An Economic Adjustment Of Overproduction
Some housing bubble news from Wall Street and Washington. “KPMG LLP sued former auditing client Fannie Mae, the biggest source of money for US home loans, for ‘fraudulent deception’ that prevented KPMG from uncovering $6.3 billion in overstated earnings. Fannie Mae from 1998 until 2004 withheld and distorted its accounting, engaging in ‘breach of contract, fraudulent misrepresentation, fraudulent inducement’ and other wrongdoing, New York-based KPMG said.”
The Atlanta Journal Constitution. “The two biggest sources of mortgage money in the United States just stuck their fingers into a dike to hold back a flood of home foreclosures. The response of Freddie Mac and Fannie Mae to a crisis for subprime borrowers is welcome. It won’t be enough to save the houses of every consumer who took out one of the enticing but risky loans.”
“‘We can’t solve all the problems, but we can’t wash our hands of them, either,’ Daniel Mudd, the CEO of Fannie Mae, told the House Financial Services Committee last week.”
“The unfortunate truth is that some families will lose their homes regardless of what the lenders or Freddie Mac and Fannie Mae do. There are ‘borrowers who can be ‘rescued’ and those who cannot,’ Freddie Mac CEO Richard Syron told the House committee.”
From Briefing.com. “NVR Inc., one of the nation’s largest homebuilding and mortgage banking companies, reported a 36% decline in first quarter earnings, due to lower revenue and continued pricing pressure in many of its markets.”
“While NVR saw new orders climb during the latest quarter, offering hope for a housing rebound, it is attracting customers at a substantial cost. Profit margins were weighed down by lower prices and increased use of discounts and incentives. NVR, like other homebuilders, is likely to continue to feel the pinch of lower prices and higher costs in the coming year.”
From USA Today. “About 15% of KB Home’s already-built homes remain unsold; the firm’s goal is 10%. Nationally, KB owns more than a three-year supply of undeveloped lots. And it saw an 84% drop in first-quarter earnings.”
“In what he describes as a ‘realistic,’ not a ‘gloomy,’ outlook, CEO Jeff Mezger says he doesn’t see the market improving much before next year. About 13% of loans for KB properties, many of them offered through a partnership with Countrywide Financial, were subprime in 2006, Mezger says.”
“‘In retrospect, (the high-end) markets were hit the hardest (in the current downturn),’ he says. ‘We’ve reverted to focus on first-time buyers and the first-time move-up buyer.’”
“Already, Mezger says, he’s seen attitudes of buyers change in response to the new market conditions. ‘People are now looking at homes as a residence, not buying and flipping,’ Mezger says.”
From Bloomberg. “Cemex SA, the world’s third-largest cement producer, may report profit fell for the first time in three quarters as a slump in U.S. housing hurt sales.”
“U.S. housing starts fell 31 percent during the first quarter from a year earlier. ‘The biggest risk we see for Cemex is the slowdown in the U.S.,’ analyst Luis Martinez said.”
“Cemex’s cement sales measured by tons probably dropped 19 percent, while ready-mix concrete sales probably fell 26 percent in the quarter because of reduced housing construction in Florida and California.”
The Register Guard. “Three years after the U.S. housing boom reached its crescendo, mortgage rates remain at historically low levels. Northwest lumber and plywood manufacturers, which had to modernize their mills to keep up with demand during the building spree, are operating more efficiently than ever.”
“The music of buzz saws and nail guns has quieted. And despite continuing favorable conditions, or maybe because of them, the wood products industry has become a dancer without a partner.”
“‘Right now, we’re just going through an economic adjustment of overproduction (of houses) and underconsumption,’ says Paul Ehinger, a Eugene-based wood products analyst with a long history in the industry. ‘We’ve been there before, and we’re there again.’”
“At least nine sawmills or plywood plants in the United States and Canada have closed or reduced shifts in recent months due to the nationwide construction slowdown, including five in Oregon.”
“‘Statewide and locally, we’re looking at about a 10 percent decline,’ says Brian Rooney, regional labor economist for the state Employment Department. ‘Pretty much as soon as prices started dropping, in the last quarter of last year, employment started dropping, too. These are looking to be permanent layoffs at this point.’”
From Origination News. “Sovereign Bancorp Inc., Philadelphia, has reported that its mortgage banking business incurred a loss of $107 million in the first quarter, in large measure due to a $120 million charge related to the sale of correspondent home equity loans.”
“Banking regulators may push more homeowners into foreclosure by making it tougher to refinance subprime mortgages, said Angelo Mozilo, head of the largest U.S. home-loan lender. The plan is an ‘inadvertent attack on liquidity exactly when it shouldn’t happen,’ said Mozilo, CEO of Countrywide Financial Corp.”
“Mozilo recommends that regulators exempt subprime borrowers replacing adjustable mortgages from the guidelines. ‘These people bought houses under one set of rules and the rules have changed on them mid-stream,’ he said. ‘The simplest thing to do is to permit programs so we can refinance them.’”
“About 20 percent to 30 percent of people who took out subprime mortgages in 2005 and 2006 won’t meet the financial thresholds regardless of whether the new guidelines are adopted because lenders aren’t lending as much against property values, according to debt strategists at Lehman Brothers Holdings Inc.”
“The main cause of delinquencies and defaults has been ‘`flippers, speculators and people knowingly stretching themselves without the capability to get past any bump in the road,’ Mozilo said.”
From MarketWatch. “Investment bank Goldman Sachs is increasingly concerned about the health of California’s real estate market and reckons mortgage giant Countrywide Financial could be harder hit than other lenders because of its big exposure to the state.”
“Mortgage delinquencies jumped 46% in California last year, vs. a 5% increase nationally, Goldman said. Delinquencies on prime and subprime adjustable-rate mortgages in California soared by 78% and 60% respectively, vs. 33% and 24% across the U.S., the bank added, citing recent data from the Mortgage Bankers Association.”
“Now that lenders are cutting back some of these types of loans and regulators are beginning to crack down, California home prices could begin falling later this year, especially in high-price cities and towns, Goldman said.”
“‘Many metros in California have home prices that are not justified by the underlying fundamentals,’ Goldman analysts James Fotheringham, Daniel Zimmerman and Monica Gabel, wrote. ‘Instead house price trends have been driven by the availability of subprime and non-traditional credit.’”
“Ten of the top 12 metropolitan areas for subprime mortgages last year were in California, with Stockton topping the list. More than 40% of home loans in that town, nestled in the state’s central valley east of San Francisco, were subprime in 2006, the analysts noted.”
“With fewer subprime loans available and more delinquencies likely, California home prices will probably weaken further in 2007, the analysts said.”
“Option ARMs are one of the few types of ‘prime’ home loans that have begun to deteriorate, Goldman said. About 46% of the principal from Countrywide’s mortgage portfolio is from option ARMs, and many of these loans were probably originated in California, Goldman noted, adding that this is a ‘risky combination.’”
National Mortgage News. “Merrill Lynch, in its first-quarter earnings statement, noted a ‘difficult environment for the origination, securitization and trading of nonprime mortgage loans and securities in the U.S.’ Merrill, of course, has been one of the toughest Street firms on loan buybacks.”
“Meanwhile, we continue to hear buyback horror stories from funders that are getting raked over the coals by Wall Street. Here’s the latest via a source: ‘The loan was good for two years and then did not pay.’ The source said the Street firm cited a $1,000 discrepancy on the verification of deposit as a reason for the buyback.”
“In recent months National Mortgage News has published a handful of stories/columns about the growing secondary market for delinquent loans, including second liens. A few weeks ago the ‘going price’ for delinquent seconds was in the range of 15 to 25 cents on the dollar. One mortgage executive, a former trader, told us the going price is now four to five cents on the dollar which will not help subprime lenders that are saddled with bad seconds.”
It’ll be interesting watching the bankers et al fight over the scraps like a bunch of wild coyotes. Along those lines, an excerpt from an interesting article from James Kunstler (kunstler.com - worth reading the entire thing):
“The current euphoric hysteria should therefore be viewed as a form of disorder in its own right. The players in the markets are making their moves based on misunderstood signals. They think the world is awash in energy and prosperity. They believe Cambridge Energy Research Associates (CERA) and the Chairman of the Federal Reserve. They believe that the mortgage fiasco and the associated imploding housing bubble are just a couple of temporary zits on the handsome WASPy face that Wall Street presents to the world. In the background, though, feedback loops are aligning to rock the systems we depend on for daily life in the real world. Capital will become unavailable. Food will grow scarce. Trade will be interrupted. Mobility will be constrained. And an awful lot of pissed-off people will be poised to fight over the table scraps of industrial civilization.”
I really tire of the end of the world garbage. People feel they have to make outrageous predictions to sell whatever it is they are selling. Not taking a swipe at you Utah just ranting a little.
While at college, Kunstler’s major was “theater”…
Yeah, he gets dramatic, all right, but I think he has some good points. His rants of extreme pessimism balance the extreme optimism we see in the world of bankers and realtors.
No, I wasn’t kidding — he really majored in “theater.”
Sounds like an anti-capitalist (commie), too:
Sounds like an anti-capitalist (commie), too:
Yeesh. I believe I’m going to die one day, but that doesn’t make me ‘anti-life’ or a member of a ‘death cult’. Get it?
Further, to be anti-capitalist (ignoring for the moment Kunstler’s pro/con status) does not necessarily make one a communist. You’ve been brainwashed, Jethro. Read a book.
“Sounds like an anti-capitalist (commie), too:”
~~~~~~
These days, anyone who promotes sustainable, responsible economic development (versus anarchic capitalism) is labeled as a “commie.” Unfortunately, the world is no longer laden with infinite resources, as in the times of Adam Smith. Especially with China and India aspiring to levels of US consumerism. It’s funny how most people reference the “Wealth of Nations” by Smith, but few mention his prior work “Theory of Moral Sentiments” (I think that’s the name) where Smith talks about the ‘moral capital’ in our society and the importance of community, versus the profit-at-any-cost capitalism. Both the works balance one another. Unfortunately, our society is become more individualistic and withdrawn. This is sad.
I strongly believe in volunteering, community and knowing my neighbors, so I guess that makes me a commie. After all, they’re derived from the same root.
Oh, for heaven’s sake. “Declining oil production”? Wonderful. Once the price of crude sets a new floor at $60/bbl, all kind of substitutes become profitable.
The sooner the Arabs pump their filthy sands dry, the better for all of us. We can go back to ignoring them, we can enrich our own producers instead of people who hate us, and we can use bio-derived fuel sources that won’t contribute to global warming, regardless of whether its effects turn out to be major or minor.
No large-scale civilization has ever collapsed because of “declining resources” alone. You also need an inflexible social system that prevents adaptation, of which people are incredibly capable.
no other system has ever worked
china and Rus are “becoming” capitalist, hence growing while EU is shrinking
“These days, anyone who promotes sustainable, responsible economic development (versus anarchic capitalism) is labeled as a “commie.””
One man’s “sustainable, responsible economic development” is another man’s stultifying command-and-control statism. And one man’s “anarchic capitalism” (seriously, does *anyone* truly think our regulated-and-torted-to-hell-and-gone system is anywhere close to “anarchic”?) is another man’s mixed economy.
Hell, there wasn’t true “anarchic capitalism” even in the Gilded Age — and we’re several thousand miles Sweden-ward of the economy of those days.
May it’s a typo for “archaic.”
“The sooner the Arabs pump their filthy sands dry, the better for all of us. We can go back to ignoring them, we can enrich our own producers instead of people who hate us, and we can use bio-derived fuel sources that won’t contribute to global warming, regardless of whether its effects turn out to be major or minor.”
You’re going to get your wish, but no alternative source is available to replace it. Non-cheap-oil-supported bio-derived fuel sources? Bio-derived fuel sources without cheap oil carrying its ’sink’ a$$?
Hahahaha!!!
Read and learn:
“ENERGY “RESOURCES” MUST produce more energy than they consume, otherwise they are called “sinks” (this is known as the “net energy” principle). About 735 joules of energy is required to lift 15 kg of oil 5 meters out of the ground just to overcome gravity — and the higher the lift, the greater the energy requirements. The most concentrated and most accessible oil is produced first; thereafter, more and more energy is required to find and produce oil. At some point, more energy is spent finding and producing oil than the energy recovered — and the “resource” has become a “sink”.”
No large-scale civilization has ever collapsed because of “declining resources” alone.
Except maybe Easter Island or the Mayans.
“…and we can use bio-derived fuel sources that won’t contribute to global warming, regardless of whether its effects turn out to be major or minor.”
Chemical reaction here, anyone?
or the Vikings in “Greenland”. Now there was a real estate fraud.
HARM — I read Jared Diamond, too. While I think he overstated the effect of environmental mismanagement on both the Maya and Easter Island societies, the whole point of his book was that resource shocks, alone, won’t cause a society to collapse. His thesis was that “agile” societies, capable of adapting to change, survive resource shocks.
(Easter Island, of course, isn’t exactly a “large-scale civilization.)
Also, the examples Diamond examined were basically agricultural societies, operating with a lot smaller margin for contingencies and less ability to innovate to adapt. Whatever its downside, it can’t be disputed that industrial development radically accelerated the technological learning curve. If a resource shock were truly imminent, making the development of substitutes profitable, the civilizational capital that could be devoted to developing those substitutes is immense.
Implosion, crisrose:
Check out http://en.wikipedia.org/wiki/Thermal_depolymerization
The boosters seem to have overhyped the technology, but they’ve evidently achieved better than break-even energy efficiency. They claim to use only 15% of the energy in the feedstock to run their process, leaving 85%. Even if that’s overstated (which it probably is), there’s still some room to budget in the energy used to get the feedstock from its source to the plant.
Evidently the cost of their product is about $80 per barrel, so they’re only profitable after accounting for a biofuel subsidy. Still, civilization managed to endure despite oil in the $70/bbl range. The doomsday scenarios I’ve read suggest that it would take $150-$200 crude to pull down the temple. It’s been suggested that the effect of $100/bbl oil would be (ominous drum roll) to knock about 2% off annual GDP growth.
In summary, it looks to me as if technologies exist to produce crude-oil equivalent at less than the price that it would take to put a middling damper on growth, much less bring on the apocalypse.
Now, whether these technologies are really viable on a large scale is questionable. They probably involve more capital investment than traditional oil-and-gas (although the cost of refinery plant, if not individual wells, is huge). On the other hand, we’ve just finished misallocating literally trillions of dollars into ephemeral residential real-estate equity. Even if that particular liquidity flood is in the process of going poof, it illustrates that the potential is there for the investment that would be needed to replace fossil fuel with synthetic hydrocarbons.
He’s a writer, which means he’s an entertainer. He has to be polemic; middle-of-the-road moderatism doesn’t sell. That said, the use of hyperbole doesn’t preclude some measure of truth in the message itself.
Kunstler is often right about the current situation and underlying causes–but he grossly overstates the likely effects and outcomes. We’re not about to devolve into Road Warrior scenarios any time soon. On the other hand, he is correct that the current economy & society predicated on perpetually increasing consumption is unsustainable. He may prove to be more right than wrong in the long run…of course, in the long run we’re all dead (Keynes).
You have to read him with a grain of salt, but he provides an invaluable service by popularizing important concerns which would otherwise go unheard by our attention-deficit society.
Alternatively, such hyperbole doesn’t provide an invaluable service to attention-deficit society, because such incessant hyperbole from “pundits” is the cause of said attention-deficit.
the root cause is simply that most people are stupid or lazy or both.
This board is here to talk about the financial underpinning of America.
More important is the energy underpinning of America.
Who says that we can have only one crisis at a time?
Betamax
Your first comment reminded me of UGK in Big Pimpin:
Go read a book you illiterate son of a bitch and step up yo’ vocab
The key in the quote above is:
The players in the markets are making their moves based on misunderstood signals.
That is the truth!
Seems to me bad things may happen, but it won’t be the end of the world. There is a lot of resilience in the system. I offer no proof, just my gut feeling about the nature of very complex systems. Misfortune for some will be opportunity for others.
There was an economic expansion a few years after the balck death wiped out about a third of the population of Europe in the 14th century. If you were lucky enough to survive, your labor became much more valuable. It was a key factor in the erosion of serfdom. There is a lot of resilience in the system.
The last time the credit system imploded (the Venice/Florence blowup), the Black Death mysteriously, and quite conveniently, appeared and wiped out a third of the population.
Yeah, my gut feeling tells me there will be opportunity - if you’re lucky enough to survive what’s coming. I wouldn’t count on it though.
“WASPy face that Wall Street presents to the world.”
I call total B. S. on that statement. Having been both an employee and a customer I can tell you that nothing could be farther from the truth.
Question, 2 top ivy grads interview for positions in the investment banking training program. All their respective paper work is pretty much identical. One is very “WASPy faced” and the other also speaks Portuguese (Brazil). Which one will get hired?
The one who has a set of knockers and isn’t afraid to show them.
Sorry, couldn’t resist.
KIA is correct!!! LOL
The correct answer is the “the Brazil faced” one.
No way. I’m hiring Knockers!
WASPy faced ones?
Which one has the knockers? I forgot.
Exactly, you already forgot because you were unable to pay attention. Couldn’t keep your eye on the ball so to speak. PP if you are a fan of the knockers the way you pursue them is to hire the one who helps you to earn the biggest bonus (oh the puns that await us) and not the one who causes you to salivate all day, and say or do things that get you in trouble and cost you money. Cause without money, your options narrow quickly.
Got ********?
I forgot to add the OT warning.
The better looking one.
Cuntsler is the ultimate JBR.
I think he’s been been renting 4-eva since he was broke as hell before he started selling books by claiming the world will end.
He also claimed the RE bubble would burst in 2000.
He also claimed Y2k computer problems would start the end of the world.
If anyone bought one of his books I would bet money they have Rich Dad - Poor Dad and at least 4 other Oprah recommendations on your self.
Still I enjoy reading his end of world rants. He’s awsome. I like to imagine him writing on a notepad with a ballpoint pen in a home made bomb shelter stocked with 2 years of food when he writes. The only way he could be more tinfoily would be to claim aliens and/or Jesus returning is going to occur soon.
Well, Kunstler reminds me of an old-timer I know who talks about his dog, Bones. “Now Bones, when nobody’s looking, that old dog he unsnaps his chain and goes out chasin’ cats. Comes back home, snaps the chain back on, and nobody’s the wiser.”
Ask him how he knows all this about Bones, since nobody’s the wiser, and the old guy just grins and says, “Prove me wrong.”
I enjoy mixed use developments, but on this one I gotta agree with Robert Cote aka Rob Dawg.
Kunstler is a nut.
I always thought Fannie only operated with good-faith deception. It pains me to hear they’re resorting to fradulent deception these days.
roflow
The mortgage data are very interesting. IMO we need to keep an eye on the resale value of nonperforming loans and the interest rate spreads between treasury bonds and risky mortage rates to see where the housing market is going. In the last couple of weeks, the 10 year treasury rate has come down a notch. At some point, mortgage rates may go up even when the bond rates go down. This will happen when the buyers of mortgage based securities get more worried and the foreign buyers start catching on to the risk they are buying.
“At some point, mortgage rates may go up even when the bond rates go down.”
I don’t think so Bill, but mortgage rates may go up because inflation is out of control and bonds yields will ultimately go higher as a result
They may have already seen the light, as purchases of agency paper and gov. notes by ‘foriegn bodies’ (banks) have been dropping for months now. At some point this may be enough for BB to up the anty.
Do nonperforming loans have a resale value in a declining market? Pennies on the dollar?
Similar to an aged collection account. But you better know you sh*t if you are going to bid on these portfolios, otherwise you are going to lose big.
“know your sh*t”. sorry for the grammatical error.
Depends on the loan. Clearly from what is said above (and common sense), seconds on non-performing loans are nearly worthless (a few pennies on the dollar). First deeds of trust, however, I’m assuming are worth substantially more.
Folks willing to take that 80-100% tranche are receiving a hard lesson in risk/reward. I imagine when you balance an interest rate of x%, with the new assumed probabilities of being wiped out, the rate goes substantially higher…or you simply exit the market.
Fannie Mae from 1998 until 2004 withheld and distorted its accounting, engaging in ‘breach of contract,
is raines in jail yet ?
I don’t think so but that arogant A-hole should be.
If he’s not in jail, what the heck is Sarbox for? Sarbox exists to put rogue CEOs in jail.
Actually, Sarbox exists to make Congresscritters feel like they Did Something about the last round of securities fraud, that people suddenly cared about when the *last* bubble popped, and to increase the employment of accountants and lawyers at the expense of productive people.
(BTW, I’m one of said unproductive lawyers. It’s a nice living — but I’m basically overhead, not a profit center.)
Sarbox has the perverse outcome of imposing compliance costs that are disproportionate to the amount of fraud avoided.
“… to increase the employment of accountants and lawyers at the expense of productive people.”
******
I saw a lot of this kind of hiring when SOX was passed.
It gave whole new careers to some…
(“A few weeks ago the ‘going price’ for delinquent seconds was in the range of 15 to 25 cents on the dollar. One mortgage executive, a former trader, told us the going price is now four to five cents on the dollar which will not help subprime lenders that are saddled with bad seconds.”)
What is the going price for not-yet-delinquent seconds where the total LTV equals or exceeds 100%? Ie. the 20s in 80/20s, and extreme HELOCs.
I could be wrong about this, but I think that the second mortgage papers are so toxic that they are securitized in unusual ways (not sold and bundled into CDOs, which, incidentally, only include 20% of first mortgages), so that, for instance, you get ‘guarantees’ including some claim on the equity of the lender when you buy the seconds. (Too bad the fools got dropped the PMI requirement.) There is a nice paper on the market for these seconds:
http://finance.wharton.upenn.edu/~rlwctr/papers/0516.pdf
‘borrowers who can be ‘rescued’ = taxpayer bail
new words are being minted as we sit
We have millions of “see throughs” out there and millions of homes in foreclosure, 2.8 million from what I understand and now no housing bailout…Thank God I sold and closed on my house recently.
“KPMG LLP sued former auditing client Fannie Mae, the biggest source of money for US home loans, for ‘fraudulent deception’ that prevented KPMG from uncovering $6.3 billion in overstated earnings. Fannie Mae from 1998 until 2004 withheld and distorted its accounting, engaging in ‘breach of contract, fraudulent misrepresentation, fraudulent inducement’ and other wrongdoing, New York-based KPMG said.”
Is this the same Fannie Mae which is supposed to be involved in Senator Dodd’s fallback bailout plan (known as “HomeStay”)?
http://www.boston.com/business/globe/articles/2007/04/19/freddie_mac_offers_aid_as_foreclosures_mount/
They’re trying to avoid the fate of Arthur Andersen in Enron by taking preemptive strikes at their auditing client.
Hi, everyone. Miss me? I have been sick for a week with a brutal ear infection. I get these every 2-3 years and they put me on my back for weeks. Can’t hear and sometimes can’t even stand upright. Better today though.
Welcome back — YES we did miss you. Hope you continue to get better. You can’t think when you have a pain in the ear, teeth or feet.
Welcome back. Hope you are feeling better.
I picked up a book about technical analysis while I was in the States about a week ago. The author, Michael N. Kahn, seems fairly knowledgeable and the book was published by FTPress/Pearson Education so it should be fairly solid.
I hate ear infection. I get it once in a while.
My doctor told me that I get it because I use those small head phones on my MP3 (head phone that kind of goes inside the era a title) and when I sweat during excercis, it causes infection. I do not use head phones anymore so far so good. Take Care.
Of course we missed you, get better, it isn’t the same without you. too much testesterone around here;-)
Here, here!
We had daushund races here in Davis last weekend and thought of you. Hope you are feeling better and can’t wait to hear your comments on the madness in the markets.
oH, come on now! Tx has more testosterone than most of us sissy men here!
i kept waiting for the ‘”woman from texas” to show up.
i thought maybe you bought a house…
LOL — good one.
I thought you went short on everything last week?
I was just reviewing the posts from the weekend and realized you weren’t posting. Hope you get better soon.
Well when your posts went missing around the same time of Tax Day I thought maybe you were suffering from a gigantic IRS smackdown. Glad to hear it was just an ear infection…
…I think?
(Do you do herbals? There’s a really good herb that comes from the Mediterranean that’s good at fighting infections. But I don’t like to “prescribe” any herbals since just because they work for me they might not work for anyone else.)
Ha, no, I didn’t buy a house or go all short last week (did that the week before). Looking at what happened, I’m glad I didn’t watch it. IRS smackdown is probably going to be next week. Maybe if I go in and upchuck on their conference table, they’ll settle quick and go away.
Hey girl:
Are you allergic to antibiotics for your ear infections???
Try dry red wine, like a cabernet, zinfandel or pinot noir. The red wine has natural antibiotics and anti-viral compounds in the wine skins that are formed by the action of yeast fermentation on the skins during the winemaking process.
Take one dropperful and send it into each ear.
~Misstrial
Yep, Slim missed the Chick. Glad you’re back!
Yes. Glad you’re o-kay. Thought you were in Boston OR had tax issues. My entire family has been sick too. My boy also has an ear infection. It’s no picnic. We’re all doing better, however.
This blog is a better place because of your insight. Glad you back and feeling well again.
“‘Many metros in California have home prices that are not justified by the underlying fundamentals,’ Goldman analysts James Fotheringham, Daniel Zimmerman and Monica Gabel, wrote. ‘Instead house price trends have been driven by the availability of subprime and non-traditional credit.’”
How many times did we have to say this before it became official with the sprinkling of holy water by Goldman Sachs analysts?
Driving in to work today, I was once again impressed by the thousands and thousands of homes in the $500K+ price range that have been built in North County Inland San Diego since 2000. How many of these have never been occupied? And how many of those which were occupied were purchased by borrowers who could only afford to buy with the artificial prop of suicide loans? I wish I could get my hands on this information, as I believe it would provide concrete support for my gut feeling that San Diego is not at all immune to the post-bubble problems facing Central Valley towns like Stockton and Merced.
How many of these have never been occupied?…….I wish I could get my hands on this information
Simple. If you have a free night or two drive through these areas and note how many are dark. Chance are you will see quite a few. I’ve noticed however in my area the developers are starting to leave alot of lights on in the second stories but someone should tell them they should stage some curtains as well. LOL.
In the Los Angeles area, DWP (Department of Water and Power) publishes the vacancy rates. They are pretty high in some areas, but I believe that only takes into account places where the electricity is turned off. Some unoccupied places still have electricity.
“If you have a free night or two drive through these areas and note how many are dark.”
Well I have already done that! But it is hard to gauge exactly how many thousands of new homes have been constructed since 2000, or how many of them sit unoccupied, by just driving around neighborhoods. I know the number is big, and is also unreported — part of what I refer to as “the elephant hidden under the living room rug.”
“…numbers are…”
When I’m bicycling after dark, I enjoy counting the “nobody homes” with Realtor signs out front. In Tucson, there are quite a few…
Alfred E. Neuman, what, me worry?
http://www.marketwatch.com/news/story/john-dessauer-worry/story.aspx?guid=%7B3BF3143E%2D5494%2D4C41%2D9086%2D4F58374D5EB1%7D
GS, I agree. Now all of these “analysts” are jumping on board and stating what was obvious back in 2003. Because most sheeple will forget that these same “analyst” were the ones packaging these loans and making markets for this paper. So they in effect orchestrated this whole thing.
Yes, but the Marketwatch story still had the old standard phrase about CA’s “solid job market” supporting prices going forward. I’m getting so tired of the strong job market crap. As housing continues to weaken then jobless claims will rise. Additionally, as many here have pointed out ad nauseum, $15-20/hr jobs do not equate to $500K homes. The media and the masses are all talking about the “exotic” loan debacle, but the underlying problem, indeed the root of the problem, is that prices are not justifiable when compared to incomes. How hard is this for people to understand? The only reason FBs took on those suicide loans is because prices went through the stratosphere. CA housing is going to get hammered.
Back in 2004 I was schoked that anyone could get 100% financing up to 500k with really really low int rates.
Also I noted the median price in LA CA was about 500k. Of course everyone knew what was happening - Im just a typcial boob and I saw it before the bubble blog bubble.
“Cemex, the world’s third largest producer of cement, may report profits fell as the U.S housing slump hurt sales.”
They should start making cement overshoes for the realtors that caused the mess to begin with. Advertise to FB’s and cement sales should rebound.
Concrete footwear! One size fits all!
WIll they come in designer colors?
“In what he describes as a ‘realistic,’ not a ‘gloomy,’ outlook, CEO Jeff Mezger says he doesn’t see the market improving much before next year”.
So just what is going to fix things by next year Jeff?
That would be WWIII
I have a question for those who believe they really understand the macro picture of this enormous RE fiasco. If no federal bail out of lenders comes directly which will tie FBs to their upside down homes for years to come, and foreclosures are allowed to spike and spike, and property values throughout much of the nation are allowed to go into freefall, won’t this very likely lead to a spike in FDIC insured bank failures? It is my understanding that the MBS market is outside of the FDIC umbrella, but I would guess that there will still be large amounts of upsdie down loans on the books of FDIC insured banks. As I assume FDIC funding is only designed to bail out the occcassional mismanaged bank and not designed to absorb massive losses from a systematic peril (such as the RE bubble pop), are the taxpayers not going to be on the hook one way or the other??? Any ideas as to choices the federal authorities can make that will minimize the taxpayor exposure? I.e. will bailing out insolvent FDIC banks likely be cheaper or more expensive than proactively managing the decline through other forms of direct assisstance to insolvent holders of mortgage notes (FDIC insured banks only) and/or under water FBs? Or are FDIC insured banks risk of failure not enough of a concern on the macro level to warrant a pre bank failure intervention?
Buyouts of troubled banks by strong banks. Happening now in NM as I am posting this. This sort of thing also occurred in CA during the late ’80’s.
~Misstrial
Hey, where in AZ are you located?
Minor data point in SoCal. Was driving down Lincoln in Santa Monica yesterday (land of used car dealers), and was very impressed by the number and quality of luxury vehicles on the used lots. FAR more than usual, and many 06/07 models. Stress is mounting even here in the land of nuts and honey.
My favorite is walking by the boat docks in SoCal and seeing all the “repo” signs.
I am sure most of us on this blog have the same ultimate goal. Lower home prices. But you can count on this thing being dragged out a long time. This economy is so dependant on this housing deal, that the Fed will do anything and everything to continue to keep it propped up. They will not allow it to collapse until they lose total control over the economy. I sure wish I knew how long this was going to last, my best guess is for years.
Years for sure. We’re still the ‘might’ and ‘could’ and ‘increased risk’ stage of analysts and MSM comments. The ‘Oh, sweet Jesus, what have we done!’ era is yet to come. It’ll take a whole lot of Neil’s popcorn.
that the Fed will do anything and everything to continue to keep it propped up. They will not allow it to collapse until they lose total control over the economy
I’ve got news for you - there is SFA the Fed can do to hold up housing prices, and they have already lost control of the economy.
I’m full. Who wants seconds?
The funny thing about any proposed bailout is that all it does it create a generation of serfs that are bound to the land so to speak. Who would ever want to keep paying on a depreciating asset, knowing that it is worth less and less every day and that payments are streched out longer and longer over time.
I have read examples where loans are to be restructured into 40 year and 50 year fixed loans. What a joke, if the market stays flat for 10 years, these people will have essentially paid VERY expensive rent and have almost nothing to show for it.
I am begining to not really care about the outcome because it is destined to fail anyways.
I agree. It’s mainly politcal theater.
real estate brokers in the news…
http://tinyurl.com/24mwgx
Armed Montage standoff couple had ammo
By Christine Hanley and Jennifer Delson, Times Staff Writers
10:43 AM PDT, April 23, 2007
The semiautomatic gun that a married couple allegedly took turns aiming at Laguna Beach police before being shot to death in a posh hotel bungalow Sunday was fully loaded, authorities said at a news conference today.
they held off on arson due to earthday
Great story. The guy was a realtor. Looks like he ran out of FB victims so he took his wife to a hotel and pretended to treat her like a home buyer. Realtor S&M fantasy.
“a crazy naked woman with a gun.”
It looks as though Shea Homes is trying to stem the flow of red ink on the Central Coast.
http://centralcoasthousingbubble.blogspot.com/
Where is Clinton when you need him? (it’s the affordability, stupid)
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070423:MTFH11544_2007-04-23_18-10-25_N23415999&type=comktNews&rpc=44
“The main cause of delinquencies and defaults has been ‘`flippers, speculators and people knowingly stretching themselves without the capability to get past any bump in the road,’ Mozilo said.”
Umm that and the lenders (i.e. Countrywide) who chose to lend them money without veryfying their ability to get past any bump in the road. I can’t believe this. Making statements like that, I’m expecting this guy to resign any day now. He’s no banker and should not be managing one of the largest mortgage banks in the country.
TIMEATELL
THE HYPE IS REAL!!
This is today’s news, so is the bailout on or off? Thanks to GetStucco for posting the link:
http://www.boston.com/business/globe/articles/2007/04/19/freddie_mac_offers_aid_as_foreclosures_mount/
“About 1.8 million adjustable-rate mortgages are resetting to higher rates this year and next, making foreclosures sure to continue rising, according to a report by Congress’ Joint Economic Committee. Areas said to be hardest hit by foreclosures include Atlanta, Indianapolis, Denver, Dallas, and Detroit.
“‘We’d better move long before that,’ Senator Christopher Dodd, chairman of the Senate Banking Committee, said at a news conference following a “summit” he convened of regulators, mortgage industry executives, and civil rights and consumer groups.
“The participants agreed ‘that we want to do everything possible to avoid foreclosures,’ said Dodd, a Connecticut Democrat who is seeking his party’s presidential nomination in 2008. The effort ‘will take continued hard work and cooperation,’ he said.
“In another move yesterday, Washington Mutual Inc. — one of the country’s largest financial institutions — said it will refinance up to $2 billion in subprime mortgages to help borrowers avoid default and foreclosure, allowing them to apply for discounted fixed-rate home loans or other refinancing alternatives.”
Correction, from last Thursday’s news, not today’s, but close enough.
This is from today’s news:
Senators urge Fed to protect subprime borrowers
By Robert Schroeder, MarketWatch
Last Update: 4:58 PM ET Apr 23, 2007
WASHINGTON (MarketWatch) — Senators including presidential hopeful Christopher Dodd urged the Federal Reserve on Monday to protect borrowers in the subprime mortgage market by toughening rules on both bank and nonbank lenders and restricting some loans.
Joined by nine other Senate Banking Committee Democrats, Dodd, D-Conn., said that the Fed should require all mortgage originators to evaluate a borrower’s ability to repay a loan before making a mortgage loan.
Coverage of home buying and selling, housing prices, mortgage information and home improvement.
Dodd and the other members also wrote to Fed Chairman Ben Bernanke that the central bank should use existing authority to restrict the use of low- and no-documentation loans and should designate the failure to escrow taxes and insurance as “unfair and deceptive.”
“Quick action on these items by the Federal Reserve Board under its [legal] authority would be extremely helpful in extending important consumer protections to homeowners and buyers,” wrote Dodd and the other senators.
The letter to Bernanke said the senators are concerned that the Fed hasn’t exercised its obligations under the Home Ownership and Equity Protection Act of 1994 to combat predatory lending.
Dodd, who chairs the Senate Banking Committee, said that action by the Fed under this statute is “crucial” since it applies to both bank and non-bank lenders. Neither recently proposed subprime guidance nor nontraditional mortgage guidance apply to nonbank lenders.
http://www.marketwatch.com/news/story/senators-urge-fed-protect-subprime/story.aspx?guid=%7B423C2F0D%2DCA54%2D4FD8%2DA1C8%2D8C67A32EEF33%7D
There is a headstone in the Key West cemetery that says “I TOLD you I was sick.” These after-the-fact stage shows are about as productive.
“Senators … urged the Federal Reserve on Monday to protect borrowers in the subprime mortgage market by toughening rules on both bank and nonbank lenders and restricting some loans.”
This will protect future subprime borrowers. Those subprime FBs who already have a loan will be hurt, as we’ve already seen the stories of these FBs not being able to refi when their loan resets. Typical govt action - closing the barn door long after the horse is gone.
“Joined by nine other Senate Banking Committee Democrats, Dodd, D-Conn., said that the Fed should require all mortgage originators to evaluate a borrower’s ability to repay a loan before making a mortgage loan.”
While everyone knows that lenders have only been “qualifying” FBs based on teaser rates, it still floors me that regulators have to adopt rules for lenders to make sure that the lenders are actually determining whether the borrower can pay back the loan. What other industry needs federal rulemaking to prevent it from making disastrous decisions? (I’m sure there are some, but the thought of it is just mindboggling to me).
Since all of the people giving out the loans that would never work make it a point to call themselves professionals, then they should start getting sued like doctors and engineers.
We have read in the press a few times that the investors already left the market back in 2005, but I have been investigating a simple way to refute this claim: Look at the relationship between when the homes on your local inventory were built versus what they are selling for.
In Rancho Bernardo West (92127), there are currently 228 SFRs on the market, of which all but 41 are listed at $800,000 on up. Of the 187 SFRs listed on the $800K+ range, only two or so were built before year 2000. I am guessing most of these homes were designed as junior investor starter homes, but were in fact investor owned. How else do you explain someone buying a home priced at $800K+, then turning it around and selling it within five years?
P.S. Also noteworthy: According to DataQuick, the median sold price in 92127 was $850K in March. There are only 49 out of 228 homes on ziprealty.com below $850K, and the median list price is currently $1.442m. Does anyone else sense a bit of a disconnect between supply and demand here, in the form of a $592,000 gap between median list and median sold price last month? It must really svck to have invested in wannabe-Rancho-Santa-Fe homes.
Oh, well, I guess it sucks to have “invested” in most of the crappy real estate that has been created over the past several years. Today in downtown Tampa, arguably the ugliest downtown on Earth, I was gaping at expensive condos “The Residences of Franklin Street” built in Skid Row. Nobody with a brain would live there, so I’m guessing the whole thing is an investor-rip-off. A few months ago the developers were complaining about the bad press a drive-by shooting had produced, which wasn’t good for sales. They didn’t need a scapegoat. There is nothing in the area, and I mean nothing, that could possibly be good for sales, unless you’re a crack dealer or a really low-class hooker, unfazed by empty, collapsing buildings in every direction. A drive-by assault? Or an attempted merciful act of euthanasia?
just imagine all the new developments that are being built inside of skid row in downtown Los Angeles. A lot of the ones that are built are actually sold out. These streets used to be where all the homeless would be shooting up drugs in the daytime and basically living in the middle of the street. Lots of homeless is an understatement.
I think everyone that lives outside of California has a more fool proof method…just look up the county property appraiser records and if the owner listed is from California—its an infestor!
“The main cause of delinquencies and defaults has been ‘`flippers, speculators and people knowingly stretching themselves without the capability to get past any bump in the road,’ Mozilo said.”
Gosh, from what I see at the closing table, that’s probably darn close to 2/3 of everyone buying the last 2-3 yrs or so.
i think this is pretty much everyone except those that traded up that never took out equity in their house. otherwise no one can afford these prices.