We Continue To Face Difficult Conditions: CEO
Some housing bubble news from Wall Street and Washington. “Luxury home builder Toll Brothers Inc. said on Wednesday it expected to report lower quarterly revenue and warned that its profit would fall short of its own forecasts, as the protracted downturn in the U.S. home market worsened. ‘Twenty months into this housing downturn, we continue to face difficult conditions in most of our markets,’ CEO Robert Toll said in a statement.”
“‘We no longer expect to achieve the most recent quarterly and annual guidance we provided on Feb. 22,’ he said.”
From Reuters. “Toll Brothers’ home-building revenue fell 19 percent for the period ended April 30. Second-quarter net signed contracts were off 25 percent. The second-quarter cancellation rate was 19 percent, higher than a rate of 9 percent in 2006, Horsham, Pa.-based Toll said. The second-quarter-end backlog of homes fell 32 percent.”
“The company expects write downs pre-tax to be between $90 million and $130 million in the quarter.”
From Bloomberg. “Toll said that while fewer than 2 percent of its buyers use subprime loans, stricter lending standards following the collapse of several mortgage companies are making houses at all price levels less affordable.”
“‘This, in turn, can impact the entire housing food chain, including some of our potential customers’ ability to sell their existing homes,’ Toll said in the statement. ‘This, coupled with a lack of buyer confidence, may have served to impede the glimmers of a rebound we had started to see in early February.’”
From MarketWatch. “About 70% of cancellations in the latest quarter were from contracts signed more than nine months ago. ‘This means that buyers are typically cancelling closer to closing, likely due to price or inability to sell their existing home, instead of financing issues that typically occur earlier in the process,’ wrote Banc of America Securities analyst Daniel Oppenheim.”
The Star Telegram. “Crescent Real Estate Equities Co. reported a first-quarter loss Tuesday and said it will sell the 21-story Ritz-Carlton Hotel and luxury condominium project under construction next to its flagship Crescent Court development in Dallas.”
“Denny Alberts, president and chief operating officer, said the 217-room Ritz-Carlton and the 70-unit condo project no longer fit Crescent’s portfolio.”
The Wall Street Journal. “In the latest fallout from the housing market’s decline, disputes are breaking out between builders and buyers who signed contracts for new homes and condos when the market was hot, and now want to get out of them.”
“In Alexandria, Va., real-estate attorney Beau Brincefield said he has settled roughly 50 contract disputes and has another ‘50 or more’ in the pipeline.”
“Mr. Brincefield said the terms of that settlement are confidential. In general, he said, builders have agreed to lower purchase prices by as much as 35% or refund 25% to 100% of a would-be buyer’s deposit.”
From Forbes. “The National Association of Realtors said that sales this year will be lower than it earlier forecast. Carl Reichardt, a senior equity research analyst at Wachovia Securities, told Forbes.com that he wasn’t surprised by the lower projections.”
“‘We have seen deterioration in business conditions for the homebuilders that we survey in March and April,’ Reichardt said.”
“Reichardt surveys 150 sales managers for homebuilders in 18 markets every month. ‘Traffic was OK for the first three months, but then deteriorated in April,’ he said. ‘Sales were also OK, but also then deteriorated in March and April as well.’”
“And it could still get worse, Reichardt said. ‘The homebuilding business has lost a portion of its customer base as financing conditions continue to compress,’ he said. ‘The housing industry has relatively modest job growth supporting it. If that leg is lost, housing could get worse.’”
The Philadelphia Inquirer. “This year’s subprime-mortgage turmoil has forced a Philadelphia specialty-finance company to record an unrealized loss of $65.6 million on its $3.6 billion portfolio of mortgage-backed securities.”
“The loss, reported for the quarter ended March 31, reflects a decline in the market value of the mortgage-backed securities, not defaults on specific mortgages.”
“Countrywide Financial Corp., the largest U.S. mortgage lender, said on Wednesday it made 11 percent more home loans in April than a year earlier, but slashed lending to people with weaker credit histories.”
“Nonprime loans, including ’subprime’ loans, sank 49 percent to $1.68 billion, just 4 percent of total volume, and fell 29 percent from March’s $2.36 billion.”
“Like many lenders Countrywide has tightened its loan guidelines, and in March it stopped making some no-down-payment subprime loans. Just 7 percent of loans were nonprime from January to March, and Countrywide expects that rate to fall as low as 4 percent this quarter.”
“Countrywide funded $2.7 billion in pay-option loans during the month as compared to $6.7 billion in the year-ago period.”
“Mortgage investors could turn their backs on the market if they are forced to pay for flawed loans written by other lenders, several financial services industry representatives told U.S. lawmakers Tuesday.”
“A mortgage investor ‘needs to know that he won’t bear responsibility based on conduct by parties outside of his control,’ Howard Mulligan, an attorney who specializes in the mechanics of selling home mortgages to investors, told a Congressional panel.”
“Regarding assignee liability, which would make mortgage investors share the risks of defaults on fraudulent home loans, Wells Fargo home mortgage lending chief Cara Heiden said: ‘I am of the opinion that we shouldn’t go there.’”
“Many lawmakers have cited as a model a New Jersey law that allows mortgage fraud victims to sue for damages but protects investors who take steps to make sure the loan is proper.”
“Donald Lampe, another attorney who works on mortgage investments, told Tuesday’s panel that an assignee liability statute that was too strong could spook investors with the fear of homeowner lawsuits and ‘impair the secondary mortgage market.’”
“Standard & Poor’s joined Moody’s Investors Service in requiring more protection for investors in bonds backed by second mortgages, as late payments and defaults exceed expectations on such debt to borrowers with poor credit.”
“Subprime versions of ‘piggyback’ loans have performed worse than subprime housing- debt overall, putting some AAA rated securities sold by Goldman Sachs Group Inc. at risk of downgrades from Moody’s and leading HSBC Holdings Plc to set aside more reserves for losses.”
“‘People are taking out these loans and then realize they can’t make payments on them,’ said Terry G. Osterweil, an analyst at S&P. ‘The first one they’re going to default on is the second lien, not the first lien, because many times a servicer will write off the second lien and not foreclose.’”
“In November, ratings services broke from their past practices on mortgage bonds to reassess their initial ratings before a passes. Since then, securities of second mortgages have had the most ratings downgrades or warnings about downgrades among bonds from 2006, including on the only AAA bonds.”
“‘The bonds have come out of the gates performing extremely poorly,’ said Jeremy A. Shor, a portfolio manager at Brown Brothers Harriman & Co., who oversees about $3 billion in asset-backed bonds. ‘The market is trying to determine if this is due to idiosyncratic or systemic reasons.’”
“The poor performance of subprime piggybacks stems from ‘a combination of the home-price-appreciation effect hitting at the same time as the origination standards led risk-layering to be at its highest,’ which created more stretched borrowers and less ability for them to tap equity in a refinancing or sell, said Nicolas S. Weill, a senior vice president at Moody’s.”
“Defaults by real-estate speculators, or ‘flippers,’ probably also is rising, Weill said.”
“Bank of America Corp. CEO Ken Lewis said a so-called credit bubble is about to break after six years of historically low interest rates and relaxed lending criteria.”
“‘We are close to a time when we’ll look back and say we did some stupid things,’ Lewis said. ‘We need a little more sanity in a period in which everyone feels invincible and thinks this is different.’”
“Lewis isn’t the only U.S. bank executive who expects that credit conditions will change. Wells Fargo & Co. CEO Richard Kovacevich said in December that ‘I am not a forecaster of the future; I’m a historian. And history says this will blow up. It always has. And there will be some blood on the street.’”
“‘This, in turn, can impact the entire housing food chain, including some of our potential customers’ ability to sell their existing homes,’ Toll said in the statement. ‘This, coupled with a lack of buyer confidence, may have served to impede the glimmers of a rebound we had started to see in early February.’”
Why do they assume the buyers confidence is not there?
My confidence is here, I’m waiting for prices to come down.
I think he meant to say “Stupid buyer confidence”
I just wrote two offers: 26% and 44% below 2005 selling prices. Both to banks. Both taking substantial loss even after wiping out the 20% seconds. 15.8 & 16.3 times the rent. It is a little early, but I can make them work if the bank takes the deals. They are getting more realistic quickly and I am only 11% below their “wishing” price. The Realtors are glad to have the business. We will see what happens.
“44% below 2005 selling price.” Nice. Almost a lowball offer there.
where is this at?
Sacramento. New subdivision in south area.
44% below 2005 selling prices
Jingle, how things have changed, six months ago I would have thought you were embarassing yourself, now I think your offer is fair and generous. Depending on where you are, you may be a little ahead of the curve, but if you pull it off please let us know right away. I need to know that it is happening for someone, even if here in LA’s Westside the party is still on.
Last Sunday I went to an overpriced open house in our neighborhood with an asking price of close to 1.5million. My husband walked around and told the realtor “This could not be worth more than 700K” (my husband is not known for mincing words). The funny thing was that the realtor (a good, experienced one, it seemed) just said “make an offer”. Oh, boy, have we come a long way or what? Not that the house was even worth that much. I would buy it for $450K and still have second thoughts. But that’s just me.
goodluck Jingle.
signs of bottom. check
Gold to DJI ratio less than 4 x…………….NO
1) Residential Supply falling… NO
2) Sub-Prime rate pipeline of adjustments down to pre bubble levels ………………. NO
{in 3-6 months the 25 billion per mo. will become 40-60 for the next 28 months, followed by a drop then anoter spike for 18 more months.
3) Builder bankruptcies……. NO (minimal)
4) stocks peak down for 18 months…..NO
5) Credit squeeze doublng of rates……NO
6) Media stories of building projects stopped dead in the middle of building……………………….NO
7)Cateplliar equipment seen idle every where…..NO
9) average rents provide cash flow to investor….NO
10) Media & public now say homes areplaces to live not an investment vehicle…………………….NO
Not so sure early bird cathces the worm hear! IMO!
Inspired, I do hear you. I am always a year early, so I need to watch myself. However, I have a nice cleintelle of tenants and I treat them very well. There are specific incidences where you can pick up good deals. That being said, one of the banks (the 26% of 2005) just said they would not split closing costs. I have to pay 100% of closing costs, because they have to pay $24,000 in back taxes, HOA, and bonds. Idiots. Like it is my fault they did not require impounds on their sub prime loans. We will see what the other bank says, before I respond. I do think this market will be getting worse. However I will take a few selected good deals in 2007 and more in 2008 & 2009. It has been 2 years since the peak in Sacramento. That being said, I noticed four NOT’s posted in the neighborhoods around where these houses are located. That alone tells me I am too early, even at 44% off 2005 prices.
I too am confident that prices will come down, unless politicians successfully intervene by using taxpayer-funded bailout schemes to keep prices on a permanently high plateau. It is bad enough to not be able to afford to buy a home, but when I see politicians working hard behind the scenes to steal from middle class taxpayers in order to keep unqualified buyers in homes they cannot afford, my blood pressure goes up a few notches.
P.S. I am still waiting for the party that sits to the right side of the aisle to take a stand in opposition to the bailout proposals (e.g., the latest one to turn the FHA into a govt sponsored subprime lender, complete with 0% downpayment requirements and taxpayer-funded insurance for lenders), which seem to be crafted and supported primarily by the party to the left side of the aisle.
You’re going to be waiting a long time. Many of the “right side of the isle” legislators campaigns are/were funded by lending instituitions.
There’s the rub. Campaign contributions corrupt anyone who accepts them, whether R- or D-…
I wonder which side their going to go for
Home builders reputation to stay afloat vs millions of home owners that will loose their homes due to liar loans
GetStucco,
Sen. Dodd backed off from the “bailout” idea quickly. I think it’s obvious his constituents would see that as a bailout of lenders, i.e. “big business”. I perceived quite a media uproar at the time of the hearings and a bit of a backlash. (Especially in the online polls). Instead, Dodd made some “players” endorse some principles.
Obama never called for a bailout either. Nor Clinton as far as I can tell.
Wrong. It’s say one thing and do another:
http://www.house.gov/apps/list/press/financialsvcs_dem/press050307.shtml
This is getting virtually no press/noone talking about it. Going according to plan. Let’s hope it fails in the Senate (almost assured to pass the House). Who knows when it might actually take effect when it passes. Hopefully not in time.
Not enough for you?
HUD SECRETARY ANNOUNCES $1.8 BILLION FOR AFFORDABLE HOUSING AND FIRST TIME HOMEOWNERSHIP PROGRAMS (sorry for caps)
http://www.hud.gov/news/release.cfm?content=pr07-058.cfm
FHA Head: “I think we have some better solutions to the problem, both short-term and long-term. We can re-ignite the housing boom if we are prepared to make some important changes.”
http://www.hud.gov/news/release.cfm?content=pr07-050.cfm
Sorry, but those principles were for the least stupid (Countrywide and Wells Fargo) to bail out the most stupid. Not shockingly, Wells and Countrywide said “NO THANKS”.
http://www.reuters.com/article/bankingfinancial-SP/idUSN0846158420070508
‘Regarding assignee liability, which would make mortgage investors share the risks of defaults on fraudulent home loans, Wells Fargo home mortgage lending chief Cara Heiden said: “I am of the opinion that we shouldn’t go there.” ‘
The FHA one didn’t seem to be real popular either.
“Wrong. It’s say one thing and do another.”
My post was about SENATORS Dodd, Obama and Clinton. Your links are to a house bill, the bush-appointed hud secretary and a trade group.
Obama has called for tigher lending restrictions and a crackdown on fraud..
http://obama.senate.gov/press/070425-obama_durbin_introduce_bill_to_fight_mortgage_fraud_and_abuse/index.html
“Wrong. It’s say one thing and do another”
Don’t ask, don’t tell housing bailouts.
Here is the under-reported under-analyzed news release…
(from Shaun’s link above, but it pays to put these things out in the open…):
For Immediate Release: May 3, 2007
House Financial Services Committee Passes Comprehensive FHA Reform
Washington, DC - The House Financial Services Committee today passed H.R. 1852, the “Expanding American Homeownership Act of 2007” introduced by Representative Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity, and Barney Frank, Chairman of the Financial Services Committee.
And as you posted last week, a similar bill passed the house 414-7 last year. It ain’t just waters and frank.
Manraygun, I see your point. I thought you were referencing bailouts in general. We’ll see how these Senator’s vote when the bill comes up. The Senate rejected last year’s bill, but things are much worse this year (and it’s an election year next year).
yes, it will be interesting to see how the election effects this. I don’t think a large bailout is a winner for senate democrats who represent broad constituencies including a lot people like us who hate the idea of a bailout. house members like maxine waters have a narrower base (lots of subprimers?) to answer to. we’ll see…
The FHA “reform” is heinous. Check this out (from Shaun’s link):
Specifically, the bill modernizes the FHA and brings it into the realities of the housing market in the 21st century by:
- Increasing loan limits in high cost areas of the country like California, New York, and Massachusetts, where FHA has been driven from the market, forcing many borrowers to turn to high-cost financing and other non-traditional loan products.
- Authorizing zero down and lower down payment FHA loans for homebuyers who could not otherwise make the down payment required under current FHA rules, to make FHA more consistent with other private sector loan products.
- Directing FHA to underwrite to borrowers with higher credit risk than FHA currently serves that are still creditworthy to take out a mortgage loan, but are otherwise now being driven into the subprime loan market, with much higher mortgage rates.
- Permanently eliminating the current statutory volume cap on FHA reverse mortgage loans to permit this program to meet the growing needs of home equity rich, cash poor seniors citizens that need help paying bills or needed home costs, while capping the fees that loan originators can charge senior citizens
- Reinvesting increased FHA profits created by the bill in housing counseling and affordable housing fund activities
there was a long thread here last week on this bill. several posters who know more about this stuff than me opined that it would have little impact on the crash that’s coming (assuming it passes both houses and a veto).
Why are they pushing for FHA to make easy qualifying low down loans at higher loan amounts on higher risk credit scores . Why do they feel that FHA needs to be consistant with other private sector loan product that sucks . If the sub-prime market is driven into the sub-prime market it’s because they are not really a good risk and should not even attempt home ownership .
They are just changing the rules to bail out all these junk loans that were made or keep the market propped up because sub-prime is in meltdown (as it should be ).
Its a bailout for the banks. The FHA will let all the stupid losers refinance into FHA loans that will never get forclosed on. The taxpayers get all the bad debt.
Senator Clinton supports the “modernization” of FHA, which includes abolishing the need for downpayments and, thereby, making it more like subprime, see under
http://www.senate.gov/%7Eclinton/news/statements/details.cfm?id=271038
Question to Senator Clinton: You are suggesting to make the FHA more like a subprime lender, with no downpayments needed. How will you prevent that the FHA will repeat the fate of the subprime lenders with their mounting losses? (Understood that the FHA doesn’t lend itself but guarantees the loans and is on the hook when defaults build up.)
“You are suggesting to make the FHA more like a subprime lender, with no downpayments needed. How will you prevent that the FHA will repeat the fate of the subprime lenders with their mounting losses?”
Not that it is a huge lifesaver, but the FHA does require PMI. IIRC the FHA ‘liberalization’ does not allow option ARMs, Neg AM, I/O, etc. either.
I have word that a friend who runs campaigns for the right side of the aisle is working on a NO Bail Out campaign for a repub candidate… don’t know who it is yet, but anxiously awaiting his next hint.
But he asked me for some no bail out graphics.
That is terrific news Athena! This thing needs to get going in the direction of allowing prices to get back to sane, healthy levels for PRESENT and FUTURE buyers. The buyers of the past few years made their beds, now they can lie in them. Future buyers shouldn’t be penalized for these ignoramuses mistakes.
The Obama/Durbin legislation linked by Manraygun above is okay in that it addresses mortgage FRAUD. However, read to the end where it falls apart in wanting to help present holders of nosebleed mortgages. Screw ‘em. Let them live with their own mistakes.
hey… that would be a great graphic for them… a “You Made Your Bed Now You Lie In It” sort of picture.
Or some spoof commercials using the old footage from I Love Lucy where Ricky gets the saying wrong and says: “You put the sheets and the blanket, now you take a nap!”
unless politicians successfully intervene by using taxpayer-funded bailout schemes to keep prices on a permanently high plateau.
Impossible. As long as real prices remain far above historic norms, new supply will grow faster than actual demand for housing. Prices must fall for the markets to clear and excess supply to sell.
The only program that could support continued high prices is for the government to buy houses and let them sit empty, to keep the supply off the market. And NFW is that going to happen.
So why the F is the housing market index up 1.12% today?
Here’s a sign that unfinished houses in the midst of being built, will remain in limbo, for a long time…
“‘We no longer expect to achieve the most recent quarterly and annual guidance we provided on Feb. 22,’ he said.”
Boby boy, I thought New York City would save you !!!
“Toll said that while fewer than 2 percent of its buyers use subprime loans, stricter lending standards following the collapse of several mortgage companies are making houses at all price levels less affordable.”
Houses were and remain unaffordable. The only difference now after the collapse of “a few” (67?) subprime lenders in the first quarter is that it is harder to get a loan to buy a house you cannot afford.
“it is harder to get a loan to buy a house you cannot afford.”
To add:
“Thereby not allowing the would-be seller of that house to buy a house that they could not otherwise afford.”
Plankton theory, making its way into the MSM.
helps show the reason for the firm median- the low end is wiped out boosting mid and upper price homes
“Toll said that while fewer than 2 per cent of its buyers use subprime loans, stricter lending standards following the collapse of several mortgage companies are making houses at all price levels less affordable.
Stop kidding us, Mr Toll. The NAR have said its a good time to buy, unless they too are kidding us.
Hmmm… if the “subprime” buyers & lenders really only comprised a mere 2% of all housing demand, then why would their elimination have such a large impact on ALL buyers? Methinks the purported scale of cause and effect don’t quite reconcile here.
The National Association of Realtors said that sales this year will be lower than it earlier forecast due to stricter lending standards and a decline in subprime mortgage origination.
I guess that’s why they’re pulling out all the stops in their Time2Buy radio campaign. At lunchtime I heard these gems from that commercial: “When you have a family, it’s always a good time to buy a house”… and - “Why rent when it costs the same to own?” (that from an actor playing a GF).
It doesn’t currently cost the same to rent as to own in the PHL market. Not even on used houses. What a pack of lies.
“Why rent when it costs the same to own?”
I agree with this. Too bad it costs about 50% more to own right now in the pricier markets, and maybe more if you factor in falling market values.
I was thinking the same exact thing. Except in many markets it costs even more than 50% to own similar property.
witness my friends, who are moving into a new condo.
Old condo: $1900/month + $150/month parking. $2050/month.
New place: PITI payment: around $6000/month.
Exhibit A
These condos rent for around $1100/month. The mortgage alone on this one (according to the assumptions on this listing) is $1015/month. That doesn’t include HOA and taxes, which total another $400/month.
This example is not as extreme as HIC’s, but it’s another rebuttal to the REIC propaganda.
You are joking, right? I’d pay, maybe, $300/month + taxes, def. not any HOAs for that thing. We are so disconnected from reality it isn’t even funny.
Not only am I not joking, but that development is where I started looking last year…but then you guys rescued me!
Hey OCDan, has your turban been foreclosed yet?
Phillygal,
May your tent be infested with the fleas of a thousand camels.
As for my turban. Nope. Renting peacefully 4 miles from the job with the wifey home and no debt. Thank you very little, Carnac from Philly!
I bought a 2000sq ft house with 20 Acres in PA for 215K in 95. Wow. Compare that to 215K for a dumpy condo. That is some amazing inflation.
In the earnings release, Toll also cited as “bright spots” a handful of markets — New York City, Hoboken and Jersey City, N.J.; Dutchess County in New York; southeastern Connecticut; the Philadelphia metropolitan area; Raleigh, N.C.; Dallas and Austin, Texas, and parts of Northern California.
What can I say…I’m surrounded by dumba$ses!
p.s.
where the heck’s my flea powder?
:-/
House Inspector, say it ain’t so. $4G’s a month! Holy money, Batman! $48K/year. Why don’t they just save? Let’s assume theywould spend some of that 48K a year, so they save 30K a year. 30K x 30 year mortgage = $900,000. Even if the interest they earned was equal to inflation, they would still have nearly a million in the bank in 30 years. Considering this bubble, they could buy outright somewhere in the middle of nowhere. Sorry to say this, but your friends are the genuises that keep this credit bubble going just a little longer (sarcasm off).
It’s so. yes, they are the true FBs.
They are buying the 714 sq ft condo for over $800k because:
there was nowhere else even comparable
1) It will be a home, not just an apartment like they live in now
2) it will be new
3) it’s an investment.
4) it will be a future SF landmark
5) it has Bosch appliances.
6) it will have great views
7) it was the last one left, honest, the builder told them this
and my favorite:
9) the rent was going up from $50 to $100/month. They wanted to lock in known housing costs.
HIC, your friends are FOOLS! Sorry to say, but after reading just the 714 sq. ft. part I am disgusted. Hey for 800K if you at least lied to us and wrote that it is 10K sq. ft. with 8 bedrooms, an indoor pool and a 3-bed guest house on 15 acres, I would’ve bit on it. Do you realize they are paying more 1K/sq. ft. I know they are your friends, but at this point in the bubble, they are just plain ‘ol INSANE! Even if one were to overpay by say 25-50K in this bubble, I could understand. Over 10-30 years you might get that back, but at 800K, they will never make it back. Sure, in 30 years, they might sell it off for a cool mil, but when you factor in the interest, HOAs, repairs, etc., they will never recoup the cost. However, with this whole RE mess unraveling, there is no excuse for overpaying by whay, maybe 500-600K.
UTTER INSANITY, I SAY!!!!!!!!!!!!!
Going on a adjustable loan does not give you fixed known housing costs in that those loans have a great potential to go sky-high on the rates . Adjustables are a possible product if you have a high fixed rate market with the potential for the adjustable to go down or if you are using the loan short term as a investor with the ability to pay if you have to go long term .
I think most of the borrowers bought the story hook line and sinker that they could just get rid of these adjustable loans down the line when the payment goes up .Borrowers were lured in by the teaser rates,low downs, and easy qualifying or easy fraud .Borrowers planned on extracting equity and getting new teaser rates or selling after short term ownership or switching to fixed when they got equity .
For the real estate industry to sell loans based on a promise that money would even be available to refinance , or that real estate would go up to allow a refinance when these borrowers wanted to refinance was the big lie/promise by the industry .To add insult to injury the scum than put pre-pays on these adjustables so borrowers would pay through the nose if they tried to get out of them .
What is amazing is that these stupid sales pitches from the realtors and loan agents were so acceptd by the general public as being truth .The general public didn’t even know that the real estate demand was in large part inflated by unqualified liar borrowers and speculators . “Buy now or be priced out forever ,get in now we are running out of land , just refinance when your teaser rate adjusts ,buy now you don’t have to put any money down ,you can’t afford not to buy , the rich baby boomers will be dying to buy this Condo from you for 100k more ,real estate always goes up .”
I remember I asked my real estate agent in 2005 who was buying these properties at these high prices and how can they afford it . The realtor could not answer the question for me .
Lender in past lending cycles never sold loans based on pitching that you could get out of the loan . People didn’t want to go on loans they could not live with .
Six large a month? If you’re anywhere near my neck of the woods you could rent a comparable place for $3k.
My friend who is about to buy a house in Austin (I could not talk him out of this!) made this exact same argument earlier today. When I begged him to read this blog, he accused me of being part of the “tinfoil hat set”!
My S.O. and I laughed at that commerical last night. Why own, when renting costs half as much (and pricess are falling)?
On the “why rent when it costs the same to own” question. I hope they keep spouting off that line, over, and over, and over again. It’s a hell of a lot better than “real estate only goes up.”
At least with this line, and subprime loans becoming more difficult to come by, people will be comparing their rent to more reasonable monthly payments…and conclude that since rent is 50% of the mortgage, they should not buy.
It costs more to rent than buy… but only if you look at really low teaser interest rates and ignore things like ARM resets, paying the principle, insurance, taxes, repairs…..
“Mr. Brincefield said the terms of that settlement are confidential. In general, he said, builders have agreed to lower purchase prices by as much as 35% or refund 25% to 100% of a would-be buyer’s deposit.”
Folks who bought new homes in the same neighborhood in 2005 have taken a falling-knife wound to the tune of 35% of their purchase prices. Ouch!
GS - What’s the deal with the ushomeauctions.com for your area, SD, I think the sale date is May 19, do you think it’s worth attending?
This link pretty much explaines it all…
http://www.bubbleinfo.com/journal/2007/5/7/dom-death-spiral.html
Oops this link is the one…
http://www.bubbleinfo.com/journal/2007/5/3/may-auctions.html
Sorry
That’s been the problem with auctions the past 7 years…it’s a big pain in the neck to look at all the properties ahead of time, get your cashier’s check, show up and bid, and then everything sells for fair market value anyway…I’d rather use a broker and be done with it.
Auctions are great ways to move inventory. The problem is currently there’s too many pig’s eating from the RE trough. Because of this auctions are subverted to put them in favor of the seller/auctioneer.
Eventually all the BS will stop. The unsold inventory just needs to get high enough.
Also, I noticed that New Century owes the gov $400 million in taxes this year. If enough of this goes on companies won’t be able to sweep the housing monster under the rug any longer forcing auctions to be more in favor of the buyer.
Will the sale prices at these auctions become comps? There are a few in my neck of the woods of OC.
I don’t follow that sort of activity. But I am having a flash back to the Bressi Ranch (Carlsbad) auction last fall, which was not worth attending because nothing sold at the reserve prices they set…
And in case you are too lazy (as I was) to look at Shadash’s link before typing, here is how it begins…
” May Auctions
Real estate auctions are likely to pick up steam, if they can only get the format right. The ones I’ve seen so far have had high reserve prices, thwarting any chance of getting a deal.“
The auction I posted has no reserve
Away out here they have a name for rain and wind and fire
The rain is in the midwest, the fire’s in F el lay & el lay and they call the windbag Lereah
Lereah blows up the housing market and sets the prices a’ flyin’
Lereah makes the mountain of debt, that will soon leave people dyin’
Lereah
Lereah
They call the pompous windbag Lereah…
move has tanked since feb, about the time they smelled LIErah coming
A new classic aladinsane!
“Wells Fargo & Co. CEO Richard Kovacevich said in December that ‘I am not a forecaster of the future; I’m a historian. And history says this will blow up. It always has. And there will be some blood on the street.”
wow. this coming from the CEO of one of the largest banks in the world? How can I even add to that comment?
You don’t have to - the CEO of Bank of America already did!
No wonder Bank of America went to US Federal Court a few days ago to try to get a judge over here to intervene in a Dutch court’s injunction over the sale of LaSalle Bank from ABN AMRO.
BoA was worried about large LaSalle depositors taking their accounts elsewhere while the sale was held up over a shareholder lawsuit in the Netherlands.
BoA is really desperate to get a cash infusion from a bank not in danger of collapsing!
Wells Fargo…
1852-2007, rest in peace
Better get all your cash out of WF now. I’ll bet Buffet is slowly moving his company’s investments out of WF as we write. Wouldn’t want to wait for the FDIC check.
The subprime unit of Wells Fargo lifted their lending standards 2 years ago and went to independant appraisers. Lenders are not even allowed to speak with the appraiser and they are drawn randomly from a pool. This way the appraiser does not feel he will “lose business” if he comes up with a lower than expected number. They might be the only ones positioned to make it through this mess.
How are they going to prevent the realtors from bringing out the bats and fake comps, and bribes and showing up at the home site trying to influence the appraiser .
I tend to agree. I downloaded and have read some of a ~60 page Credit Suisse report on subprime that goes into some various lender’s portfolios by vintage year. It’s called “Subprime HEAT Update”, dated March 2007 from Credit Suisse.
WF shows Full Doc loans by vintage year:
2002 - 68%
2003 - 62%
2004 - 89%
2005 - 82%
2006 - 92%
Many are still high LTV loans, like other lenders, but they compare pretty well with respect to loan balances (30% over $300k in 2006, Option One was 44% over $300k but only had 63% Full Doc for 2006).
The only lender that compared favorably with WF on documentation was Centex, which was 87%, 89% and 86% for 2003, 2004 and 2005 (no data on 2006). Centex also had among the lowest high LTV (91-100%) loans of anyone.
“1852-2007, rest in peace”
Couldn’t have happened to a more deserving group…
Said the former W.F. employee (me).
Remember Great Western Bank and their spokesperson, John Wayne, who always told us “We’ll always be there”…
Yeah, right.
parting shot…
A.M.F.W.F.
It literally sent a shiver up my spine.
I had to back and re-read it 3 times. Yes it really does say “Richard Kovacevich” and “blood on the street”.
Yep! Those are striking comments. It’s about to freeze.
Is it just me, as I seem to remember Mr Troll stating 20 months ago that the RE market was shooting up to the moon, all the while selling his stock? My my, do we have a short memory span.
I thought exactly the same thing when I read that. I’m sure we could find some juicy quotes from Toll 20 months ago about $4 million tract homes being the future of American real estate.
We are close to a time when we’ll look back and say we did some stupid things,’ Lewis said.
it’s only money not like you were selling bad medicine.
“‘We are close to a time when we’ll look back and say we did some stupid things,’ Lewis said. ’”
I was wondering what the executive compensation committee at B of A will think of that comment.
Crescent Real Estate Equities was Richard Rainwater’s company. Super money maker for an investor in the early 1990s. Here’s what Rainwater is doing now:
http://money.cnn.com/magazines/fortune/fortune_archive/2005/12/26/8364646/
“How worried is he? He has some $500 million of his $2.5 billion fortune in cash, more than ever before.”
Note to thieves: Rainwater’s loaded.
interesting character. thanks for the link.
i picked on rainwaiter a while back. bought a gun.
so when is a deal a deal ?
laywers sck - give me a deposit or I’ll sue for specific performance
builders have agreed to lower purchase prices by as much as 35% or refund 25% to 100% of a would-be buyer’s deposit.”
When a builder agrees to lower the price to what the market is currently on a contract that was made before the market tanked I think that builder is being reasonable to that purchaser they have the contract with . The only reason builders are doing it is because they know the appraisal won’t comp out now and the buyer can’t obtain financing on the property that tanked uless they reduce .
Still the speculators will not want the property because they only want to buy if the RE market is inflating so those clowns should pay a deposit penalty IMHO .
“And it could still get worse, Reichardt said. ‘The homebuilding business has lost a portion of its customer base as financing conditions continue to compress,’ he said. ‘The housing industry has relatively modest job growth supporting it.
- If that leg is lost, housing could get worse.’”
Mr Reichardt - that leg is certainly broken.
All I could think while reading this group of stories is “Ouch”! The escalation of bad news is incredible. Yesterday, there were stories in the MSM comparing the market conditions to the Great Depression, and now it seems every story is laying the foundation of impending doom.
And now Toll is talking about being “20 months into the downturn.” WTF, I thought those guys were still pumping and dumping last summer.
Housing Red Ink Could Spell Recession (Kass)
http://www.thestreet.com/_tscana/markets/activetraderupdate/10355761.html
“The damage associated with the housing problems will be long-lasting — and, as in the early 1990s, lower interest rates will not readily jump-start growth and rescue the economy.”
We are already in a huge financial leverage and Kass has hit it right on the botton. The nation is broke.
THE GURU’S CORNER
House of denial
Commentary: Confronting housing market myths
By Mathew Emmert, Dividend Gambit
Last Update: 11:49 ET May 9, 2007
CHARLESTON, S.C. (DividendGambit) — A crumbling housing market and an overextended consumer could result in an ugly ending for this economic party.
I’m typically not that bearish an investor, but these days there appears to be plenty to worry about, and though the financial markets continue to soar I believe the signs point to tougher times ahead for investors. A weaker housing market will likely be the lynchpin.
http://www.marketwatch.com/news/story/commentary-confronting-housing-market-myths/story.aspx?guid=%7BF7C7F56C%2DEEB1%2D460E%2D9F42%2DD91AE0D47077%7D
thanks chick…that was a great read.
Some fresh April sales numbers from Northern Colorado: Note, these are only multilist numbers, so don’t include some pre-sales and customs.
Total sales down 5% YOY, new home sales down 34% YOY. YTD the declines are 8.66% and 32.41%.
Best market is Fort Collins. Bad markets are Loveland, Greeley, Windsor and Johnstown.
Top end (over $650M) continues to be horrific . . . very little activity.
Median prices for existing homes trending downward, but median prices for new homes improving (albeit, on fewer sales).
Can’t confirm this, but I’ve heard there are several FBI types in the Greeley area investigating mortgage/appraisal fraud cases.
We have a coworker to relocated from Fort Collins to the Bat Area last year. It took him a year to sell his house. Aggressive discounting made the sale. So I would say that Ft. Collins is also in the “bad” category. My impression was that Windsor was were houses still sold (sort of).
Total sales down 5% YOY… is that right? Because that’s a pretty small decline. I would even expect that to be worse than new home sales, since the builders are the ones offering all kinds of incentives, discounts and kickbacks (plus new home sales don’t factor in cancellations, right?)
The -5% is right for April. I’ve been tracking for 10 months now and sales are down YOY in 10 consecutive months. Must remember, these markets have not had near the growth or appreciation as other bubble markets.
In Colorado . . . number of sales in the Fort are actually up 6.67% in 2007 vs. 2006 and Windsor is off 16.5% in the same period. There’s a lot of building in Windsor, but a ton of it is spec stuff . . . market can’t support it IMO.
TM toy and Cisco say it’s going to sck
maybe they are playing the new under promise game
or maybe it’s going to sck
give it time
“The loss, reported for the quarter ended March 31, reflects a decline in the market value of the mortgage-backed securities, not defaults on specific mortgages.”
because many times a servicer will write off the second lien and not foreclose.
This is amazing to me. As soon as it is widely known, many 100% LTV FB’s are just going to put a gun to the head of their servicers and tell them to drop the second or go ahead and foreclose.
That’s gotta be a quick 20-30% discount on your monthly nut, no?
either that or call your lawyer on that new home contract and demand 25% off then get a second and default on that !
wow
>> an assignee liability statute that was too strong could spook investors with the fear of homeowner lawsuits and ‘impair the secondary mortgage market.’
Wall Street is always the first to demand a bailout.
Ain’t it funny how Wall Street hates the free market.
Depends on how you look at it. IMO, these guys are saying that if they change the rules, the secondary market will be less liquid.
Ain’t it funny how Wall Street hates the free market.
Nah, they just hate losing money.
As I specualted earlier… It seems the “workable principles” that Countrywide and Wells Fargo said “HELL NO” to was for the stupidest lenders to be bailed out by the least stupid…
http://www.reuters.com/article/bankingfinancial-SP/idUSN0846158420070508
‘Regarding assignee liability, which would make mortgage investors share the risks of defaults on fraudulent home loans, Wells Fargo home mortgage lending chief Cara Heiden said: “I am of the opinion that we shouldn’t go there.” ‘
Ya think?
Mattie is arguing with Col. Stonehill]
Col. G. Stonehill: I’ll take it up with my attorney.
Mattie Ross: And I will take it up with mine - Lawyer Daggett. And he will make money and I will make money and your lawyer will make money… and you, Mr. Licensed Auctioneer, you will foot the bill.
Everyone is Lawyering UP…the J. Noble Daggerts of the Real Estate world WILL BE BUSY
This will be more exciting than True Git.
Pass the popcorn and watch the SHOW gang.
Absolutely my most favorite western!
Awesome.
“You can’t serve papers on a rat, baby sister. You gotta kill him or let him be.”
-Rooster Cogburn
April numbers out for PHX:
http://www.azcentral.com/business/articles/0509biz-homes0509-ON.html
“Recorded sales for the month fell to 4,855 compared to 5,385 in March.
While April sales were a bit stronger than in January and February, they were well below the 5,980 sales in April 2006 and 8,735 sales in April 2005. “
21st Century Beau Brummel, of sorts?
“In Alexandria, Va., real-estate attorney Beau Brincefield said he has settled roughly 50 contract disputes and has another ‘50 or more’ in the pipeline.”
What did Shakespeare say about lawyers?
From the mouth of Toll:
“This, coupled with a lack of buyer confidence, may have served to impede the glimmers of a rebound we had started to see in early February.”
What glimmers? Skewed stats? We were laughing back then, and he’s just catching on? Is anybody investigating him for dumping millions of dollars of stock in own company while encouraging others to buy?
Subprime loans are big in O.C., bigger nearby
While just 21 percent of the county’s home purchase loans in 2005 were subprime, pockets of the county are much more dependent on high-priced credit.
http://tinyurl.com/3×3bnk
Subprime lending state by state
http://tinyurl.com/32dv92
if we could get this by zip that would be helpful-you’ll know not to even stop for gas as the debt zombies might steal your car etc…….
20% vs ? 2 % in the 90’s
it is different this time
lol…good plot line for a horror movie…
California: “We’re number two.” And head of Ole’ Miss and Mich, no less. Utah is up there as well.
“Subprime lenders provided one dollar in every five used to purchase a home in the United States in 2005. But the proportion differed widely among the states. In California 25.7 percent of all home loan money came via subprime lenders. In North Dakota, meanwhile, just 9 percent did. Here are prime and subprime loan volumes by state in billions of dollars.”
—————————————————————————-
These are the states that had higher 2005 rates of subprime lending than the 20.1% national rate:
State Prime Subprime Total Percent subprime
Rhode Island $3.28 $1.25 $4.53 27.6%
California $221.77 $76.64 $298.41 25.7%
Nevada $21.99 $6.89 $28.88 23.9%
Mississippi $3.37 $1.04 $4.41 23.6%
Michigan $19.83 $5.81 $25.64 22.7%
Illinois $43.50 $12.31 $55.82 22.1%
Texas $50.00 $13.70 $63.70 21.5%
Florida $115.22 $31.43 $146.66 21.4%
Maryland $29.19 $7.76 $36.94 21.0%
Georgia $30.02 $7.76 $37.78 20.5%
Utah $10.05 $2.59 $12.64 20.5%
Arizona $41.55 $10.74 $52.29 20.5%
Total $1,101.23 $276.35 $1,377.58 20.1%
And in the number of AltA defaults… should be about 50% of origination. Not to mention the waves of AltA from 03 that start going bad.
AltAs from 03 should have plenty of equity to allow them to sell without defaulting. As long as they haven’t HELOCed themselves to death.
‘This means that buyers are typically cancelling closer to closing, likely due to price or inability to sell their existing home, instead of financing issues that typically occur earlier in the process,’
Would “price” cover the case where I hear that the builder is offering new buyers 35% discounts off what I paid?
From an OC Register blog. Once the link takes you to this article, read the one below it that talks about how Cash Call’s owner hired Gary Coleman for its spokesman…funny.
Mortgage Insider: Dana Capital closes, branch managers say they are owed money
http://tinyurl.com/26dahk
“Lewis isn’t the only U.S. bank executive who expects that credit conditions will change. Wells Fargo & Co. CEO Richard Kovacevich said in December that ‘I am not a forecaster of the future; I’m a historian. And history says this will blow up. It always has. And there will be some blood on the street.’”
Blood on the street = another flag about when to buy. Don’t buy until after the blood spills, and at least dries up a little bit…
Middle class is history in California as gas, taxes, credit cards, loans with “no” equity turns.No place to hide except one way out of state by U-Hall.
‘This, in turn, can impact the entire housing food chain, including some of our potential customers’ ability to sell their existing homes.’
So who is the top predator in this particular food chain?
top predator = Wall Street investment banks and hedge funds
I guess I’d like to see a couple of minor reforms from all of this. I’d like a change in how NegAm loans are booked so we don’t have the continual restating of income. If the balance increases on the option arm then it should be booked as a liability and not hidden as full payment made till it defaults.
I’d also like to see REO booked as a liability instead of an asset in bank statements. They sit on a house and doesn’t show up as a loss till the whole thing comes crashing down on small investors.
That is what I’d like to see. That would put a kink in bubble formation.
Hey night stalker soundalike…
I am a historian.
You are finsihed.
Wells Fargo & Co. CEO Richard Kovacevich said in December that ‘I am not a forecaster of the future; I’m a historian. And history says this will blow up. It always has. And there will be some blood on the street.’”
Have a guy in the next cubicle. He has a friend that bought a condo just off ASU. The contract had a clause that if prices drop within a year, he gets a discount…. The dude just got a check for $40K rebate on his $240K condo.
He’s in happy-happy joy-joy land. Dude, if it’s dropped $0K in the last year, how happy will he be a year from now when it has dropped another $100K.
Seriously, at best he could rent it out for $1000 a month. That tells me the place is worth $100K.
Sorry… dropped $40K….
wow, he didn’t have to sue
is the builder a public co?
Me thinks I know the reason.
Ever been in a car accident and the insurance cuts you a check that says “If you cash this, you release us from all further liability…’
Oh that’s interesting a delayed cash-back deal . I wonder how the IRS is going to treat a cash-back check gift based on a contractual gamble between a buyer and a seller ?
http://www.hud.gov/news/release.cfm?content=pr07-050.cfm
FHA has to change to meet today’s market??? Why, so the U.S. treasury can lose hundreds of billions in place of the idiot lenders that built today’s market?
NO!!!!
Today’s market must adjust to people’s ability to pay!!!!
YES - to save the banks. FHA will refinance some defaulting loans and will prop up the market by bringing in new buyers who otherwise wouldn’t get credit anymore, because many of them will default soon. Taxpayers pick up the bill. Housing prices will not crash, as they might otherwise do, but slowly decrease, maybe even stay flat nominally in most areas. Costs: Billions for the taxpayers, the question remaining is how many billions: 10, 100, 1000. If they are serious with the bank bail-out, it wouldn’t be under 100 billion.
It’s getting to the point of being entertaining watching everyone from lenders, owners and RE agents JUGGLING to keep house prices from Falling.
Eventually, House Prices will DROP, property values will Fall and downward tax reassessments WILL TRAP all lot of these GAMBLERS in their overvalued Moneypits.
For whom does the debt Toll?
I think I hear a Rush song coming on…
what a friggen cesspool!!!
It is fun reading this everyday as the REIC sinks into the abyss.
I’ve tried to post it twice, but it seems to be getting lost.
In PXH, April sales 10% lower than March. Down to 4855, with 52K+ houses on the market. 11 month supply.
darrell….what was the median price change from march?
thanks.
““Denny Alberts, president and chief operating officer, said the 217-room Ritz-Carlton and the 70-unit condo project no longer fit Crescent’s portfolio.”
Is this Newspeak for they’re about to go t*ts up?
“Continuing in business no longer fits Crescent’s portfolio.”
Oh, and good luck trying to unload those elephants.
Just saw a clip from CNBC about housing. Some Realtor ™ said regarding buyers, “You have no control over the price. The seller sets the price.”
http://www.paperdinero.com/BNN.aspx?id=175
Yes I do. Accept my price or your home will sit on the market for six months.
Real estate 101 tells you that the prices are set by what the market will bear. Buyers always, always, always set the prices. Buyers don’t care if you need $500,000 for a $200,000 house. They only care about getting the best price for them. It’s not their problem if you used your house as a personal ATM or if you overpaid by $300,000.
Buyers set the price when supply exceeds demand.
Sellers set the price when demand exceeds supply.
Um. unless you are talking about homeless people I’d say the rental cost might be the control.
“Subprime versions of ‘piggyback’ loans have performed worse than subprime housing- debt overall, putting some AAA rated securities sold by Goldman Sachs Group Inc. at risk of downgrades from Moody’s and leading HSBC Holdings Plc to set aside more reserves for losses.”
Yikes! More writedowns at HSBC. What’s more, how did ’sooblind’ piggybacks get labled AAA?
http://www.mortgagenewsdaily.com/582007_Home_Equity.asp
“The corporation reported that 82 percent of Freddie Mac-owned loans that were refinanced during the quarter resulted in new loans that were at least five percent larger than the original amount of the previous mortgage.”
This part is interesting:
“The report also found that properties refinanced during the first quarter of 2007 had enjoyed a median house-price appreciation of 24 percent during the time since the original loan was made. This was down from a revised 27 percent in the fourth quarter 2006 and 31 percent in the first quarter of 2006. Those loans refinanced during the first quarter had been in place for a median period of 3.3 years.”
You know…
Just as my mind is getting used to the idea of transactions in the Billions~
We’ll be back, dealing with Hundreds and Thousands, soon.
Back to the future…
That would put gold at 70 cents per ounce. Or 7 cents. or 7/10ths of a cent.
Mulligans for everybody!
“A mortgage investor ‘needs to know that he won’t bear responsibility based on conduct by parties outside of his control,’ Howard Mulligan, an attorney who specializes in the mechanics of selling home mortgages to investors, told a Congressional panel.”
“And there will be some blood on the street.”
———————————
Wells Fargo will strengthen their already strong profitability from this.
Toots Shor, Jeremy?
“‘The bonds have come out of the gates performing extremely poorly,’ said Jeremy A. Shor, a portfolio manager at Brown Brothers Harriman & Co., who oversees about $3 billion in asset-backed bonds. ‘The market is trying to determine if this is due to idiosyncratic or systemic reasons.’”
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Lennar Tries Web Auction
To Battle Housing Slump
By JONATHAN KARP and MICHAEL CORKERY
From the WSJ, another report about “auctions” that are failing as predicted because they’re not really auctions! If you set a minimum reservation price above market clearing prices, all you do is waste everyones time. I love this quote:
Lennar reacted cautiously to the outcome. “We are happy with traffic levels,” Chief Financial Officer Bruce Gross says. “We will evaluate it and see if we want to use [an Internet auction] somewhere else in the country.”
Mr. Gross says the auction is meant as a marketing tool to create buzz and entice buyers to Palm Springs and the Coachella Valley, where pockets of the market are oversupplied.
http://online.wsj.com/article/SB117867283319396706.html
sorry about the bad copy and paste!
Major Correction Larryboy…
“For months, agents around the South Sound have been counseling their sellers to price right before listing a house. Remax agent Larry Tuell said some are still going too high in a market with savvy buyers who now have more time to shop. ‘You can’t get top dollar unless it’s in top-dollar shape,’ he said.”
There ARE NO SAVVY Buyers… ANYWHERE in this housing market. Period.
There’s just the Financially DEAD, soon to be Financially DEAD …and us Popcorn eaters sitting on the Fence watching and waiting for the MAIN Course .