on times that will work for both of us. We are both located in the WPB area, about 30 minutes N of Ft Lauderdale.
Anyway, when you have firm dates, let me know, I will see if we can put something together.
Also, no need to import a FB, we have PLENTY of them to laugh at here already.
Will it be a clandestine mocking or will the FB know s/he is the object of ridicule and scorn?
How are they still buying? It’s the UK “Property Ladder” — a bigger bubble intoxicating phrase than the boring US “Buy now or be priced out forever”. The Europeans don’t want you to stop at one place, they want you to keep climbing the
ponziLADDER buy leveraging each purchase into a bigger place!Yes, I see that.
But to trade up you have to SELL your current place. If prices rise too high (as they have in our bubble markets) there is no first-time homebuyer who can buy the first house to allow that homeowner to move up.
We’ve seen how in SoFL and CA as example that people truly are PRICED OUT FOREVER!!!! Thus, sales stop. (because ironicaly people are priced out!)
At some time, appreciation must stop, even in the EU, unless one of the factors I elucidated are happening.
Perhaps their economy is roaring right now? That would explain the continued rise.
Perhaps they have new more favorable tax incentives?
Perhaps they are using all their savings????
Or perhaps it’s because they aren’t so consumer driven in all aspects of life? (many Europeans don’t have cars or use the public transport, which frees some cash. perhaps it’s because their homes aren’t as big… so they’re paying $500,000 for a 1,000 sq ft place instead of $750,000 for a 3,000 sq ft place and so on). Or maybe they aren’t getting the subzero fridges and granite countertops and all the extras???
Or is it their last hurrah?
so how can Europe keep their prices so high? [...]
-Is it some form of tax strategy???
Generally not in most places for homeowners, compared to the US anyway. Home mortgage interest is not deductible in most (or all?) of the EU as far as I know. Rental property is a far different matter, with tax deductions and other breaks all over the map, dpending on which country you look at. Even so, rental property yields are abysmally low right now.
-is it due to you not having to pay for healthcare, that frees up some disposable income?
Certainly not. When I lived in various places over there I paid through the nose for mandatory health care taxes. Sure, there was no out of pocket expense; instead, it hit only once a month with rates like 10% in UK and 13% in Germany (half-half split with employee/employer) added to normal income taxes.
-Or perhaps your savings rates? (you’re using your savings to buy RE)
My UK coworkers had little savings. My German coworkers had some, but not a lot, more like $10k’s, not $100k’s in the bank. How they managed to buy amazed me. Actually, few Germans I knew owned their home, though some owned rentals! (Tax reasons) And in the UK many of my friends the same age owned homes or flats, but with huge 95% or 100% financing and adjustables rate mortgages.
or is your economy doing well? here ours is not
Generally, the US economy has been doing far better than large chunks of Europe. London is booming, mind you. Germany was stagnant for quite a long time, as was much of the rest of the Continent. Pick up a copy of The Economist and check some of their charts near the back pages.
Like I’ve mentioned before, in places like the UK, people are so desperate to get on the housing ladder that they team up to buy flats and live in conditions that are much more crowed than what Americans might put up with.
For more info, nhz has good posts on the Dutch market, so if you want a really in depth rundown on that, keep your eyes open for his posts.
RE goes up 10-20% while incomes fall.
I do believe that, on average, incomes are rising and have been for quite some time. They have not been rising enough to catch housing, and that, of course, is the crux of the problem, and why RE here will correct. And I am holding my breath for much of Europe to correct eventually.
don’t know the details about UK (except that there are huge amounts of liar loans there) but in Netherlands starter subsidies and crazy tax initiatives are certainly a factor that keeps the bubble going. Those at the bottom of the pyramid are mostly buying with OPM (free loans, free ‘housing put options’ etc.). That is why people are still buying while the average home costs 8-10x average income.
Another issue is that many of those that are buying, especially in the second home market, already have multiple homes. They are not selling their first home, they are simply spending all their equity gains on additional properties, the leverage is staggering and probably FAR bigger than in the US market. Who cares if you cannot rent out a place with positive cash flow if it appreciates 5, 10 or 205% yoy (even 5% is far more than the rate on EU savings accounts, and on top of that it is totally taxfree, at least in Netherlands).
And the icing on the cake of easy lending is low rates; in Netherlands 30-year fixed is a little above 4%, which translates into 2% because of the 50% HMD. 30-year fixed mortgage at 2%, courtesy of the Dutch tax office, any takers?
Wow: 30-year fixed mortgage at 2%, courtesy of the Dutch tax office, any takers?
Trouble is, I’m not sure I want to take that deal because as I grab that deal from the tax man’s hand, his other hand is in my wallet!
If you’re already in the system, though, what do you do? Keep paying all that tax to support these programs while you yourself DON’T use them? Ouch.
As for UK liar loans, yep! I’ve got friends there who I know have put down some “slight” stretches of the truth. OK, not stretching the truth — some were outright, bald-faced lies. Will it come back to haunt them later? Quite possibly.
The majority I know, though, were up front about their incomes, and the banks lent them money anyway. It worked out when interest rates were a bit lower than now when they are feeling some pain. And the big, big risk is that if BoE has to boost rates substantially (as they often seem to be on the verge of doing since inflation is too often nudging the top of their target range) millions and millions of people will be slammed. That happened before, and it well might happen again.
sure, the trouble with the Dutch HMD is that if you don’t take maximum advantage of it (because you are renting, or don’t have/want the maximum mortgage) you end up paying a huge net sum to the tax office for all the people who DO use this crazy system. The Dutch government spends more on housing subsidies (the HMD is the biggest part of that) than on education and healthcare. Our new government has ruled out any changes to the HMD for the next four years, they even made the ruling parties agree that just talking about changes is forbidden as well. Of course it has to change sometime, because in the long run this system is not acceptable to and compatible with EU tax harmonization. The funny thing is that some government office has calculated that when the HMD is removed completely (which is politically out of the question, even a change from 50% to 40% is political suicide) home prices will decline by 11%. Well, I think this is a little bit too optimistic. The system is unsustainable (like all pyramid games) but it works until it doesn’t … probably the HMD will be removed after the next housing crash, so no one can blame the politicians.
regarding the liar loans: it’s completely legal to get 10x income loans in Netherlands, sometimes even with 110% financing and free mortgage insurance (you can never sell at a loss) from the government. You need to be a bit creative, but there are plenty of loansharks that will be glad to help you with the paperwork. Just 20 years ago you could buy a very nice home for 3-4x income, today you have to pay at least 10-20x income to get anything that is a little above average. As long as banks and politics succeed in keeping the net how-much-a-month amount within limits and homeprices rising forever, nobody cares about homeprices.
The system is unsustainable (like all pyramid games) but it works until it doesn’t …
nhz, I find your reports on the Netherlands astounding. I sometimes have to read your posts twice to make sure that what I understood is really what you are saying. From what you are saying, it looks as if a sizeable chunk of the population is a humongous leech sucking money out of the system, and that the system has no underlying productive activity to sustain the parasytes in the long run. My God, if I didn’t know the Netherlands to be a rich country in Europe I would think you are talking about some oil-rich third world nation. Now I have no doubt that a big crash is coming. And it is going to be global.
cassiopeia:
I think Netherlands is very much like the US lately, both in the political and in economic/financial sense. This is a BIG change from the period before about 1980. Yes, Netherlands is a paradise for parasites (of various kinds) and Dutch politics depends on keeping them satisfied, so they will continue the current system as long as possible. Netherlands is rich but just like the US we are running up large debts at the same time (mostly private debt, less government debt compared to US). It is not the first time this happens, our 17th vs. 18th century is a clear example of a former boom/bust cycle (including some housing bubbles as well). That didn’t work out well for the average citizen, but the country survived…
our 17th vs. 18th century is a clear example of a former boom/bust cycle
Nhz, I confess I know nothing about this. Is there a book you can recommend?
Cassiopeia:
I agree. I’m becoming more and more of the opinion lately that the whole world is holding on to the US coattails. Every time we swagger, they sway, so there’s really no way for a US citizen to “hide” from the US economy just by investing elsewhere.
I do, however, think it might make sense for a US citizen to trail her investments world-wide after her investments in the US, since it seems that so many other economies are mimicking ours.
I do, however, think it might make sense for a US citizen to trail her investments world-wide after her investments in the US, since it seems that so many other economies are mimicking ours.
Big V. excuse my ignorance. What does this mean?
Oh, just me rambling again.
What I meant is that it seems like everything that is happening over here is also happening over “there”, only it happens here first. We had a credit bubble, “they” had a credit bubble. We are going into a credit crunch, and I think “they” have to follow suit. Of course I’m too much of a chicken to actually place money on it, but I’m willing to bet that the European housing bubble starts to deflate next year, and that European stocks will decline in parallel with US stocks.
Oh, I agree. It’s going to be global, even if things play out at different times in different places. No one is going to be immune. So, what to do? Buy Swiss francs? Yen? Gold? A little bit of each one?
I think I’m going to invest in a Bear Market fund at Charles Schwab as soon as I save up enough to meet their minimum without having to sell out of anything I already have.
Regarding my last comment:
I meant to add that I’m too much of a chicken to make any bets on gold/foreign currencies, since I’m pretty sure that Bernanke won’t allow the hyperinflation that has been predicted by some on this blog. But if he reduces interest rates (as some have said), I’m definitely going to put gold back into my portfolio.
Big V, I guess it’s just a matter of covering all the bases you can. I took money out of stocks and into several Cd’s, but I will consider a bear market fund too.
cassiopeia: I don’t have any english references at hand but I guess there are plenty of them. You could start with reading about the Dutch Golden Age in Wikipedia:
http://en.wikipedia.org/wiki/Dutch_Golden_Age
Shortly after the Netherlands was founded as a republic, the Dutch invented the stockmarket (in Amsterdam), insurance and retirement funds, multinational corporations (VOC), bubbles (1636 tulip mania) and a lot of other foundations of current financial life. The Netherlands quickly became a wealthy empire because of colonial trade (including slave trade), many scientific inventions and a dominant position in arts and literature. In the 18th century things started to head south because people stopped working and inventing, and were satisfied with spending the capital of previous generations (speculation instead of investment). The republic never fully recovered, but it still is a relatively wealthy country. I think there is something to learn for Americans in this history…
Extraordinary popular delusions and the madness of crowds, by Charles Mackay
That’s even worse for Europeans (IMO) because their taxes are a lot higher than ours and a lot of these countries are seeing flat economic growth.
Maybe the European homebuilders haven’t overbuilt like they have here in the U.S.?
sure, there is less overbuilding in most of Europe (especially in the northern parts). But I don’t think this strongly influences prices, it does influence the dynamics of the market (much faster correction of excess in the US compared to Europe). Europe has far more government intervention like zoning and ridiculous tax regulations. This strongly increases prices on the way up, but I guess it will also cause more harm on the way down. Also keep the population dynamics in mind: population in some parts of Old Europe is already shrinking; with the much longer lifetime of homes in Europe this could be a factor for depressing prices in future once the current speculative fever has run its course.
That story (I think you posted about it?) regarding the Spanish bubble was astounding. 93% of all mortgage bagholders there have floating/adjustable-rate mortgages. The Spanish market is like Orange County of steroids.
¡Ay, caramba!
and of course: the Brits (and the Dutch etc.) are still buying in Spain, so prices keep climbing. Compared to the UK and Netherlands, real estate in most parts of Spain is still ‘cheap’. People from Netherlands can buy a home in Spain with their much higher Dutch income, even get the 50% tax deduction from the Dutch tax office if they declare it as their primary residence and because of that they have far more buying power than the Spanish locals. Banks still love RE and will be happy to provide huge loans for housing speculators. This kind of problem exists everywhere in Europe and will probably continue until RE in all the desirable / accessible locations in and around Europe is nearly as expensive as in UK and Netherlands …
I’m sure it will end badly, but the EU bubble is still very healthy.
That story (I think you posted about it?) regarding the Spanish bubble was astounding. 93% of all mortgage bagholders
Lou, I’m not certain but I think for many years most of mainland Europe did not offer fixed rate mortgages, so I would not be surprised to read a # that high. Anybody back me up on this?
there is much variation within Europe; Netherlands has mostly 5-30 year fixed rate mortgages (in many variations). Other countries have no fixed rate loans at all, or only fixed rate for a few years at most. Some EU countries hardly have ARMs, others have plenty of them. There are also big differences in tax structure (most countries don’t have HMD any longer, but Netherlands has huge HMD and one or two others in EU still have some kind of limited HMD).
Yesterday there was a story about the housing bubble in Gibraltar of all places.
http://tinyurl.com/2dvuau
This has passed from unsustainable into just plain nutty.
If you want to read the classic stupid Brit RE story, click on this
Most popular countries for buying are currently France, Spain and Australia;
Is the most popular emigration site for Brits to France Provence?
I think many Brits buy property in Normandy because it is easily accessible by train; some even travel to work in London from there. Some areas in France also have good airline connections nowadays, good enough to go there for the weekend (certainly influences second home sales). Don’t know about the Provence except that it’s very popular with Dutch and German tourists during summer; I can imagine the Brits like it because of the very un-British weather.
If you thought it was just subprime lenders having their way with consumers, think again. Insurance companies are cashing in from the last sheeple ‘bah’ ‘bah’ bailout:
Homeowners and business owners say their premiums have doubled or tripled since Katrina. Businesses are delaying rebuilding. Workers have been slow to return. Sky-high insurance has become what Mississippi Attorney General Jim Hood calls the “third storm” to hit the region — behind Katrina itself and the legal disputes over insured damage.
As insurance turns into a crushing burden for residents, a ripple effect is threatening jobs, and by extension, the region’s recovery. Employers are finding it difficult to recruit workers, who simply can’t afford home insurance or can’t obtain enough of it. High insurance rates are offsetting grants and tax breaks state and federal governments have dangled to try to spur development. And some businesses say insurance woes are driving them out of the state.
http://www.usatoday.com/money/perfi/insurance/2007-04-02-gulf-recovery-usat_N.htm
REAL ESTATE MARKET IN MAINE NO LONGER BLISTERING
The French cottage-theme house is one of three he’s building on Lancaster Lane on the east side of Scarborough, a sought-after neighborhood. The 4,500-square-foot home has a lot of built-ins, custom work, decorative gables, shingle siding. It’s not a cookie-cutter home.
What he didn’t expect was how quickly the $779,900 home would go.
In Maine, the median sales price for homes rose steadily after 1998, with large jumps in the first half of this decade. It increased by $17,000 in 2005 compared to 2004, hitting $191,000.
Today, the market is not so blistering.
The biggest concern that he hears from buyers, Banks said, is that they don’t think there’s enough inventory on the market. People have taken their homes off the market for the winter, Banks said, and haven’t relisted their properties.
“The job market appears to be coming around nicely, particularly in the Boston region. It gained 100,000 jobs since the low point three years ago, and that momentum appears to be gaining,” said Yun. “That combination will begin to lift home buyers’ confidence.”
Regionally, existing-home sales in the Northeast increased 14.2 percent to 1.21 million in February, a 3.4 percent increase over February 2006, according to NAR. Sales were flat in January over December, regionally, but were almost 6 percent higher than January 2005.
http://tinyurl.com/2eh8te
I tried to make sense of the quicken loan small print on their pick a payment I/O option. THE PAIN IN 5 YEARS is BRUTTAL>
Payment on $150,000 loan in 5 years goes from $438.00 to $1077.84
$150,000 loan payment starts at $438.00 (start rate 3.5%)
at 53rd month you now owe $172,500 and payment is $934.12
at 60th month payment become $1,077.84
at 120th month payment become Prin and Int at $1389.28
Rate is variable and subject to change. After the initial fixed-rate period, the rate will adjust every 6 months. The initial, minimum payment on a 30-year $150,000, 5-year Adjustable Rate Loan and 80% LTV is $438, with 0.88 points due at closing. The minimum payment is based on a rate that is implied solely for the purpose of calculating the minimum payment which in this example is 3.5%. Interest will accrue at a rate of 6.50%. Paying only the minimum payment will result in deferred interest or negative amortization since you will not be paying all of the interest that is owed each month. The unpaid interest is added to principal. Interest can be deferred until the outstanding principal balance is 15% (10% in New York) higher than the original loan amount. If the maximum limit is reached during the first 5 years, the payment automatically converts to an interest only payment. In this example, the maximum limit will be reached in the 53rd month, which is when the loan amount reaches $172,500.00. At this point, the minimum payment will convert to an interest-only payment of $934.12. After 5 years, the interest only payment is $1,077.84. After 10 years, the principal and interest payment is $1389.28. The Annual Percentage Rate is 7.355%. Rates could change daily. Actual payments and rates may vary depending on individual client situation and current rates. Some restrictions may apply.
That is fricken scary.
What I don’t understand is how the MBS holders are making any money when they’re only collecting 3.5% interest for fixed rate period. Do they really believe that the borrower won’t refinance and then further screw them out of money? There must be a pre-payment penalty fee; that way the MBS holders will get their interest regardless of the ‘fixed rate’. Otherwise 3.5% is such a measley return; why even bother when treasuries are higher???
That is fricken scary.
What I don’t understand is how the MBS holders are making any money when they’re only collecting 3.5% interest for fixed rate period. Do they really believe that the borrower won’t refinance and then further screw them out of money? There must be a pre-payment penalty fee; that way the MBS holders will get their interest regardless of the ‘fixed rate’. Otherwise 3.5% is such a measley return; why even bother when treasuries are higher???
Boyz with BB Guns
http://wallstreetexaminer.com/blogs/winter/?p=586
That cash-less-liabilities chart, at the end, is pretty unnerving — particularly relative to the magnitude of the negative peak versus the positive.
I guess some banks are NOT ‘Too big to Fail’ afterall. According to Bloomberg, Moody’s is reversing its ‘Too big to Fail because government will bail’ bank ranking methodology:
Moody’s is changing its rules after Merrill analyst Richard Thomas in London criticized the “perverse” results from the so- called joint default analysis criteria. JPMorgan analyst Ben Ashby in London questioned how investors could trust the methodology.
“It’s not as if they’ve done it voluntarily,” Ashby said. “They’ve done it because everyone’s ridiculed them. If they want to rebuild credibility, I would spend a few years producing very high quality bank research. But that’s very tricky to do.”
Eighty-five percent of investors in a Merrill survey last month said Moody’s had lost credibility because of the approach.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a1WOWy3Wwg78&refer=home
“Moody’s justified the ranking by saying some governments are willing to pay off bank debt before sovereign obligations to prevent a banking crisis.”
Fed’s Bill (the Butcher) Poole wants Fannie and Freddie taken off the “too big to fail” thing. Is anyone reconsidering the implicit guarantee on agency debt over at Moody’s?
Yeah, I read that one. Evidently Moody’s came with a FICO score system for banks and the boys at ML told them it was trash. I mean, it worked so well with J6P…hooda thunk?
“We travel together, passengers on a little spaceship, dependent on it’s vulnerable reserves of air and soil, all committed, for our safety, to it’s security and peace. Preserved from annihilation only by the care, the work and the love we give our fragile craft.”
Adlai E. Stevenson, Jr.
“Travel only with thy equals or thy betters; if there are none, travel alone.”
The Dhammapada
Anybody have a guess on what the pending home sales reports will look like? We get the data in about an hour.
If it supports our thesis, we’ll applaud it and say “we told you so, bubbleheads!”
If it doesn’t, we’ll scream, “Fake, phony numbers, liaring bastards! Tell the truth!” — See how they revised the numbers to make these look good! Bastards!
LOL.
The problem is that we are all so involved in the market that we look for any data point possible to keep us interested in the speed and heading of the USS Housing Bubble.
If we could all step back for 6 months at a time, we would see that most of our predictions have been right. However, when you try to predict data point to data point; there is just too much margin for error.
That’s why buying a stock for the long run is typically a pretty good move. What’s the correct price 10 years from now? I donno, but I know its UP!
We have the same situation in housing. What’s the price going to be this month? Donno, but next year, I know it’s going to be DOWN.
Down 1.6%
whoo-hoo.
Yeah, bingo, I agree… In the blogosphere there seems a little too much reactivity to the short term trends.
Yeah, but just because it’s fun.
Posting again because it may have been buried in the other topic:
Got a friend who’s moving to Reno and is pretty nervous about the housing market. Anyone with info would be much appreciated.
Thanks in advance
Rent and relax. Not a hard call.
I know….they are looking for rentals and wondered if anyone had preferences on area, schools, etc.
I live in southwest Reno. What grades are the kids he is looking to put into schools here?
nnmrgbrk knows the area well…..
I was talking to a buddy of mine this weekend. He owns a large lumber company here in central Fl….He said business is off 50%
this year…Sorry for not having more details, but I didnt want to
ask too many questions.
Good luck on your radio interview today, Ben.
What station? Does it stream?
He’s going to be on KPFK’s”Free Forum” in Los Angeles with Terrance McNally. But I don’t know if it is live or recorded for a later broadcast.
I hate KPFK, they are very pro-victim.
Here’s the show’s abstract, just released:
The show streams at http://www.kpfk.org. Click “Listen Live”. The station uses ShoutCast which streams MP3’s. These will play from virtually any player including: realmedia, winamp, windows media, itunes and quicktime. Any of these players can be downloaded free from the site.
******************************************************
FREE FORUM with TERRY McNALLY
Tuesday April 3rd noon PST/3pm EST
BEN JONES
founder/creator
thehousingbubble.blogspot.com
90.7fm in LA, 98.7fm in Santa Barbara
streaming globally on the web at http://www.kpfk.org
******************************************************
For audios of this and previous shows, http://temcnally.livedigital.com/content/audio
******************************************************
Interviews are also archived for 90 days at kpfk.org, check “audio archives”, scroll down by date and time.
******************************************************
New York Times - April 1, 2007 — BORROWING TROUBLE
Reuters - Mar 29, 2007 - MORTGAGE CRISIS HITS MILLION-DOLLAR HOMES
Washington Post - March 23, 2007 - FED FAULTED FOR INACTION ON MORTGAGES
Business Week March 17, 2007 - MAKING SENSE OF THE MORTGAGE MESS
Bloomberg - March 12, 2007 - FORECLOSURES MAY HIT 1.5 MILLION
Associated Press - March 6, 2007 - LENDERS TAKE BEATING IN SUBPRIME FALLOUT
Christian Science Monitor - March 2, 2007 - FORECLOSURES RISING AMONG HIGH-RISK US MORTGAGES
LA Times - February 13, 2007 - IT’S THEIR DEFAULT POSITION
******************************************************
It has taken the mainstream press forever to pay attention to a looming crisis some savvy bloggers saw coming years ago.
We have at least three stories here:
(1) the housing bubble, and how dependent we were on housing equity to fund consumption
(2) the mortgage fiasco - gimmicky loans and re-fis to people who couldn’t afford them, and
(3) perhaps most glaring, the media’s negligence.
I turn to BEN JONES who began blogging about this in 04. We’ll examine as much as we can in a half-hour.
What is the meaning of the housing bubble?
What is the meaning of the bad mortgage binge?
What is the role of the government in all this if any?
How bad will it get when millions can’t meet payments when their terms change? A lot will begin to do so in 07.
What has the media missed this so badly? What do ad dollars and industry hype have to do with it?
How did the bloggers see the truth?
What are the consequences for housing, our economy and the media?
It’s on KPFK.org at noon, Live I believe. You can stream it, or listen on 90.7 in LA or 98.7 in Santa Barbara. Oh man, Santa Barbara won’t be happy.
Does anyone know what happened to the Baltimore housing blog? I know the blogmistress went on vacation for 2 weeks starting last Friday. As of last night it appears that her password was hacked.
(Another article on complicated ways to “create” a down payment.)
New down-payment funding idea draws regulators’ attention
http://biz.yahoo.com/cbsm/070402/aa2879a844954c1da8cce679599dd3db.html?.v=1&.pf=loans
What a scam!
As best I recall, fraud includes the *intent* to deceive.
So Feb. pending home sale is up .7%. I wonder how many of these pending sales failed after lending rules changed? From some of the data we have seen here I bet that it is around 60-70% of these have failed escrow.
Hasn’t anyone noticed that they used to quote Y-O-Y data and they’ve moved to month-over-month over the past year or two? For instance: the pending home sales index was up Jan-Feb but down 8.5% YOY. They are manipultaing sentiment by changing the way it is reported…
manipulating, sp.
“Sales dropped 6 percent in the West and 1.3 percent in the Northeast.”
As goes California so goes the nation.
Has anyone else noticed what’s going on at the OC Register? They seem to have taken a decidely bearish slant on their stories and now they have a section called “Subprime Shakeup”. This has to really piss-off the OC permabulls that used to permeate that blog. I remember when Lanser paid us a visit here sometime ago when it seemed that they were whitewashing the news in the OC register.
Now, what is the SD UT’s excuse? Once LEND fully implodes, there won’t be one.
Now that the cat is out of the bag on subprime, I suppose you turn to scandal to sell more papers when you know the ad revs from subprime whores is going bye, bye. Subprime is scandal now in OC. OC is going to tune in to these upcoming trials of the SP Kings, like Houston folks tuned into the Enron trials. The execs who don’t go to jail, will slip out of town in middle of the night and leave the OC for new frontiers to exploit.
Public accounting firm Grant Thornton has resigned from the audits of both Fremont General and Accredited Home Lenders. Fremont said it might not be able to find a replacement audit firm and Accredited also said it would be unable to file its annual report:
http://www.nytimes.com/2007/04/03/business/03fremont.html?_r=1&oref=slogin
“The auditor of Fremont General, a troubled financial company that is trying to sell its subprime mortgage business, has resigned with a complaint that the company had failed to provide information when promised.”
“The departure of the auditing firm, which was hired in August after Fremont fired its former auditor, Ernst & Young, raised questions about when, if ever, the company would be able to file its annual report for 2006, which is already overdue.”
“In the S.E.C. filing, Fremont said its audit committee was looking for a new auditor, but added, “There can be no assurance that the company will be able to retain a new independent registered public accounting firm.”
“Grant Thornton, which ranks in the second tier of accounting firms in the United States, just below the Big Four, also resigned as auditor of another subprime lender, Accredited Home Lenders, that company disclosed late Monday.”
“Accredited said Grant Thornton had given it a resignation letter, dated March 27, on Friday. It said the company had neither asked for nor accepted the letter of resignation, and added that it would also be unable to file its annual report.”
I can tell you with firsthand knowledge that this is a BIG deal. Audit firms rarely resign from audit engagements, especially in the 11th hour right before the audit is supposed to be completed. My guess is that the auditors either fear the huge liability that will come when these lenders go belly-up, or there is so much turmoil/fraud going on at these lenders that they couldn’t gather enough information to form an opinion on the financial statements (or maybe both reasons).
Without clean audit opinions, these lenders will be delisted from the stock exchanges, their loan covenants will be in default, and all of their debt obligations will be immediately due and payable. I believe they will have an EXTREMELY difficult time finding new auditors in the current environment. No audit firm is going to want to come anywhere close to these lenders.
I believe the end is here for these two lenders.
Yep!
I have a distant relative that I had dinner with a week ago that audits for Deloitte in the r/e arena. He had just had a meeting with FNM who had requested that he assist with their audit. The portion that he was asked to work on would generate mid 6 figures for the firm, but expose them to immense liability so he proposed a hold harmless and subrogation (basically FNM would agree to indemnify in case of errors). FNM said NO. So my relative says “no f’ing way”. Smart move on his part IMO.
sounds like they were trying to hide some things and he realized he wasn’t going down for their mistakes.
This past weekend, I was helping my brother-in-law who just moved to South Florida for a new job. He has enough saved to buy a small place, but I talked him into renting for at least a year. So, we went apartment hunting.
There’s a huge glut of private rentals here, so finding one wasn’t difficult. He just signed a lease for a nice, upscale 1/1 condo in downtown Ft. Lauderdale (Las Olas area). He’s paying $1000 per month. With the glut of rentals in the current market, he probably could have found an even better deal, but he loved the location and the fact that it was new construction and no one had ever lived in the unit.
The “investor” who rented him the place owned 3 other, similar units in the building. The other three are for sale on the market.
Today, I looked up his “investments” on the Broward County Accessor’s page. This investor paid between an average of $231k for the units in June 2006. He currently has the other 3 units on the market for $213k (I guess he’s willing to take a loss). None of the units have ever been occupied.
Had my brother-in-law purchased on of those other, similar units for $203K (I assume he’s come down another $10k in this market — half of the building is one sale), he’d pay approximately $1925 for PITI + HOA (insurance and taxes are much higher in Florida than in most parts of the country). He’d pay that for an “asset” that is is already depreciated 7.8% in the past 10 months and will only depreciate more in the coming 18 months.
This “investor” is really getting clobbered. He’s been paying mortgages, taxes, insurance, and HOA on 4 units since he bought them nearly 10 months ago. He’s paid nearly $80k in PITI + HOA for “assets” that since devalued by a collective $122K. Now, he finally bit the bullet and decided to rent one of the units out, but he’s taking a $925 monthly bath on the one unit.
Freakin’ brutal.
I have little doubt that this scenario is commonplace across the country.
these kinds of reports are what keep me coming back to Ben’s blog
Wow - $1k for a new condo in Las Olas is pretty killer. I moved from S. FL. about 10 years ago, and that’s about what a unit like that would have gone for *then*.
P.S. Congrats on another championsip.
Which is why I will be renting a home soon in this area for around $2000 a month, when these FB’s are trying to sell them anywhere from $450,000 to $550,000…. It’s less than 1/2 to rent than buy.
But, I know I am missing out on all of that “appreciation”. (cough) RUn any one of the simple rent vs. buy calculators and you are nuts to buy now.
The only thing I’d worry about is if the LL defaults. Your B-in-L could face almost immediate eviction with no real recourse, though I don’t know Florida’s law on the subject.
Personally, I’d be wary of renting a condo right about now, for that very reason.
Thanks. We thought of that as well. However, it’s still worth the risk. Most of the great deals in the area are coming from private landlords (AKA FBs) and it’s nearly impossible to determine which ones are near foreclosure and which ones are not.
In this particular case, this guy seems to have a lot to lose by going into foreclosure. He has full-time job in corporate telecom sales, lives in a $1M house (the online property accessor’s databases are great), drives a nice car, etc. Of course, we all know this means absolutely nothing, but it’s better than renting from an FB who is a full-time “investor” or realtor.
In the end, my brother-in-law is only risking his $1k security (doubt he’d get that back in a foreclosure) and the need to move again, which isn’t a big deal from a 1/1.
He wouldn’t really lose his deposit, though, because even the bank has to give 30 day’s notice. Besides, your bnl would probably just stop paying rent as soon as he saw the foreclosure notice on the door.
He had better keep half his stuff in boxes.
My landlord is an FB who got foreclosed upon, and the bank is kicking me out. Her irresponsibility becomes my problem.
No renting from an FB now. My new landlord bought the unit in ‘95 for $51,000.
Paul
Either NO SHAME or MASSIVE DESPERATION:
http://www.sandiegohomeownership.org/
A new non-profit website to help consumers:
“Housing market conditions have changed, and there is a significant amount of confusion in the marketplace. Sandiegohomeownership.org provides neutral information in a consumer friendly manner to ease that confusion”
Learn about the buyers market, and why it might be a good time to buy. There are lots of friendly tips on the site, and an online poll that you may take part in (hint, hint).
Brought to you by those Oh So Neutral consumer rights and education associations, the San Diego Association of Realtors and the San Diego Building Industry Association.
The ad plays on AM 600 & 760 here in SD.
Paul
I vote for “No Shame” with a pinch of borderline criminality.
Truly wolves in sheep’s clothing. I hope the duplicitous ba$tards go down in flames.
Stocks Up on Positive Home Sales Data
The fools - how can they bid up stocks on this data that probably is meaningless. Will the folks at the NAR ever tell us how many of these pending sales fail escrow because the loan requirements changed. Don’t the folks on Wall Street know that the lending requirements did not really start to change until late Feb? And most of the changes were actually made in early March. As I said a few moments ago many of these sales will fail.
http://biz.yahoo.com/ap/070403/wall_street.html?.v=17
I don’t see a interest rate cut in the future if this keeps up.
“That says people are getting mortgages, people are buying houses, people have incomes, jobs, all that good stuff,” said Kim Caughey, equity research analyst at Fort Pitt Capital Group. “You’d never go out and buy a house if you think you’re going to get laid off. Consumers are optimistic about the future, and as we all know, the consumer drives this economy.”
Oh yes. Americans are so rational about their finances. They’d never buy anything that they didn’t think they could afford!
Sorry Waman - i was posting at the same time below - same thoughts…
Stocks extended early gains after the National Association of Realtors said that its pending home sales index, a measure of future U.S. home buying, rose 0.7% in February. However, the index is down 8.5% year on year, and the NAR said that sales may be experiencing “some fallout from a decline in subprime lending.”
Wow, that sure looks like good news to me!
Gold up to $672. (I’m surprised.) Inflation coming home to roost.
My bank CD’s have done better than the few thou I have in stock fund I got in fall b/c I was working too many hours and wasn’t thinking very hard (=stupid). This “up” quarter is actually flat. Treasuries did better. Does the newspaper think we’re so stupid as to buy that line?
I never really understood the financial section of the paper until I had skin in the game. Now I just find it laughable.
“Stocks Spike on Positive Housing Data”
AP - Stocks rose sharply on signs of an improving housing market Tuesday, with falling oil prices contributing to the rally. The Dow Jones industrials gained more than 100 points.
It is just amazing how any scintilla of a tiny bit of positive news, even bogus NAR numbers, sparks rallies in the stock market - as if the tsunami of bad housing/mortgage news that has risen over the whole RE community hasn’t swept the tide away. Inventory has kept building and buyers keep dwindling. What will it take to stop this phenomenon of rallies on tinier and tinier dead cat rebounds inthe RE numbers?
500 point down day seems like a long time ago, doesn’t it? It’s a trader’s market, investors beware.
Agree - I’m no trader and only have my 401K - which has done great over past 5 years - I’ve pulled all out to a money market fund - the safest option available in my plan. I saw way too many friends have theirs wiped by hanging on in the dot com bust and there is just too much bad news coming down the pike to be in at this point in time.
Me too. My 401k is very conservative right now. I may lose out on some gains, but the market is just too unpredictable right now. My dad lost nearly all of his retirement savings in the dotcon bust (he was way too heavily leveraged in stocks considering he was 5-10 years from retirement). I’m far more interested in protecting what I have right now than trying to milk every dollar out of the market possible.
exactly - in this kind of environment - I am waaaaay more concerned about protecting the gains I’ve made than wringing more out of it. Going forward, i don’t mind contributing my new money into stocks in an uncertain market because I have cut back my contribution anyway due to other circumastances and the new money will be part of my next 5 year plan, while my last 5 years contribution is protected (somewhat).
you will do well if we have a Recession which is about a 50% chance IMO. However we better hope the FED doesn’t engineer inflation as a way to make a soft landing out of the housing bubble. The FED can do this as foriegn money pours into treasuries keeping rates low, like MM rates. I am very skeptical about deflation when the government can print money at will. This is not investment advice!! I have no answers. I do have 50% of my money in a treasury MM fund though. the rest is stocks, Foriegn stocks as well. No RE.
Pump and dump…ad infinitum. The dump part will be played out en masse at some point down the road, when it’s least expected, but not yet. Traders beware. Whether folks around here accept it or not, the consumer is still hotter than a firecracker. Until he/she dials the credit spigot back a notch–and they haven’t yet–markets are going to rise parabolically. Of course, anything can happen to upset the spending tsunami, but less the exogenous event/s I’m long, and likewise expecting record S&P and Dow action going forward, real estate weakness notwithstanding. There’s money to be made as ever more fools part with their $$$$.
I doubt they’ll dial it back voluntarily. It will have to be a forced event like the shutting off of the housing money spigot.
I hear you. I have some puts, don’t want to be long at this time of the year. I’m focusing more on where to add to short exposure.
I’m focusing more on where to add to short exposure.
The data days ahead should provide you with ample opportunities. God Bless you. I’m much too long in the tooth to travel that stomach wrenching road other than for boredom alleviation. For the most part I’ll live it vicariously through your, and others, efforts.
That’s funny. I can’t stomach being long. I always sell too quickly because it scares me to death. Short, I sleep like a baby.
Amerika is really “THE MORON GENERATION ‘
France breaks train speed levels and we dont even have a Mag Lev train in America… but we do have
AMERICAN IDOL!!!!!!!!!!
=======================
French train smashes world speed record
Apr 3 09:59 AM US/Eastern
France’s TGV train smashed the world rail speed record Tuesday, providing an important image boost for French industry in an increasingly competitive world market.
An experimental version of the fast train, equipped with two supercharged locomotives and extra-large wheels, hit 574.8 kilometres per hour (357.2 miles per hour) on a specially prepared stretch of track east of Paris.
The record smashed the 515.3 kph set by a TGV (Train a Grande Vitesse or high-speed train) in 1990, but narrowly missed the overall world train speed record of 581 kph (360.8 mph) reached in 2003 by a Japanese magnetic levitation, or Maglev, train.
Manufacturer Alstom arranged the exploit in order to test its latest engineering designs in extreme conditions, and also to display the TGV’s technological prowess to potential international clients.
President Jacques Chirac sent his congratulations on “this new proof of the excellence of the French rail industry.”
“Economically efficient and respectful of the environment, the TGV is a major asset in efforts to ensure sustainable development in transport,” Chirac said.
European Transport Commissioner Jacques Barrot said that “thanks to French engineers, Europe is the champion of the world.”
Facing stiff competition from German and Japanese rivals, Alstom is angling for future bids from Argentina, China and Italy — as well as from the US state of California which this week sent a delegation to France to study the fast train programme.
France’s electrically-powered fast trains have been operating since 1981, daily reaching speeds of 320 kph over some 1,600 kilometers (1,000 miles) of track. The latest line — to open in July — reduces travel time from Paris to the eastern city of Strasbourg from four hours to two hours and 20 minutes.
It was on a section of the Paris-Strasbourg line, prepared with extra ballast and boosted overhead electric cables, that Tuesday’s speed record was broken. The special train — dubbed V150 — was at one point travelling at more than 150 metres per second.
The train reached similar speeds in trials in recent months, but this was the first test to be officially monitored.
“What is important for us today is to prove that the TGV technology which was invented in France 30 years ago is a technology for the future,” said Guillaume Pepy, director-general of the state rail company SNCF, which is TGV’s main customer. Outside France only South Korea has so far bought TGV trains.
Japan’s Shinkansen “bullet train” and the Inter-City Express (ICE) of the German company Siemens are the other major players in a global fast train market that has been boosted recently by environmental concerns about the impact of air transport.
Bombardier of Canada and Talgo of Spain are also manufacturers.
The Shinkansen and the ICE currently average about 300kph (186 mph) but a new version of the Japanese train, the Fastech 360Z, is expected to operate at 360kph (223.5 mph) when it enters service. Alstom is preparing a new generation of TGVs — also capable of 360 kph — to come on line from 2012.
just saw the special train on our TV news. I wonder if they will offer this train as an export product together with a free nuclear power plant, to provide the enormous amounts of energy it uses. Some free earplugs for people living near the tracks would be nice too. The future for Europe? I don’t think so. There is a new TGV section running from Amsterdam to Paris; they have been working on it for at least ten (fifteen?) years, and if there are no more delays service starts next year. Of course it is WAY over time and over budget. This supertrain will reduce the time it takes to go from Amsterdam to Paris from something like 6 to something like 5 hours, mostly because of less delays at the train stations. Some parts of Europe (especially the parts that would be interested in fast transport) is already way to crowded for these superfast trains. Well, at least they didn’t crash like the German Transrapid …
I’m taking that train in 2 weeks during my Paris vacation…can’t wait! And meanwhile, here in Seattle….our first light rail line is still under construction with questions whether it’ll get extended the last mile to the airport without further delays.
f— maglev. Germany and Japan gave it up because it’s not feasible. Actually, Congress was all ready to spend $10 billion on maglev between Baltimore and DC, to cut that unsufferably long 30 min train ride to … 18 min.
Apparently it got 86ed. Good riddance!
These huge whizz bang projects are often total boondoggles … like the ISS. My background is in physics. You will not find a physicist not on the NASA payroll who thinks that was a good idea. Even NASA people often admit they think unmanned robot missions (like the ones sent to Mars) are a much better use of taxpayer money and yield better science.
US could have high speed trains, but the gov’t shorted Amtrak on a crucial bond issue so that Amtrak could perform a series of land swaps in Connecticut and Rhode Island (waterfront property), essentially to straighten the track out for miles (as France did for TGV). This never happened, so the 150mph train must slow to 30 mph for curves in RI. LAME.
This reminds me of the way hybrid owners fall in love with the smell of their own farts, when electric cars are now fully feasible and FAR more fuel efficient. Internal combustion only achieves 40% efficiency, duh!
Even better, this nonsense about hydrogen fuel cells or E-85 gasoline. Yeah, let’s spend even MORE fossil fuels and pretend we’re being green.
Doesn’t anyone know any basic physics anymore? Why does Europe have “heat and power” stations with better than 50% efficiencies while the US is stuck in the
stonecoal age?Actually, the US gov’t did build a model low emissions, high efficiency coal plant in the mountains in NY state, I believe. It’s pretty damn cool. However, no electric utility is required (or really given any incentive) to build such a plant. Actually, these guys are talking about going nu-ku-lar again. If the gov’t charged $1G USD/dehydrated gram to haul away the waste they’d shut that up right quick.
http://biz.yahoo.com/brn/070402/21067.html?.v=1&.pf=loans
Lots of positive news out today on home buying. This article claims rents are increasing by 10% so renters better buy. I beleive rents will go up but home prices ?
Every “expert” quoted in that article works for the NAR or NAHB. Pure propaganda.
Rents here in east central Florida are going DOWN. Have been for more than a year and no end in sight, IMO, as wages are low and more and more units that don’t sell board the desperation-rental train.
http://business.timesonline.co.uk/tol/business/money/mortgages/article1564480.ece
102 year Old takes out a 25 year interest only 200,000 pound mortgage. The man lives in Ol’ Blighty, but I still find this funny.
What happened to the Countrywide foreclosures blog that Dimitris was running at countrywide-foreclosures.blogspot.com ? the site seems to have been deleted.
Nevermind - it’s working now.
From Bloomberg:
Accredited’s stock rose $1.88 to $10.36 at 10:47 a.m. New York time in Nasdaq Stock Market composite trading. The San Diego-based company obtained a $500 million commitment from a large commercial bank and renewed a $600 million credit line with an investment bank, Accredited said in a statement yesterday after the close of regular trading. It didn’t name the companies.
…
The company’s auditor, Grant Thornton LLP, quit on March 30, Accredited also said yesterday. There had been no disagreements with Grant Thornton on accounting principles, practices or financial disclosure, Accredited said. Grant Thornton said it would have to expand the scope of its audit “significantly,” which might be the reason behind the decision, Accredited said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aVOIdoI8T17w&refer=home
A poster from NY asked recently which end of the market would drop first. It looks like the low end:
April 3 (Bloomberg) — Manhattan’s median apartment price rose 1.2 percent in the first quarter from a year earlier, the smallest quarterly gain in five years, appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said.
The median price of all co-ops and condominiums in Manhattan, the most expensive urban real estate market in the U.S., rose to $835,000. The growth was the slowest since the first quarter of 2002, said Jonathan Miller, president of Miller Samuel, the borough’s largest appraiser. Units with four bedrooms or more surged 11 percent to a median $6.45 million, while studios, one-, two- and three-bedrooms fell by 1.2 percent to 2.8 percent.
…
Overall, the median price of studio and one-bedroom apartments fell 2.3 percent to $390,000 and $635,000, respectively, while the price of two-bedroom units fell 2.8 percent to $1.3 million and three bedrooms declined 1.2 percent to $3.1 million, Miller Samuel said.
http://www.bloomberg.com/apps/news?pid=20601093&sid=aVdueuOE8F4c&refer=home
I think that is similar to what we have seen in Europe lately; the lowest segment of the housing market is struggling to survive, the high end is doing extremely well. The income/wealth gap is widening quickly.
Evidence that the bubble over there is withering?
no, not at all. If anything, I would say the bubble is again accelerating in several countries like UK and Netherlands.
Well the many of the richest are in the financial services industry. I’d bet that many (though hardly all) will quickly become insolvent when this continues to unwind.
Thanks for posting this!
..that’s actually fairly big drop for Manhattan.
Hey, I’m seeing a bunch of places here in Seattle that had been on the market forever suddenly sporting “sold” signs.
One of them is a foreclosure near me.
I wonder with all the press the “subprime meltdown” is getting that banks and smart sellers are suddenly “slashing” prices.
Anyone else think this could be the beginning of the first dead cat bounce?
If it is, I’m going to get a kick out of the REIC and MSM trumpeting the return of the housing boom only to watch the market take a complete dump shortly thereafter.
Got popcorn indeed.
Does it have to be a “bounce” ? I think it’s going to be more like people buying-all-the-way-down to wherever the bottom is. I’ll bet prices of those houses are down from a year and two years ago (almost definitely so in the case of the forclosure). I noticed an under-contract sign on a townhouse near me this morning that I thought was comparatively reasonably priced (definitely less than it would have listed for in the previous two springs) — but may still prove to be expensive compared to what prices may be in the coming months and years.
The housing market isn’t going to stop completely — people are going to keep buying all the way down — albeit with lower prices and volume.
Good point(s)! I just noticed that all these properties which were languishing for months all suddenly(like within a week or so of each other) have sold signs. I’m just trying to figure out why all of a sudden there’s all this activity after there (apparently)being nearly nothing for so long.
I did notice a number of places touting “reduced price” so I’m guessing that must have something to do with it. I saw a flyer for a place that was $800k, highlighting a whopping $50k price reduction.
The place across the way was for sale for the same, with no reduction, and was a much smaller and crappier looking place.
Also, I constantly hear ads for mortgage companies on the radio, so I bet the toxic crap is still being offered around Seattle. And of course now that prices have had a miniscule dip, it must be the perfect time to borrow WAY too much money and overpay for (mostly)crap.
Wow, it really IS the perfect time to buy OR sell.
I actually noticed this same trend in my neighborhood of Seattle (Greenlake/Tangletown). Odd, to see a couple of houses that had been on the market for almost a year suddenly get sold at the same time.
The same thing happened in my neighborhood in San Jose, CA about a month ago. Maybe they all got wise and held a meeting to discuss their price-reduction plan. I think neighbors usually collude on this sort of thing.
Funny thing is, as soon as the first tranche of houses got sold, a whole new one started cropping up.
Hee-hee, I said “tranche”.
GAO: Lack of clear policy on peak oil
WASHINGTON, March 29 (UPI) — The United States lacks a coordinated strategy to reduce uncertainty about peak oil or its consequences, a report by the Government Accountability Office says.
The report, released Thursday by the investigative arm of Congress, cites estimates as saying oil production will likely peak sometime between now and 2040, depending on a variety of factors including the demand for oil.
“Demand for oil will, in turn, be influenced by global economic growth and may be affected by government policies on the environment and climate change and consumer choices about conservation,” the report says.
this really didn’t get much pub. I think it’s just as important, if not more, than climate change.
Wow, got 75% of the puts back I sold on the 500 point down day. We’re getting into double top territory here on the indices.
How far out did you buy them, txchick?
First time commenting, I would like to thank txchick57 for the info on dendreon corp. Made close to 150% on it friday. Please feel free to dazzle me some more! Again thanks txchick.
I would be go to South Florida for HBB party/convention/what have you. Thanks
I mean: I would go to South Florida for HBB party/convention/what have you. Thanks.
Now this is political retirement… gives me a smile
while I drink my 2-buck-chuck…smart guy
Robert Reich’s Blog
http://robertreich.blogspot.com/
Here on the video blog he talks about his “date” with Hillary” 40 years ago
vlog #4, March 21, 2007
NOT a political token of useful advice…just someone with a voice that speaks what I was thinking in my brain.
But the Fed affects the poor in another way, too. It determines their access to credit. And here as well, the Fed’s decisions can either be a great boon to poorer Americans or a huge curse, depending on how responsibly the Fed manages the credit markets. In this respect, it’s done a lousy job in recent years. In the early 2000s, rates were so low that banks didn’t know what to do with all the extra money they had on hand. But instead of keeping an eye on bank lending standards, the Fed looked the other way. The result: Credit standards were disregarded in a tidal wave of sub-prime lending to the poor home buyers – often without down payments, often with mortgage interest rates that would rise if and when the prime rate went upward. Then what happened? The Fed raised short-term rates seventeen consecutive times, catching poor borrowers in the very trap the Fed allowed banks to set for them. So now millions of poorer Americans face foreclosures on their homes, and sub-prime lenders are in trouble.
Long time lurker,first time post here. I would like to thank txchick57 for getting me to research Dendreon corp. Made 147% on it Friday. I am waiting for any tidbits or scraps you may like to throw out again. Thank you again txchick!
Subprime problems are contained, and won’t spread to Alt-A, right?
———————————————————————————–
The Associated Press April 3, 2007, 5:58PM EST
Subprime lender SouthStar shuts down
By STAN CHOE
BW Exclusives
NEW YORK
Mortgage lender SouthStar Funding LLC has closed its doors, the latest victim in the battered subprime lending market, a company executive said Tuesday.
Atlanta-based SouthStar, which offered subprime and other mortgage products, closed out all accounts Monday after its investment partners cut off financing because of payment defaults. SouthStar told its customers in an e-mail that it would cancel any pending closings.
“We really felt like we could weather the storm and that we would outlive some of the competition,” said Tyler Wood, SouthStar executive vice president and director of governmental affairs. He is also president of the Mortgage Bankers Association of Georgia.
“Wall Street’s appetite for the Alt-A and subprime market disappeared.”
The subprime market caters to customers with poor credit, while Alt-A is a category between prime and subprime. The subprime market has been besieged by payment defaults and those credit woes have crept into the Alt-A market.
http://www.businessweek.com/ap/financialnews/D8O9CSI80.htm