The Housing Bubble

One of TxChicks favorite people!

http://news.com.com/Casey+Serin+The+worlds+most+hated+blogger/2100-1028_3-6183383.html?part=rss&tag=2547-1_3-0-20&subj=news

Junk Bonds May Repeat Crash of 2002 on Increasing LBO Credits / make sure you read the part about “toggle bonds”

Banks significantly tightened real-estate loan standards
compare this with the german number of 40% of banks easing!

http://immobilienblasen.blogspot.com/

Home Depot misses their numbers. But don’t worry that shouldn’t impact the overall economy. I know this because I heard a talking head say it on Squawk Box. Walmart had it’s revenue come in $1.5 billion below projections. But guess what? You got it. That won’t impact the overall economy.

“Hi honey. I lost my job today, but don’t worry. That shouldn’t hurt our overall economy.”

School enrollment falling in S. FL, no need to build additional schools:

http://www.sun-sentinel.com/news/local/southflorida/sfl-ccrowding15may15,0,2343606.story?coll=sfla-home-headlines

Another truly shocking article. No crap there are fewer and fewer kids here! You are taxing the parents out of existence, young couples can not afford to move here, and you have spent the past 10 years getting ready for the baby boomers (who are never going to come).

And your suprised that the schools are emptying out?

An editorial (YUK) in today’s Milwaukee Paper:

Congress is right to answer the alarm over predatory lending with tighter controls and help for homeowners at risk of default.

http://www.jsonline.com/story/index.aspx?id=604874

Sleaze Hasn’t Just Gone Away:

http://wallstreetexaminer.com/blogs/winter/?p=767

“… “Over the next several months we’re going to see some pretty strong prices on all milk,” said Larry Salathe, an economist and dairy expert at the U.S. Department of Agriculture in Washington. Production needed to bring prices down “takes at least several months, usually a year to two years, to come.”

Skim-milk powder, the benchmark for world trade, has risen 60 percent in six months to a record $1.58 a pound May 4 on the Chicago Mercantile Exchange, 74 percent higher than the five- year average. During the first five months last year, prices fell 14 percent. …U.S. inventories of butter, cheese and dry milk peaked at more than 2.7 billion pounds in 1983. The government that year spent $2.5 billion on surplus dairy products to support prices and farmer income. Today, the U.S. has no surplus after selling the 27 million pounds it held in 2005, USDA data show.”

Bloomberg
http://tinyurl.com/23q2cf
Food cost is going to go a lot higher. The government says food is not important and therefore doesn’t count to the CPI since we don’t need to eat and can choose to starve.

Why do these economists believe that food prices should come down in a “year or two”? The world is awash in dollars and these moneys are buying any available foods.

The Wrong Kind of Closings:

http://www.sptimes.com/2007/05/15/Business/The_wrong_kind_of_clo.shtml

The real estate sales slump (Tampa Bay area) is shutting realty offices.

Observation from the trenches… A couple weeks ago every CNBC commercial break had ads for places still wanting to do refi. Even no doc and fix and flip. I haven’t seen a single refi ad on CNBC in days. I still see them for the local banks on local channels, but the big bubble lenders seem to have stopped advertising.

According to the WSJ, lending standards are gettting much tougher for non-traditional loans. Gosh, they want drive by appraisals instead of just making up a number! The “tight money” is described as standard practice in the 1990s, and necessary to restore confidence in mortgage bonds (confidence that has only begun to disappear).

Meanwhile, plenty of credit remains available for standard conforming 30-year fixed, according to another article.

Inflation Newspeak from the WSJ’s web site:

“Consumer prices advanced 0.4% last month on strong growth in food and energy prices, but for a second-straight month underlying inflation stayed under wraps with a 0.2% rise, bringing it closer to the Fed’s understood comfort zone.”

Possible translation: Inflation in the prices of stuff people buy was officially running at 4.8% / year (12 X 0.4%), but inflation the Fed is willing to acknowledge was only running at 2.4% / year (12 X 0.2%)…

Home Depot Profit Falls 30% As Housing Slump Hurts Results
By Mary Ellen Lloyd
Word Count: 608 | Companies Featured in This Article: Home Depot, Lowe’s

Home Depot Inc.’s first-quarter profit fell 30%, as the No. 1 U.S. home-improvement retailer continued to struggle amid a tough housing market.

Sales and earnings were weaker than most on Wall Street expected, and Home Depot said the quarter means fiscal 2007 should come in at the low end of its previous estimate for a 4% to 9% decline in per-share earnings.

Shares of the company, a component of the Dow Jones Industrial Average, fell $1.21, or 3%, to $37.80 in premarket trading. Shares of smaller rival Lowe’s Cos., which reports quarterly results on May 21, had not yet traded …

http://online.wsj.com/article/SB117922398638203177.html?mod=home_whats_news_us

I stumbled across this ad on the web for Daniel Webster College which insinuates that renters are dumb, and that you can gauge how successful somebody is by how much they spend:

http://img144.imageshack.us/my.php?image=rentersaredumbao7.gif

Clearly not a place to go for an econ degree.

Chrysler purchase is fraught with risks
UAW supports the deal for now

By Micheline Maynard
NEW YORK TIMES NEWS SERVICE

May 15, 2007

AUBURN HILLS, Mich. – Can private equity investors fix Chrysler for good, and can they avoid a confrontation with the United Automobile Workers union?

These are the most pressing questions to arise from the deal announced yesterday for Cerberus Capital Management, which specializes in restructuring troubled companies, to pay a total of $7.4 billion to take control of Chrysler, with most of that money to be invested in the newly independent company.

By unwinding a nine-year-old merger between Chrysler and Daimler-Benz of Germany, Cerberus is also taking on Chrysler’s $18 billion obligation for health care and pensions for employees and retirees.

Any efforts to sharply reduce those perks – which Chrysler can afford but says represent a cost burden of $1,500 a vehicle – will probably put it at odds with the UAW.

http://www.signonsandiego.com/uniontrib/20070515/news_1b15chrysler.html

PAUL B. FARRELL
Psych jobs
The 10 myths Wall Street employs in its war on Main Street
By Paul B. Farrell, MarketWatch
Last Update: 7:16 PM ET May 14, 2007

ARROYO GRANDE, Calif. (MarketWatch) — Borrowing a line from Winston Churchill, you could say Wall Street’s a “riddle inside a mystery wrapped in an enigma.” Wall Street is so complex and hidden beneath so many layers of secrecy that myth often seems the only way to understand it.
That’s the message from Hassim Nassim Nicholas Taleb, author of “Fooled by Randomness:” “Myths, particularly well-aged ones … can be far more potent (and provide us with more experience) than plain reality.” He should know, Taleb is one of Wall Street’s best and brightest minds, a mathematician and options trader whose success depends on understanding Wall Street’s mythology. But does myth really trump reality?

Yes, and myth is becoming even more important today. For example: We know Wall Street and Corporate America hate the regulatory spotlight. They also hate dealing with Main Street investors. They prefer the shadowy world of lobbyists, campaign donations and mega-billion-dollar private equity buyouts that take blue-chips off the market and out of the eyes of securities and banking regulators.

More proof? Corporate America and Wall Street are now engaged in a relentless PR campaign to convince Congress and the SEC to roll back “burdensome” Sarbanes-Oxley requirements and other market reforms in order to minimize disclosures, raise the “wall of secrecy” higher and hide as much of their activities as possible from America’s 95 million Main Street investors.

The truth is Wall Street, Corporate America and Washington love the world of secrets, shadows and myths, where Main Street investors and journalists are forced to guess what’s really happening to our money.

http://www.marketwatch.com/news/story/10-myths-wall-street-employs/story.aspx?guid=%7B9AD16225%2D030F%2D4AC6%2D996A%2D6A5C53011E15%7D

““As far as I can tell, people buy `chazzerei’ — candy, ham and stuff like that,” says Paul Kasriel, chief economist at the Northern Trust Corp. in Chicago. “No women, except for Queen Elizabeth, wear hats anymore. People don’t wait for Easter to buy their spring wardrobes.”

Clearly Kasriel doesn’t follow the horses.

Real Declines

What he does do, when he isn’t keeping tabs on women’s fashion, is looking at hard data. He found that inflation- adjusted retail sales fell in both March and April. (He deflates nominal retail sales by the consumer price index for commodities.)

“Revised March nominal retail sales increased 0.97 percent,” he says. “The CPI for commodities increased 1.22 percent in March,” which means real sales fell.

April’s nominal decline of 0.2 percent will translate into a decline in inflation-adjusted retail sales as well.

“Although two consecutive months of contracting real retail sales is not the rarest event, in conjunction with falling house prices, I would conclude that it’s not good,” Kasriel says. …

“It’s clear the consumer has cut back on the pace of spending,” he says. Housing, however, is the main culprit.

Housing demand needs to stabilize before retail-related expenditures on housing can stabilize, he says. Usually there’s a six- to nine-month relationship between the two.

And contrary to the find-good-news-in-everything camp, there are no signs of a meaningful bottom in the residential real estate market just yet.

That’s not a problem for folks who believe in the Easter Bunny. ”
http://tinyurl.com/2mytkz
Caroline Baum
Bloomberg
May 15

Thus we have the Goldilocks economy: It is a fairy tale.

Too rich:

NAR Partners With the Center for Responsible Lending and Neighborworks America to Keep Families in Their Homes

WASHINGTON, May 14, 2007 -

The National Association of Realtors®, in partnership with the Center for Responsible Lending and NeighborWorks America, introduced a new brochure today at NAR’s 2007 Midyear Legislative Meetings & Trade Expo. “Learn How to Avoid Foreclosure and Keep Your Home” is the fifth mortgage-related brochure in NAR’s consumer education series.

Home prices sink 1.8 percent in first quarter, falling for third straight quarter, Realtors report. More soon.

DC craigslist is showing a brand new Rockville Town Center 3BR/2BA condo going for $3,000 a month. The development is attractive, near the metro, in downtown Rockville MD, and is in-boundary for good schools. Unfortunately, those condos were selling for around $900K. So if the landlord paid anywhere near that, $3K is not going to help much.

I heard on the news yesterday where they were talking about the DOW hitting records…..Up 87pts as I write to 13443. At the time Greenspan first mentioned “irrational exuberance” the DOW was 6400 ! Regardless,as mentioned above, most retail #’s are lower yet the mkt. powers foward…based on?

Construction jobs in Oregon increased:

http://www.oregonlive.com/business/oregonian/index.ssf?/base/business/1179195927323580.xml&coll=7

It’s different here.

Wide Scope In Ohio AG’s Subprime Legal Plans; Lenders, investment banks, brokers, rating agencies targeted

By: Kate Berry
American Banker, 5/15/2007 — CHICAGO — Ohio Attorney General Marc Dann said he plans to sue mortgage lenders and Wall Street investment banks on behalf of both borrowers and the Ohio Public Employees Retirement System, which invested in bonds backed by subprime mortgages.

“Ohio consumers and bondholders were all ripped off on the same deal,” Mr. Dann said in an interview. “We’re looking at this issue all the way up the line, from bond rating agencies to mortgage brokers to investment banks. There wasn’t just one actor in this. There were decisions being made, and bonds marketed to bondholders who were left holding the bag.”

As foreclosures rise, politicians around the country are trying to allocate blame up and down the mortgage food chain. In recent years several states have passed laws creating so-called assignee liability for the wrongdoings of originators, and some lawmakers in Washington have said that any federal bill addressing subprime lending practices should include such a provision.

Mr. Dann said he expects to file lawsuits in the next few weeks that would allege violations of Ohio’s Consumer Sales Practices Act. That 1972 law prohibits “unfair or deceptive practices” in consumer sales. Legislation that went into effect on Jan. 1 expanded the act to apply to mortgage brokers and nonbank lenders.

Last month, Mr. Dann and John Reardon, Ohio’s Superintendent of Financial Institutions, sued New Century Financial Corp., the bankrupt Irvine, Calif., subprime lender, in Cuyahoga County Court of Common Pleas for unfair and deceptive sales practices under the expanded law.

Mr. Dann said in the interview on Friday that the next round of lawsuits would “expand our New Century suit,” which also alleged violations of Ohio’s Mortgage Loan Act and Mortgage Brokers Act. He declined to identifiy companies that could be named as the defendants in those suits.

Donald Lampe, a partner in the Charlotte office of the law firm Womble Carlyle Sandridge & Rice PLLC, said mortgage lenders are taking Mr. Dann’s statements “very seriously,” by analyzing the New Century lawsuit.

“We have a regulator who has clearly stated his intentions to uphold standards that have to do with a borrower’s ability to repay,” Mr. Lampe said. Remedies under the updated consumer act, he said, are “very severe.”

Ohio has attracted national attention because it has held the distinction of having the highest rate in the nation of loans in serious delinquency - either in foreclosure or more than 90 days late.

In the fourth quarter Ohio had a worst-in-the-nation 3.4% serious delinquency rate, according to the Mortgage Bankers Association’s national delinquency survey.

Policy Matters Ohio reported that new foreclosure filings in the state rose 23.6% last year, to 79,072.

The nonprofit research group estimates there was roughly one foreclosure for every 57 households in the state.

“We have a disastrous situation in some of our cities with a number of vacant and abandoned properties that have blighted neighborhoods,” said Zach Schiller, the research director at Policy Matters Ohio.

Foreclosures have increased dramatically in the past two years and show no signs of abating, he said.

“Nobody is paying any consequences for this,” Mr. Dann said. “Middle-class Ohioans didn’t think Wall Street would put them in a situation where they couldn’t repay their mortgages.”

Last month, Gov. Ted Strickland formed a foreclosure prevention task force to study ways for the state to prevent foreclosure and assist struggling borrowers.

Also last month, Ohio’s Housing Finance Agency began issuing $100 million in taxable bonds to raise money for a program that offers 30-year loans with a 6.75% fixed rate to low- and moderate-income homeowners. The agency has said it may issue another $400 million in bonds this year.

(Ohio stopped short of creating a “suitability standard,” under which lenders would be required to choose mortgage products “suitable” for borrowers and their ability to repay. Gov. Tim Pawlenty of Minnesota is expected to sign a bill that would create such a standard.)

Mr. Dann said his office is focusing on two types of loans - those that involved fraud, and those in which homeowners in Ohio were put into loans “that were impossible to repay.” Several state agencies are investigating companies that “aided and abetted the conscious rip-off of homeowners and bondholders,” he said.

You never see the tidal wave! When this market tanks and it will ,the bottom will match this housing bubble dive .

Do I see a depression??????

“Group calls for halt to defaults Wants reprieve on foreclosures for six months”

In fact, six of the 10 cities with the highest rates nationwide are in the Golden State. Stockton ranked first, with one of every 131 households filing. That’s six times the national rate of one in 783.

California had an overall rate of one in every 400 households, a small dropoff from March, but a 245 percent increase from April 2006.

Among hardest-hit counties in the state, Riverside ranked third and San Bernardino sixth.

[...]
In California, black and Hispanic neighborhoods were almost four times as likely than white neighborhoods to have borrowers with subprime mortgages, according to a study by Stein’s organization.

Welcome to biazarro land!

http://www.amazon.com/Pop-Why-Bubbles-Great-Economy/dp/0061151548/ref=pd_bbs_sr_1/103-6316197-6733411?ie=UTF8&s=books&qid=1179242772&sr=8-1

Update from Pullman, WA:

We might be buying a house soon and am somewhat terrified about buying a house of any kind in any location at this time. So please feel free to poke holes in my (our) thinking.

Home: 2200 sq ft, bi-level, 2001 build, good construction (local custom builder), well maintained, great light, small yard, 4 bed 2.75 bath + family room, solid neighborhood on cul de sac, ok energy efficiency

Price:
- Sold new in 2001 for $202k
- FSBO in Feb 2007 for $299k
- MLS in Apr 2007 for $299k
- MLS in May 2007 for $289k
- Our initial offer last week $265k
- Counter offer $278k
- Our counter counter $270k
(waiting to see what happens)
- At $270k price/mo rent ratio = 180-190
- Appreciating 2001 price at 5% annually gives $271k
- Cost to build same house new in our area ~$310k (I’ve spent considerable time talking to builders)

In a nutshell, we like the house and could see ourselves living there for the next 20 years. We can easily afford the payments on a 15 year mortgage, even while maximizing retirements contributions and relying on just one income. Our logic is that the market value of this home could drop another 10%, but we can’t seem to find any decent house rental options and are tired of living in a two bedroom apartment (2 kids). In the long run we should be okay. (College town, vast majority of rentals are in bad shape.)

I can’t image a forum where I’m likely to find more devil’s advocates, so let it rip.

This guy explains what’s behind “the nation’s extraordinary economic success”: bubbles! And they are good for us!

http://money.cnn.com/2007/05/13/news/economy/bubbles_gross/index.htm
NEW YORK (CNNMoney.com) — Here’s a question you might ponder as you Google, on your wi-fi-enabled laptop, for a YouTube video. Without the debacles of Global Crossing, Worldcom, Webvan, Etoys, and a hundred other dot.com flame-outs, would there be a Google today? Or wi-fi? Or YouTube?
The answer, historically speaking, is: probably not.
And therein lies a contrary tale of why investment bubbles - far from being lamentable outbreaks of reckless investor behavior - have been a net positive for the American economy. Indeed, some (including me, in my new book, “Pop! Why Bubbles Are Great for the Economy”) would say that the way Americans have blown, punctured and recovered from bubbles has been a key to the nation’s extraordinary economic success.
After all, the cycles seen in fiber optics and dot-coms back in the 1990s and in real estate this decade - a burst of frantic building and excess capacity, over-the-top hype and vicious competition, bankruptcy and consolidation, losses, self-pity, and finger-pointing - are nothing new. Similar manias surrounded other promising economic and technological developments: the telegraph in the 1840s and 1850s, the railroads in the 1880s and 1890s, stocks and credit in the 1920s.

“as falling prices for clothing, airline tickets and tobacco products helped restrain underlying inflation.”

Yesterday…I bought 4 rolls of toilet paper @ Ralphs for: $1.00…with this Gov’t report…I can now eat more…as Woody Guthrie says:

“The more you eat… the more you sh*t”

Bugs: Got carrots?

Daffy: “Yes, Bugs I do…a 1lb bag of baby peeled Bakersfried carrots @ Ralphs is on sale @ $1.49…sprayed with pesticide…not organic…read the label…Is it true that Andrea Mitchell gets Alan’s carrots from Martha Stewart’s garden?

Surely a sign of the times to come, an actual headline: “Bank sells house complete with owner’s corpse”

http://news.yahoo.com/s/nm/20070515/od_uk_nm/oukoe_uk_spain_corpse;_ylt=Aoez0tACsMrl_yvnPk7SvhbMWM0F

Casey, is that you?

Talk about being consumed with debt…….

“Through the first four months of this year, consumer inflation is rising at an annual rate of 4.8 percent, almost double the 2.5 percent increase for all of 2006. The acceleration has occurred in large part because of higher costs for food and energy.”

http://biz.yahoo.com/ap/070515/economy.html?.v=11

But housing $$$$$$$$$ cost are falling…all is well, nothing to report, move along…

Bull sh*t, hog wash, corn pucky…

“Food costs, which have been pushed higher by the increased demand for corn to use in ethanol production, were up at an annual rate of 6.7 percent in the first four months of this year compared with a 2.1 percent rise for all of 2006.”

Bugs: Got corn?
Neil: Yes Bugs, I do…lots of it!

Why do realtors prefer to keep their customers in the dark? Does it help them pull off scams, where the customer overpays relative to the actual value of a home? And I am wondering if the following story suggests a violation of antitrust law?

My take:

1) Realtors are the enemies of the truth.

2) If I ever again purchase a home, I will go far out of my way to use Redfin or one of its peers rather than a lying, scamming Realtor.

3) I hope the DOJ wins its case against the NAR’s information monopoly.

http://www.usdoj.gov/atr/public/press_releases/2005/211008.htm
————————————————————————————-
Brokerage Firm Stops Posting Home Reviews
By James R. Hagerty
Word Count: 347

A discount real-estate-brokerage firm based in Seattle, under pressure from rival brokers, has stopped posting Internet reviews of homes listed for sale.

Glenn Kelman, chief executive officer of brokerage firm Redfin Corp., said the reviews were popular with users of the firm’s Web site. A team of 15 free-lance reviewers, paid by Redfin, toured open houses in the Seattle and San Francisco areas and wrote comments. A sample involving a small San Francisco condo: “Forget about having guests over unless they are willing to sit in the oven, in which case you had best order in.” Though the tone was often irreverent, some of the reviews were favorable.

Redfin stopped posting new reviews on its site late last week to avoid losing its access to information on homes available for sale from Northwest Multiple Listing Service. NW MLS, based in Kirkland, WA, and owned by participating brokers, operates a database of information on homes listed for sale in western Washington State.

http://online.wsj.com/article/SB117919555466502870.html?mod=pj_main_hs_coll

At least the glass is 1/3 full… (No comment on the other 2/3?)
———————————————————————————
ECONOMIC REPORT
Home builders’ confidence falls back to 16-year low
By Rex Nutting, MarketWatch
Last Update: 1:05 PM ET May 15, 2007

WASHINGTON (MarketWatch) — Tightening lending standards shook U.S. home builders in May, sending a gauge of their confidence back down to a 16-year low, an industry trade group reported Tuesday.

The National Association of Home Builders/Wells Fargo housing market index slid three points to 30 in May, matching the 16-year low set in September. Economists were predicting the home builders’ index would remain at 33, according to a survey conducted by MarketWatch.

The results show that roughly one-third of builders have confidence in the housing market.

http://www.marketwatch.com/news/story/home-builders-confidence-falls-16-year/story.aspx?guid=%7B9FC95AF0%2DE6C0%2D46F1%2D8050%2DE5C544D6B2F2%7D

For those of you considering buying a house somewhere…

Mother Nature has probably altered the climatical conditions, that used to be tried and true, and this fact alone, means you should buy nothing, until we get a better grasp on what she’s up to.

For every bad reaction weather wise, there will be good reactions.

Which burbs’ will win?

Minot, N.D.?
Yellowknife, Canada?
Spitzbergen Island?

I hope Jerry Brown takes careful notes on this development…
———————————————————————————-
Ohio Attorney General Targets Wall Street for Lending (Update1)
By Jody Shenn

May 15 (Bloomberg) — Ohio Attorney General Marc Dann, likening the subprime lending industry to armed robbers, said he wants to sue securities firms because their bond sales enabled consumers to get mortgages they couldn’t afford.

Ohio has already won the right through a lawsuit to review foreclosures by New Century Financial Corp., the bankrupt Irvine, California-based lender. Dann may add investment banks and credit-rating firms to the case or bring new suits, perhaps using Ohio’s civil version of the federal Racketeer Influenced and Corrupt Organizations Act, he said in an interview today. The RICO law is used to target organized crime and drug rings.

“If somebody was buying guns and giving them to people to go and take people’s houses at gunpoint in Ohio, we’d be prosecuting them and throwing them in jail,” Dann said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aJJLlZNjf9PI&refer=home

http://www.larouchepub.com/other/2007/3418mbs_losses.html

Mortgage Securitizers Hiding Huge Losses.

The Spring months are likely to see extremely large securities losses breaking out in “mortgage-backed securities” (MBS) which have been the international banks’ essential tool in creating the now-exploding U.S. and other housing bubbles. These losses, which various investment bank reports are now estimating at up to $100 billion, may, in fact, become much larger than that, as the fall in home prices accelerates. They will hit those banks, and commercial banks as well, exposing how worthless are the large part of their assets which are based on the mortgage bubbles.
Since 2005, two-thirds of all mortgages have been “securitized”—sold by the lending companies to investment banks, which in turn package and sell them as high-profit securities, building a huge mortgage bubble over $15 trillion. In 2006, one-quarter of all the U.S. banking system’s $12 trillion in assets were based on residential real-estate mortgages and residential MBS, the bubble which is now blowing out.

Groundhogday, I don’t know what area you are from, but in the midwest a bilevel sells one step above a modular. A split level is one step above that. Here we can barely give them away, and they sell way less than the same square footage in a ranch, cape or two story. They are one of the cheapest houses to build and one of the hardest to sell later. Think long and hard before buying a bilevel over a ranch, cape or a two story.

http://www.larouchepub.com/other/2007/3418mbs_losses.html

The mortgage securitizers who created the housing bubble are now hiding huge losses.

On my street in Mira Mesa (San Diego), there are now 5 houses for sale versus none one year ago. The three for which I saw prices for were asking between $525k and $585k. These prices seem to be not far off from the highs we had at the peak. Three of these are occupied by long-term owners, and the highest priced one has only been occupied by the current owners for about a year. I think they are all being unrealistic about their asking prices. These homes are only 1400 - 1600 square feet on 3500 square foot lots.

“Make an offer before it’s gone! Any offer… ”

Oxymoron. One of the re-pos in Sacramento.