A Record One-Month Price Decline
Some housing bubble news from Wall Street and Washington. “Purchases of new homes in the U.S. unexpectedly surged in April by the most in 14 years, ignited by the biggest decline in median prices since 1970. Compared with a year earlier, new home sales were down 11 percent, today’s report showed.”
“The median price of a new home dropped 11 percent last month, the biggest decline since 1970, to $229,100 from $257,000 a year earlier, today’s report showed.”
The Associated Press. “The drop in median prices in April compared to March was a record one-month decline. If the April sales price was compared to the sales price a year ago, the decline was 10.9 percent, the biggest year-over-year drop since 1970.”
“Luxury homebuilder Toll Brothers Inc. said Thursday its fiscal second-quarter profit fell sharply, as the company took hefty charges to write down property values amid continued weakness in the housing market.”
“For the three months ended April 30, net income dropped to $36.7 million, from $174.9 million a year ago.”
“‘We continue to operate conservatively in the current difficult climate,’ said Robert I. Toll, CEO. ‘In the past year we have trimmed our lot position by 28 percent from our high of 91,200 lots to our current 65,800 lots.’”
“Second-quarter net signed contracts fell 25 percent to $1.17 billion from $1.56 billion a year earlier. The company signed 2,031 contracts, before cancellations, in the latest period, a 14 percent decline year-over-year.”
From MarketWatch. “Toll said second-quarter net income included pre-tax land write-downs of $119.7 million.”
“The company declined to supply a full-year profit outlook. ‘Given the uncertainty surrounding sales paces, and market direction and, thus, the potential for and size of future impairments, we are not comfortable giving full earnings guidance at this time,’ added Joel Rassman, chief financial officer.”
“Banc of America Securities analyst Daniel Oppenheim, in a research note Thursday morning, said he expects additional pre-tax land impairments of $225 million this year, based on continued declines in margins.”
“‘In addition, we believe Toll’s more recently purchased communities, which are not yet opened, face greater risk for impairment due to a likely higher cost basis, as a majority of impairments to date have come from operating communities,’ the analyst wrote.”
“‘Many of our communities are on sites in locations that are difficult to replace and in markets where approvals are increasingly difficult to achieve,’ Toll said. ‘We believe that many of these communities have substantial embedded value, realizable in the future, that should not be sacrificed in the current soft market.’”
From Bloomberg. “KB Home, the Westwood-based builder that has had two years of falling profit, said Wednesday that it agreed to sell its French subsidiary. KB Home CEO Jeffrey Mezger wants to quit France, where the firm has operated since 1968, to focus on weathering the worst slump in demand in the U.S. for new homes in 16 years.”
“Rising prices, higher borrowing costs and reduced tax breaks linked to investment in rental accommodation have caused French housing starts to decline as developers report rising inventory and slowing demand. Housing starts dropped 6.7% in the first quarter from a year earlier.”
“Banks need to know a potential borrower’s real, not stated, income when a subprime loan is applied for, a top U.S. banking regulator said Wednesday, as problems in the subprime mortgage market persist.”
“‘What we need to make clear,’ said Comptroller of the Currency John Dugan, ‘is the principle that a lender, in underwriting a mortgage loan, must assess not just a borrower’s will to make timely payments on the loan, but also his or her capacity to do so.’”
“For a lender to know a borrower’s capacity to repay a loan, he said, ‘the lender generally needs to know the borrower’s income, and I mean real, documented income, not a number that the borrower or loan originator can pull out of the air.’”
The Wall Street Journal. “Borrowers often see mortgage brokers as their allies. But many brokers are making it clear they don’t see things that way. They are fighting efforts by federal and state politicians to impose a fiduciary duty on them to put their customers’ interests first.”
“‘The mortgage broker does not represent the borrower,’ says Chris Holbert, president of the Colorado Mortgage Lenders Association. ‘We sell access to money.’”
“Borrowers eyes ‘are glazed over with all the paperwork,’ says Jeff Lazerson, president of Mortgage Grader Inc., a mortgage broker in Laguna Niguel, Calif., that sets a fixed fee in advance for clients. Their confusion, he says, gives unscrupulous brokers ‘a license to lie.’”
From Reuters. “Jobless subprime mortgage specialists are looking for employment in the booming market for loans to senior citizens, mortgage market executives said on Tuesday.” “Between 12,000 to 15,000 displaced mortgage lenders may begin to seek employment in the growing market for reverse mortgages, an increasingly popular home equity loan for homeowners who are 62 years old or older, Goldman, Sachs & Co. and Wells Fargo Home Mortgage executives said at a mortgage conference.”
“Some bankers worry the market’s rapid growth may make reverse mortgages vulnerable to fraud and increased litigation, which has plagued subprime loans, mortgages to those with weak credit histories.”
“‘As you look at what’s going on in the subprime market, are those the types of folks who are really appropriate for pursuing reverse mortgages?’ asked Rolf Edwards, a VP at Goldman, Sachs & Co.”
‘Compared with a year earlier, new home sales were down 11 percent, today’s report showed.’
Once again, the press buries the YOY sales decline. Is anyone else finding it hard to locate the actual Commerce PDF?
‘ Pretax writedowns for land and cancellations totaled $119.7 million in the second quarter, Toll said. That was twice as much as the company forecast in February. The number of contracts the company obtained in the quarter plunged 40 percent in Florida, North Carolina and South Carolina and Texas. Contracts in Arizona, California, Colorado and Nevada tumbled 37 percent. The company’s north region, which includes Connecticut, New York and New Jersey, performed the best with a decline in contracts of 6.7 percent.’
‘Inventory was $6.14 billion at the end of the second quarter, up from $6.1 billion at the end of fiscal 2006. The company’s backlog, or homes under contract and not yet sold, tumbled 32 percent to $4.15 billion at the end of April.’
Amen brutha. Here we are in April, an expected month for a bounce, tons of incentives and price drops, and we’re still down over 10% YOY. I’m not impressed. But the spin will probably work on the idiots, and idiot sellers will probably hold out that much longer on their fantasy prices. Buying the spin is killing these folks.
Decreased sales and increasing inventory hasn’t been cutting the mustard in quite a few areas (LA for one). The effects of Sub-prime/Alt-A credit contraction are only now starting to take effect, so there is still some hope there for prices to come down a bit more.
What it will really take is the currently “in progress” ARM reset tsunami (ala Credit Suisse report), and a consumer spending pullback lead recession.
You bring up another good point with mentioning tighter lending standards. Since we all know that these are signed contracts, not actual closed sales, they’re subject to the mass cancellations that we’ve seen in the past. Now, how will the cancellation rate be affected when a lot of these contracted buyers can’t qualify, especially since underwriting is going ever more puckerbutt daily? Enter a good ‘ol Homer “DOH!!!”
Of course, the cancellations never make it into the “official” data. Lost in the inventory vortex.
ShaunT79, actually there was considerable downward revision of sales numbers for Feb and Mar in the report.
And remember, we are only witnessing foreclosures from what, January through February defaults? Foreclosures take time. Wait for NODs to begin a leg up in the coming months, and foreclosures to increases at an accelerated pace.
Right, and notice how none of these reports mentions the big statistical variation. Like last months sales number was quietly revised lower.
I noticed that too but of course that doesn’t make the headlines.
They resive the previous month’s number lower to make it look like sales are picking up. They will then revise this month’s down when next month’s comes out to make it look good. You will then hear the spew of Henry Paulson and Ben Bernanke predict the housing bust is behind us.
Oh but YOY is down 11%.
“They resive the previous month’s number lower to make it look like sales are picking up.”
Bingo — a great way to lie with statistics:
1) Overreport current sales, by including cancelled new home orders in the count.
2) Silently revise the sales count downwards by next month.
3) Report the current month’s sales figure as an increase over last month’s downwardly-revised figure.
With that kind of reporting, you could have an exponential growth in sales forever without ever having an actual increase, rather like the ascending monks in this Escher print…
http://www.worldofescher.com/gallery/AscendingDescendingLg.html
To be fair, the revision was down 2%-ish. This new numbe is still 14-ish% above the original. 14% is still a huge jump in sales.
Inventories are holy crap….
March = 545K
Apr = 538K
130K extra “rate” of sale should be at least 10K extra sales. more like 15k for peak season…. But inventory only fell by 7K?
What the?
Yep, that 16.2% MOM change is subject to an error of +/- 13.0%.
I can tell you from my college statistics course that a +/- 13.0% margin of error is one hell of a margin!
Yep a whole airplane hanger full of maybe.
Trusting the numbers put out by the government these days is like trusting your brother-in-law with the key to your liquor cabinet.
At least you can steal your BIL’s wallet after he passes out.
LOL, but the only thing worth taking is his Hooters frequent wing card.
Based on CNBC reporting spin is working 2 ways:
1) Home sales better than expected
2) Interest rates will rise lock em’ in
Spin is not working out very well. The market got it up early in the morning, but it couldn’t get it off…
http://www.marketwatch.com/tools/marketsummary/
headline and videos
BIG SALES INCREASE
BAAAAAAAAHHHH
the only truth is here on this blog
Sickening isn’t it
Commerce department is announcing a 16% increase in NEW HOME sales…..sounds like another phony statistic out of the government.
Stock market is going apecrap today because of it….
That is right boys…suck ‘em in and dump ‘em….
Every figure out of the government is a lie. I can see the evidence on my street (this week it sent from 8 Pulte Homes for sale to 11….with still no buyers and they ain’t even showing them anymore).
Yes but some groups of people are getting VERY VERY VERY rich. And it’s not us.
What goes up also goes down. You can only swim naked for so long.
Me thinks they are counting the foreclosure repos in that number. At least my Magic 8 ball says so.
Drudge has the spin off- “Fire Sales”
Besides, after the spin cycle is done, isn’t it time to hang soemthing/someone out to dry?
This is all unfolding as everyone here predicted.
Nice.
The word sales should never be used in the “new homes” report. I believe it’s intentionally meant to decieve. “New homes under contract” is more accurate.
“The Potential Cancellation Report” is what they should call it.
“The Potential Cancellation Report” is what they should call it
– LOL - that’s got my vote !!!!!!
NYT Headlines: “New Home Sales soar, but Prices Drop”
why not “New Home Sales soar on Dropping Prices”?
Not over the top spin. But spin none the less.
it’s the word “soar” that’s got me worked up. Hyperbole at it’s finest. The headlines should read “New Home Sales Up From April, Prices Drop.”
Did they mention the margin of error or the likelihood that the report would face a major revision? I’m sure that’s an honest omission like when I forgot to tell my fiancee that I had hepatitis.
(I didn’t really have hepatitis. That was just a hypothetical. Seriously!)
LOL. “uh, honey….yeah, ummmm, here’s the deal. I’m gonna have to ‘revise’ my health status. Are you familiar with the word gonorrhea?”
That was damn funny!
Am I understanding correctly that the word “soar” is being applied to a MOM increase? And wouldn’t a different term need to be applied to YOY? As in, plummet? Or nosedive?
New Home Sales soar, but Prices Crash
That would do it.
Geez, they can’t even spell-check their headlines! It was supposed to read:
New Home Sales Sore, but Prices Drop
They should be sore after the reaming all the reaming the builders are taking…
I found it here.
http://www.census.gov/const/newressales.pdf
From the report: April 2007: 981,000
*Revised March 2007: 844,000
Does anyone know what the UNrevised sales for March 2007 were last month? Is there an archive of these US census Bureau reports?
“Once again, the press buries the YOY sales decline.”
Worse yet, the first economic news I heard on the radio today was “New home sales up 16% — housing market showing signs of recovery…”
But it’s all good. Now that the economy has dodged the subprime bullet, the Fed can remained focused on its core mission of keeping inflation under control. Given surging food and energy prices, not to mention a rising inflation risk premium at the long-term end of the
Treasury bond yield curve, it looks like they might need to tighten soon to keep inflation under control. Sadly, stocks and home prices will suffer with higher interest rates…
http://www.bloomberg.com/markets/rates/index.html
Now when low existing home sales come out, stocks will go up since they can claim there is new hope of a rate cut.
Higher long-term bond yields result in a decrease, not an increase, in the prospects for a rate cut. And they also lead in lockstep fashion to higher mortgage rates, less purchase demand for homes, lower home sale prices and lower home market values…
————————————————————————–
MORTGAGES
U.S. mortgage rates rise again
30-year fixed-rate makes its biggest leap since November 2005
By Amy Hoak, MarketWatch
Last Update: 12:21 PM ET May 24, 2007
CHICAGO (MarketWatch) — Mortgage rates continued their ascent this week, boosted by consumer-confidence data and recent comments from the Fed, Freddie Mac’s chief economist said on Thursday.
The benchmark 30-year fixed-rate mortgage jumped to an average 6.37% from 6.21% in the week ending May 24, according to Freddie Mac’s weekly survey. It was the benchmark’s biggest rate move since Nov. 3, 2005, when rates also jumped 16 basis points. The 30-year fixed-rate loan averaged 6.62% a year ago.
‘It’s not great news, but it’s nothing to get terribly excited about.’
— Keith T. Gumbinger, HSH Associates
The 15-year fixed-rate mortgage rose to a 6.06% average, up from its 5.92% average last week. That mortgage product averaged 6.23% a year ago.
http://www.marketwatch.com/news/story/us-mortgage-rates-rise-again/story.aspx?guid=%7BA48645CB%2D43B8%2D4DC1%2DBEB3%2D4F3D3B6D7F23%7D
From the WSJ online:
Only homes priced less than $200,000 had stronger sales in April. The sharp increase in sales will help home builders shed some of the huge inventory of unsold homes and could limit further cuts in new construction… Despite the April sales surge, the median number of months that a new completed home has been on the market jumped to six months, the highest since July 1993… Builders will need to maintain aggressive pricing strategies AND lower production levels to shed these inventories. Any recovery in home-building still lies well in the future. –Nomura Economics Research
Also:
We have cautioned that double-digit gains of new-home sales are VERY unreliable monthly data points. (It is mostly due to the way the builders self-report their sales to Commerce)… Whenever new-home sales jump double digits, it usually reflects a mean reversion from the prior (or subsequent) month’s reportage. Indeed, over the past 15 years of data, we found that a mean regression followed nearly every double-digit monthly gains. Typically, the subsequent month’s data was significantly lowered — flat to negative in nearly every case. –Ritholtz Research & Analytics
Only homes priced less than $200,000 had stronger sales in April.
That pretty much excludes the entire State of California, doesn’t it?
and florida, and Washington, and most of the east coast, and…..
I was wondering if those numbers were a reflection of younger families who relocated out of the bubbly areas and are now buying in low cost communities.
Now that I’ve seen the WSJ information, I’m betting that is what we are seeing. I’m guessing Ben is at least as eager as I am to see those 2006-2007 population estimate releases.
“Now with the investor-purchase cycle out of the way, traditional factors will drive sales,” Yun said, including economic growth, job creation and population growth, as well as a demographic sweet spot: Boomers are reaching both peak earning years and the time of life when they start to buy second homes.
Yun is no better than Liar-diarreha
I know “investors” that still own 10 houses and struggle to keep up with mortgages. Houses are not as liquid as stocks and it’s gonna take a long time for “investors” to come out of denial stage. Japan is a classical “they aren’t making anymore land” example, price is still the same as it was 23 years ago!!!!
“The median price of a new home dropped 11 percent last month, the biggest decline since 1970, to $229,100 from $257,000 a year earlier, today’s report showed.”
So for this to work the we need a matching median income of slightly over $100,000. God there are about 150 million earners in the U.S. in trouble then.
Not really. Assuming we come to our collective senses and require a 20% downpayment, the mortgate needed to buy the median new house is $183,280. At a 70% homeownership rate, we would expect that the median of the upper 70% (i.e., the 35th percentile) household income needs to be on the order of $73k.
I don’t know what the 35th percentile income actually is, but a Wikipedia entry says that the 20th percentile is $88k and the 40th is $55k, so interpolating linearly I’d guess that the 35th is around $63k. So the current nationwide prices aren’t totally out of line, though this analysis suggests that a 9% drop would be appropriate.
The bubble markets, of course, ARE totally out of line, and must therefore drop enormously.
household income needs to be on the order of $73k
Forgot to mention I’m assuming a mortgage of 2.5x gross annual income.
Crap it, my math is bad - $63k/$77k = 0.86, which demands a 14% drop at the national level from current prices. The Wikipedia figures are from 2004, so the actual required drop is smaller due to inflation.
Thank-you jbunniii. I’ve gotten a little tired of people saying that the median income should be able to afford the median house. In reality, saying that the upper 35th percentile should be able to afford the median home is much more accurate
The bubble markets, of course, ARE totally out of line, and must therefore drop enormously.
This cannot be emphasized enough. There are still pockets of the Midwest and deep South that have escaped most of Easy Al’s cheap credit Tsunami, sure. But when you live in a state with a ~300% run-up in six years time (CA), it doesn’t really matter what the median price of a house is in Fargo, N.D., does it?
“At a 70% homeownership rate, we would expect that the median of the upper 70% (i.e., the 35th percentile)”
I can’t agree with this because it assume that ALL higher incomes are home owner and all lower incomes are renters. It’s obviously incorrect. As a matter of fact I suspect that in many high price cities like NYC renters have higher median income than owners. That’s because most yuppies prefere to rent rather than buying a condo.
It may not be accurate, but it’s a lot closer than assuming that median income -> median home price.
Just take the historical median home price and the historical median income and derive the appropriate ratio. Duh.
Let’s wait for the existing home sales and then we’ll talk. Until then, BFD, especially since new home sales are still down 10% YOY. Besides, this is to be expected. Builders are getting agressive and hosing the market prices while they do it.
Agree. Down YOY. Everything else is just real estate spin!
Here’s a little IE home sales preview from a postcard just received from my realtor:
“In April of 2005, there were 731 homes for sale in Riverside, and 443 closings for the month. In April of 2007 there were 2471 homes for sale, and 165 closings for the month.”
I think she’s finally capitulated and is using the 2005 number to scare sellers into dropping price. This was the first postcard we got from her that didn’t try to badmouth the doom and gloomers.
Got 15 months inventory?
She’s obviously run through the HELOC money, moved on the the credit cards and exausted those as well. It’s desperation tme. Last resort for a realtor? Tell the truth.
Yeah, I’ve been watching the IE inventory. Holy crap! I expected a wicked scene, but man, it’s melting down even more than what I expected. It’s hard to hide the truth with what’s goin’ on down there.
Maybe the Realtorz will start putting graphs of Enron or Worldcom stock from say 1998-2003 on their mailings, to show that sometimes things actually go down in value.
Man, I would really hate to be a seller right now.
Aw, darn. I don’t even get postcards from Realtors anymore. They went the way of all those funky mortgage offers I used to get.
My roommate also received a “Market Analysis” - unsolicited - from a Friendly Neighborhood Realtress. YOY sales in our TH community have dropped over 50%. (From 23 to 10). And the median price has dropped about 5%. These are resales.
Currently, every cluster in the community has at least one unit for sale. This is unprecedented - my development is in great demand as starter homes for young families, since it’s the cheapest RE in the “correct” zip code. (Supposedly a good school district). The spring buying season peters out in about three weeks. I predict much crying in beer come this fall.
One of our local realtors has an excellent web site with info and photos on every house that’s for sale, even if listed by another broker. I track SF, non-waterfront homes as that’s what we live in. Inventory has been rising steadily and there have been NO sales here for a couple of months now. About 25% of the inventory is new spec homes that local, small builders started within the last year. Looks like they’ll be feeding their alligators for a lot longer than they planned.
Also, I know of two lots that builders bought and cleared, but have now stopped all construction activity.
No seller capitulation yet; prices remain firm. But since this is primarily a senior community, and since most of those who sell do so because they’ve gotten too old to stay in their houses, I suspect the reductions will begin shortly. We’re just very glad we bought a foreclosure at a rock bottom price in 2005.
Live by the sword and die by the sword!
The same realtor that told a buyer to overbid a house by 100K in 2006 will tell that same buyer( when he or she sells) to lower the ask by 200K in 2008
The realtor will do whatever it takes to make that commission.
No sale = no earning!
So whether a realtor makes 3% of 500K sales -> $15,000 or 3% of 300K -> $9,000
It’s still money in the realtor’s pocket. Still better than nothing.
Remember, no sale= no money
Debt takes it’s Toll
“New-Home Sales in April Jump by the Most in 14 Years (Update2)
May 24 (Bloomberg) — Purchases of new homes in the U.S. unexpectedly surged in April by the most in 14 years, ignited by the biggest decline in median prices since 1970. ”
Notice that the headline is “Sales in April Jump by the Most in 14 Years”, and NOT “biggest decline in median prices since 1970.”.
Also…
“New-home sales, which account for about 15 percent of total home sales, are considered a better leading indicator of the market than existing home sales because they are recorded when a contract is signed rather than when the sales are closed. ”
Hmmm, so is it better to be an EARLY indicator (recorded on contract signing) than it is to be an ACCURATE indicator (recorded when sale actually CLOSES)?
Is the thinking behind this “I’ll take my cue form the inaccurate indicator, as it will be available earlier”?
Some of those buyers may have trouble with financing. Regardless, the data shows the builders are cutting prices. Homeowners not as much. Looks like banks and builders will be doing most of the selling for a while.
Exactly, the builders are stealing sales from the resale market by lowering prices.
No the builders are stomping the resale market. They are clearing inventory, both of houses and excess lots. Most of the big publics and regionals will get out of this OK within a few quarters. That probably means if you want a deal on a new house (vs. a resale trashed by a FB) you may want to put your toe in the water this summer or fall.
BTW the data support the anectotal buzz in the industry, as well as the obvious improvement in traffic, sales and closings in many subdivisions tracked by the high end market data services (NOT DataQuick) — albeit at lower process
The silly people late to that party in 2005 will get left holding the bag.
Don’t forget the cancellation inventory, which is approx. 30% of the reported inventory. Which would bring it around 8-9 months, which is hardly bullish, considering they will be competing with more REOs from here on out.
“That probably means if you want a deal on a new house (vs. a resale trashed by a FB) you may want to put your toe in the water this summer or fall.”
no way. that’s way way way too early.
I would wait until one of the big builders goes into BK. Then fear will take hold of the remaining builders, and they’ll REALLY start fire sales to acquire capital.
it’s still too easy for the HBs to generate cash by borrowing if need be.
that said, I don’t think I’d buy a bubble built house. Probably thrown up too quickly, with cut corners.
And as a renter I say “Builders: Full Steam Ahead!!”
Oh in a story here in FL the news is about how prices on building materials have dropped and out of work construction workers are willing to work for half the pay they did during the peak.
What will that do to prices when you know you can build for much cheaper than you can buy?
You got it, DEFLATION. Someone call 911 and have Ben Bernanke fire up the printing presses and get the helicopters dropping money on front lawns to save the day.
With inventories as high as they are the rent vs. buy argument may skew in favor of renting for years to come, even if prices drop precipitously.
“here in FL the news is about how prices on building materials have dropped and out of work construction workers are willing to work for half the pay they did during the peak.”
Are the construction workers illegals? If so, they’re working for about $3.50-4.00 an hour. $5.00 if they’re lucky and have somewhat higher skills. Wow. That would make the houses built post boom even worse than what was built before. Materials might be better, but workmanship, fagheddaboudit!
Do you have sales by region?
Apparently South is where big bump took place.
West had a more modest rise.
When you look at biggest bubbles not in the south
“Regardless, the data shows the builders are cutting prices.”
But does the data show the full extent to which builders are cutting prices? Not so long as incentives are used to mask the actual drops in market values.
Or how about biggest decline in median prices in 37 YEARS!
or …since Nixon Administration
or …since before Reagan
or …in more than a generation
or …in almost 40 years
or …since Vietnam era
Since before I was born (35). Yikes!
I see a trend there.
Even the last time the Dow-Jones average was below 600 was more recent than 1970. (Dec 1974, I believe.)
That might be the most stunning bit of perspective I’ve yet seen on this blog.
To clarify the point I just raised above, the real drop in market values may be the largest in over 37 years, provided the incentives which are currently in use to mask true price declines were not yet invented as of 1970…
http://en.wikipedia.org/wiki/1970
March 5 - The Nuclear Non-Proliferation Treaty goes into effect, after ratification by 43 nations.
April 11 - Apollo program: Apollo 13 (Jim Lovell, Fred Haise, Jack Swigert) is launched toward the Moon. On April 13, an oxygen tank in the spacecraft explodes, forcing the crew to abort the mission and return in 4 days.
April 22 - The first Earth Day is celebrated in the U.S.
July 16 - Three Rivers Stadium in Pittsburgh opens.
September 9 - Elvis Presley begins his first concert tour since 1958 in Phoenix, Arizona at the Veterans Memorial Coliseum.
October 5 - The Public Broadcasting Service begins broadcasting.
“‘The mortgage broker does not represent the borrower,’ says Chris Holbert, president of the Colorado Mortgage Lenders Association. ‘We sell access to money.’”
Therefore, You and your Fat Commissions and Kickbacks should be Eliminated for DOING NOTHING other THAN Gouging the Consumer for a very Hefty PRICE Mr MIDDLEMAN!
“‘The mortgage broker does not represent the borrower,’ says Chris Holbert, president of the Colorado Mortgage Lenders Association. ‘We sell access to money.’”
Hey, I’m fine with that. Except that these guys have been verbally stating and/or implying that they are representing the borrower and will work hard to get them the loan they deserve (LOL). And I’m pretty sure that makes it so, in a legal sense. While perhaps difficult to prove, your words and actions can turn you into an agent of the buyer.
Realtors actually get specific instructions in what they should not do or say to imply an agency relationship when none is intended. Perhaps we need a few prosecutions of mortgage brokers to get this concept into their brains.
Except that these guys have been verbally stating and/or implying that they are representing the borrower…
Sort of like the car salesman representing the buyer to his manager
Your whine also sounds like a plea DON’T SUE US consumer and lawyer. “I know NOTHING!”
Distancing self from the Crimes and the “Sgt Schultz” Defense…hummmm
“For a lender to know a borrower’s capacity to repay a loan, he said, ‘the lender generally needs to know the borrower’s income, and I mean real, documented income, not a number that the borrower or loan originator can pull out of the air.’”
That article was very careful not to name Alt-A as the loan category defined by liars’ loans, instead opting to repeatedly attribute it to “Subprime.”
But I guess, hey, if you can pay your bills on time, why would I doubt that you could afford payments on a $700k house? Want to know the “next big thing” in mortgage trickery? Bidding 10% below appraised value and claiming 90% LTV to get that stated deal.
“Compared with a year earlier, new home sales were down 11 percent, today’s report showed.”
The ONLY stat that matters.
Not quite true. This stat also matters: “The median price of a new home dropped 11 percent last month, the biggest decline since 1970, to $229,100 from $257,000 a year earlier, today’s report showed.” I do agree with what I believe is your basic premise, though, that we need to be looking at YOY stats instead of MOM.
“The median price of a new home dropped 11 percent last month, the biggest decline since 1970, to $229,100 from $257,000 a year earlier, today’s report showed.”
What am I missing? These are national numbers, right? When “they” say “housing always goes up!”, what numbers are “they” using? New, existing, combo of both?
Whatever numbers will support their premise…
LOL. That’s what’s funny to me. Perhaps I’m mistaken but I keep hearing “biggest drop since…” at different times. Sometimes MOM, YOY, new, existing, etc when 2 years ago there was “no national drop in median price” ever.
all i have to say is that if this is great news for FB’s and realtwhores then i am all for another 14% surge and 11% drop next month too…
and the next month…
and the next month…
and…
“Some bankers worry the market’s rapid growth may make reverse mortgages vulnerable to fraud and increased litigation, which has plagued subprime loans, mortgages to those with weak credit histories.”
Gee, ya think?
I can’t wait for the inevitable stories a few years from now of grandma being tossed out of her home, and how this was totally “unforeseen”
These reverse mortgages are a boon to the banks. I mean, if grandpa needs a reverse mortgage, that means he doesn’t have enough cash for his living expenses. Which means he will NEED to be a serial refinancer.
Take out loan (reverse mortgage). now you have your living expenses and your loan. thus, you’ll need a new loan to cover the expenses. repeat and repeat. now the house is the bank’s again.
If I were a grandma I would get a reverse mortgage for as high an LTV as possible. then take that cash and move to a different country. Then let the bank foreclose.
(that would only be helpful if the LTV loan is worth more than the price you could get for the home… obviously the smartest thing to do is sell the darn house)
I have a dear old lady friend/neighbor who falls into the category of not having enough cash for living expenses. And, you guessed it, she took out a reverse mortgage last year.
I have a feeling that this reverse mortgage fad won’t end well.
Actually reverse mortgages are nothing new. They give you a fixed amount of cash and hope you die early. There should be no debt service on the mortgage from the owner’s end. If they do attach debt service then I can see your point. Otherwise its a means for an old person without resources to live in their home by annuitizing the equity.
I’ve noticed that my friend’s health has improved in the last year. Something tells me that she’s not going to die early.
Exactly; the point of a reverse mortgage is to allow someone to tap the portion of their savings that is made up of the equity in their home to use for living expenses until you die and still have a place to live. It can be a sensible personal finance tactic; the primary wild card is predicting when you will die. After all, the main point of savings is to provide for living expenses after retirement(and everyone will have to retire at some point or another). If the term on the reverse runs out before you die, then it’s time to move in with one of your kids.
If I were a grandma I would get a reverse mortgage for as high an LTV as possible. then take that cash and move to a different country. Then let the bank foreclose.
this is not how it works. the way to beat them is to live too long. they are actuaries in a sence here giving you a windfall now (less than you could get in outright sale) in the hopes that you do not live longer than they are guessing. also the home should appreciate if the time frame is greater than 10 years so they buy it on the cheap today, but you live in it till you die, then they get it once you are dead.
I do not do reverse mortgages but I know about them. The lender does not get the house when you die. Your heirs are required to pay off the loan and can sell, refinance or pay the loan with other money. The loan is set up to give you either lump sum, monthly amount or some of both. The lenders are very conservative with equity and it would be almost impossible to use up all the equity unless property value drops by a huge amount.
Last time I checked, debts were not hereditary in this country (of course, with bankster-written Bankruptcy “reform”, anything’s possible these days). For now, though, if any relative “bequeaths” me a million-dollar bill for their overleveraged McCrapshack, all the lender will get from me is my middle digit and the number to my probate attorney.
funniest post of thread!!!
You do not have to pay the debt/reverse mortgage, you can let the lender have it along with the substantial equity on the house you could inherit. Trust me, lenders set these loans up so that there will be substantial equity covering their loan when the borrower dies. The amount paid out is very very conservative.
“Purchases of new homes in the U.S. unexpectedly surged in April by the most in 14 years…”
This is what Yahoo reported in their news. No mention, none whatsoever, as to what that number related to (YOY, MOM, etc)
I had to come here to confirm my suspicion that it was the horrifically slow March that set up this gain.
Yahoo, AP, Reuters and basically all journalists and news outlets are complete morons. You get a few like Drudge who will point out the real numbers
If Drudge is the best we have we are doomed.
Drudge? Get real…
Drudge? Bwahahahahahahah!!!!!
I think I peed a little…
The headlines apparently are not fooling investors, as SRS is up over 2.50 at the moment.
And so are QID and DXD
Finally.
While year-over-year numbers are more meaningful, month-to-month changes do show us something and we would be foolish to dismiss these numbers as meaningless. For one, this was an impressive growth in sales from March to April. As both months are spring-selling-season months, why should there be such an increase? Perhaps it is because what few buyers remain are shifting to new homes and away from existing homes in response to greater markdowns. We will have to wait and see what the existing home sales show. I suspect there is more to this story than meets the eye. In the mean time, this news may suggest to some that the worst of the housing slowdown is behind us, and we may start to see some more people entering the market.
Prices down, sales up who would of thunk?
Low end selling while the high end stagnates?
Yep, low end is selling because there is a backlog of people like us waiting for more affordable housing, waiting out the bubble.
BUT for this to work it means that builders are finally capitulating, dropping prices significantly and moving beyond incentives. We might well be seeing the first signs of serious seller capitulation… builders leading the way.
Keep your powder dry, as everyone here has been saying the real poop will hit the fan this fall after all of the spring/summer inventory (new and resale) hasn’t sold.
The dip, though significant, doesn’t include whatever incentives builders were including in these deals.
Sales down YOY 11%, prices down YOY 11%…I’d be hard-pressed to see this news as rationally suggesting “to some that the worst of the housing slowdown is behind us.” April’s numbers were propped up by a far-worse-than-expected March: taken together, these two months just confirmed the painful slide we’re in…
We’re entering the stage of this drama where we will see several dead-cat bounces. At each bounce, more people will likely “enter the market,” banking on what will eventually be proven to be a false bottom.
We’ve got a long way to go…
I think what these numbers show is…
For many, many months, builders have been holding up resell prices by holding up new prices by just offering incentives… Buy this $300K house and get $50K in extras.
In March, that stopped working. People actually wanted a price cut. So, no they throw in the extras, AND the price cuts.
Despite this supposed 130K jump in annualy rate sales (should be 10-15K for the month, there is only a 7K drop in inventory. Lots of houses were completed, so the existing houses had to be moved, at whatever cost.
People have been talking about how it wont’ be too bad since housing starts were still so high. I was saying that housing starts being high was bad news for the resale price. Builders were going to be desperate to move inventory.
And, here it is. Builders desperate to move houses drop median price by 11% casuing a jump in sales, while all those houses they are building instantly refill their on-hand inventory that they need to move.
Well said RT.
i would agree with you if it weren’t for one problem. i’ve become a complete cynic of the government numbers and the way the press spins them. somehow, they’ll spin a crap existing sales report into something rosey. i guess it doesn’t matter…the whole thing is unraveling fast.
“Banks need to know a potential borrower’s real, not stated, income when a subprime loan is applied for, a top U.S. banking regulator said Wednesday, as problems in the subprime mortgage market persist.”
“‘What we need to make clear,’ said Comptroller of the Currency John Dugan, ‘is the principle that a lender, in underwriting a mortgage loan, must assess not just a borrower’s will to make timely payments on the loan, but also his or her capacity to do so.’”
“For a lender to know a borrower’s capacity to repay a loan, he said, ‘the lender generally needs to know the borrower’s income, and I mean real, documented income, not a number that the borrower or loan originator can pull out of the air.’”
My analysis:
First paragraph he is talking about getting real income numbers, not inflated numbers from stated income in a just the sub-prime market. OK. Not a bad idea. Doesn’t go far enough IMO, but worth saying.
Second paragraph he talks about the person’s ability to make the payment, not their “will” to make it. Where the heck does a lender find out about the person’s “will” to make payments? From the credit score, of course. But we are already talking about sub-prime borrowers who have bad credit scores. So why say you need to confirm ability to pay as if you were already dealing with people who want to pay? You aren’t dealing with people who want to pay. Or, if they do want to pay, they have at least already demonstrated that they aren’t very good at doing it. This paragraph is an argument to only make loans to people who want to pay (good credit) and can demonstrate their capacity to do it (full documentation of income). Nothing in his argument has any bearing on making loans to sub-prime borrowers at all.
Third paragraph is pretty much the reflexive property of mathematics - real income means real income.
So, the guy makes a pretty reasonable argument for lending money only to people who want to pay and can prove they can pay but applies it to loans to sub-prime borrowers who either don’t want to pay or have demonstrated that they can’t pay. Spin, spin, spin. And this is from one of the hard-assed statements. We have a long way to go before the lenders really have to tighten credit.
And my boss just told me that “it is different” in the DC area and I should buy a condo right away because prices don’t go down here. Goody for him. He “married” someone who already had a house from the pre-bubble days. So did my brother. Not all of us hit the housing jackpot like that.
But I did get a free ipod in the mail yesterday. 80 gig video ipod to boot. Maybe you have to take your joys in life from the small things.
How’d you get the free Ipod? That sounds awesome!
Westlaw points - I finished my LLM in tax this year and student westlaw (on-line legal research) accounts come with a points program. I got points for logging in each day, answering trivia questions about westlaw, attending training sessions and one big bonus for “winning” a contest (do this research, send me the results and two people who respond will win 10,000 points). It was tedious, but worth it. And I only just made the cut off for the 80 gig. I have 245 points left in my account. Nothing in the rewards catalog costs less than 600 and those are just a few books published by West. The ipod was 23,400.
I try not to spend money on things that are unneccessary and cost money to maintain. The ipod was one. Blouses that have to be dry cleaned are the other. I think I can use Amex points for itunes too…
margin of error is +/-13 %, enuff said
Hey, back off. They need room to revise, don’t you know?
Home order cancellations always get revised up.
That number seems realistic. You can work with numbers with such a large margin of error … generally because you have to, so you figure out how. And it is a nice warning sign for those reading the data.
When I compare two sets of data, the data that includes a margin of error (even if it is appalling) is much more credible than data that does not.
“For a lender to know a borrower’s capacity to repay a loan, he said, ‘the lender generally needs to know the borrower’s income, and I mean real, documented income, not a number that the borrower or loan originator can pull out of the air.’”
Talk about stating the obvious. Simple question. Would you loan anyone money without knowing this basic information?
I wouldn’t.
“I wouldn’t. ”
but then you’d lose market share!
Besides you would lend this money if:
1) it wasn’t yours
2) you got huge fees to do it
3) you knew you’d be bailed out
4) that you could just walk away whenever the SHTF.
“Would you loan anyone money without knowing this basic information?”
Only if (1) I was unscrupulous and (2) I knew that I could quickly dress up the paper and resell it.
In a word: NO.
Yes, I would loan money without knowing this basic information. I have no interest in knowing my clients’ income. I rely on knowing the long-time value of their properties, and knowing that they made large down payments that they don’t want to lose. I could get burned in the future if low-end housing drops precipitously in price. For now I am pretty comfortable, feeling that their (15-yr) loans are amortizing faster than prices are likely to drop, and the LTVs are not too high to begin with. Just checked whether anyone is late at the moment. They aren’t. Not even one day.
Yep, with honest “arms length” appraisals and a real 20% down we would never have gotten into this mess.
Right ,but if you are going to loan under 20% down as a lender you better know everything . Like az-lender I would rather have a low loan to vlaue loan than anything because I can sell it and get my money back .
In the Phoenix Metro the “battle” between new vs. resale has to take into account the fact that new=way the heck out in the exurbs and resale=closer to your job, the airport, etc.
I’d say there’s a built-in advantage of maybe 50% on a resale house in the middle of Tempe vs. something new out in Queen Creek, so the builders are already starting out having to sell their product for $150 vs. $300 for the “same thing” closer in. As gas creeps up over $4 this will only get worse.
For now maybe the builders are “winning” but eventually they will run out of people willing to drive 1.5 hours to work each way and burn $20 worth of gas doing it. Maybe at that point we’ll (finally) see some massive redevelopment of the old neighborhoods in south Phoenix, west Mesa, etc? Does anyone know of a case where a builder bought and entire old ‘hood, tore it out, and rebuit new, rather than going further out into the desert or farmland?
Does anyone know of a case where a builder bought and entire old ‘hood, tore it out, and rebuilt new, rather than going further out into the desert or farmland?
How about the development around the Raven Golf Course in South Phoenix? That area was a very tough neighborhood (near Baseline and 36th St). That was probably a decade or so ago, though. I remember all the talk at the time about how risky it was to build a high-end development and golf course in such a low-income area, but it seems to have worked out pretty well. Anyone who works near downtown Phoenix has only a 15-20 commute to work from there.
I used to ride my bike by there - that used to be orange and grapefruit orchards, right? Or was it actually an old rundown ‘hood?
You might be right. I’m not real familiar with that area. I do know that some of the neighborhoods within walking distance are still pretty tough, though.
There are plenty of ‘hoods near the center of Tucson that need to be bought up, torn down, and rebuilt. Unfortunately, this is being done by “investors” who see opportunities in building multiple rental houses on a single property. Hence, the degradation of central city neighborhoods continues…
Yeah, I don’t mean the flippers who leave the original property intact with a new coat of paint. I mean scrape it all down to the dirt, lay new roads and utilities, and build a nice modern development there. It would be hard to get every property without wrongly using “eminent domain”, which I am very much against. You’d have to set up the purchase contracts to be dependent on everyone agreeing at the same time - let the neighbors put pressure on each other to sell.
They’ve done this in Mpls.
One area was in the old hood, near downtown just off of Hwy 94. people had protests about protecting the hood
I’m not very fond of what they built, but it’s much nicer than what was there.
Also, they tore down 3 square blocks of homes in uptown, and are building luxury condos and townhomes there. they are going for tons of money ($400k and up).
the first phase has worked out well, the second phase, not as well (but the second phase was by a different builder, and its product isn’t as nice IMO).
Lots of talk of putting offices out in Glendale, Mesa, Gilbert, etc.
People haven’t realized it yet, but PHX is getting large enough that you need to start looking for jobs based on geography, not just “wherever I can get a job”.
Oddly, we had this discussion just yesterday here in my office off 59th and Bell. Our lease is up in Oct. Someone suggested we move to a new building with a more central location.
OH NO!!! says half of us. Because we’re the opposite direct from most businesses (that are in Scottsdale or downtown), we don’t have NEARLY as much traffic as trying to get to those locations. A lady this lives on the PHX/Scottsdale border agreed. She can get teh 20 miles here in half the time it would take her to get 10 miles into central Scottsdale. We also pointed out we attract a lot of candidates that live in this area (me) that sought out this company because they are one of the few in the area. I passed on jobs in downtown and Scottsdale because I didn’t want to be going with the heard.
Sorry, but if you live 55 miles away in Queen Creek, this probably isn’t thejob for you. There are A TON of people that live in this area that would love to have the job so that they don’t have to drive to Scottsdale.
Be a contrarian…. Locate where the workers live, not where all the other business are located.
IMO.
“Does anyone know of a case where a builder bought an entire hood…”
There have been several examples of this in the Arlington, Tysons Corner, Merrifield and Vienna areas of Northern Virginia. In Arlington, the developers buy 1940s vintage rental apartments and replace them with luxury condos. In Tysons Corner, Merrifield and and Vienna (upscale inner suburbs of Fairfax Co.), several neighborhoods of 1950s vintage detached homes have been or are being replaced by luxury townhouses and condos. In these areas, there is virtually no vacant residentially zoned land left to develop.
Regardless of REIC statistics, come August/September, owners of existing houses, be it Banks, Lenders or whoever, will be facing a REAL Winter of Discontent with the HOLDING COSTS of these White Elephants.
Just 3 or 4 months of heating an empty house and rising midwest taxes alone are a Cash Flow Killer.
Are the White Elephant holders most likely to look for renters, auction the homes or hold out for cargo drops from Washington while they wait for prices to come back?
I am glad to say Inman News can see straight:
‘New-home sales, prices sink in April
Inventory suggests buyers have upper hand
Thursday, May 24, 2007′
Unfortunately the Cencus report doesn’t have enough data to really get the full picture, but the last page is still interesting. I would be cool if they had data for new starts, all they have is “not started”.
The number of new houses completed and for sale has gone from 131k in April ‘06 to 175k in April ‘07.
The number of completed houses sold has stayed at a relatively steady 25k-35k in the last year.
The “median number of months for sale since completion” has gone up from 3.9 months in April ‘06 to 6.0 months in April ‘07 (it was 5.6 months in March ‘07 and 5.2 months in February ‘07).
I’m not sure I would uncork the champagne yet if I was a homebuilder…. That bright light is not the end of the tunnel.
“Borrowers often see mortgage brokers as their allies. But many brokers are making it clear they don’t see things that way.”
I guess that makes the mortgage brokers the borrowers’ enemies. They are either with ‘em or again’ ‘em.
What the new homes sales figure tell us is that there is a price gap against the existing homes - current homeowners are more sticky with the asking prices downward while the builders are not as emotional about the price level. It simply is telling that presently it is cheaper to build new than buy a second hand.
Same old story - same old pattern like every other boom and bust. (A) Boom starts with smart money and soars upwards as the suckers rush in to buy. (B) Smart money starts pulling out and dumb money buyers get scared that they will get caught. (C) Boom ends. (D) Buyers and sellers look at each other like deer caught in the headlights. (E) Buyers close their wallets. (F) Sellers refuse to accept they didn’t time it right. (G) Stand off for a little while as buyers are as reluctant to buy at high prices just as the sellers are reluctant to sell because they think it’s just a pause before another leg up but the smart money has long gone. (H) Some sellers start to get concerned and lower prices a little to test the waters. (I) A few GF buyers step up to the plate to grab, what they think, is a bargain because mortgage brokers/realtors/banks and those with hidden agendas tell them stuff like, “Now is a great time to buy.” (J) Market still pretty stagnant despite the hype from realtors and mortgage brokers and fudged fake government numbers with a little movement either way. (K) A mini-rally starts and sellers try and seize their chance to get out hoping to find a GF who will buy. (L) Prices stall again because the majority of would be buyers read the bad news and hear the horror stories and prefer to stay out. (M) More stagnation but prices eventually start to drop and more skittish sellers jump in before the prices drop further.
This will happen all the way down as it has in EVERY boom and bust. The only difference in ANY boom and bust is the time frame. Some are fast - some are slow. The same pattern happens every time. Mini-rallies, mini-dips, mini-rallies. Lower lows and lower highs price wise.
However, into this particular boom and bust we can throw a few more nasty elements. (1) Sub-prime being the really bad boy with thousands hanging on by their finger nails for the next 2 or 3 years as these scam mortgages reset. (2) Speculators with good credit who bought to flip and are now upside down value-wise. (3) A strong possibility of a recession either later this year or next but the severity of a recession is unknown but lack of construction work will take a deep bite. (4) Joe Sixpack and the American middle class are now deeply in debt with massive credit card problems. (5) Inflation is running at around 7% and if anyone believes government numbers ON ANYTHING anymore, try taking the altzheimers test to see if you are in the early stages.
The IRS is contracting with outside debt collection agencies in an attempt to collect $200 billion in un-paid taxes and that number is growing. Why? Because after people have paid off their monthly credit card charges, paid the mortgage, insurance, etc, there is nothing left to pay the taxes.
Once again, don’t get suckered into these mini-dips and mini-rallies. If you want to buy there will be PLENTY of time after this mess is over. WHEN this busted boom bottoms out, property prices will languish for several years at reasonably stable prices. In any future boom, remember the old advice. “If everyone thinks it’s a great way to make a fortune - it’s too late.”
Great summary. Regarding your last sentence, I often use the following phrase to get my point across to people who think they are better or smarter than everyone else regarding “investments” or who think they can get rich quick without a lot of effort:
If anyone can do it, it isn’t worth anything.
“If anyone can do it, it isn’t worth anything.”
If anyone can do it, many will try, and only the early movers will succeed.
That won’t fit on a bumper sticker.
Wow, all that knowledge and you deign to share it with us . . . Let’s see a couple of moves in real time, please.
“The IRS is contracting with outside debt collection agencies in an attempt to collect $200 billion in un-paid taxes and that number is growing.”
That is in the process of being phased out.
Not yet.
Possibly they will shut that program down now we the people have found out the IRS has been contracting with outside debt collection agencies. Yet another dirty little secret. As usual, I suspect there’s a hidden agenda. I doubt if these debt collection agencies give the same benefits Federal employees get. In fact few private companies, if any, give employees the same generous benefits we see handed out in state and federal government. Government expenditure on government employee benefits is another area which is going to bite at some point. I have a friend in the IRS who retired at 55 after 25 years and lives like a king on his pension and, of course, he can sleep every night knowing the US government isn’t going to cut his pension, go bankrupt (even though they already are) etc, unlike those in the private sector.
My point was, not so much the using of private debt collectors but the fact that people are having trouble paying their taxes.
The IRS is contracting with outside debt collection agencies in an attempt to collect $200 billion in un-paid taxes and that number is growing. Why? Because after people have paid off their monthly credit card charges, paid the mortgage, insurance, etc, there is nothing left to pay the taxes.
Actually, the IRS is contracting with private colectors because a doctrinaire administration is forcing it to. IRS collectors cost pennies on the dollar to collect back taxes and they have to pass background checks (including criminal and credit and circumstances of leaving previous jobs) to get hired. The contracts with the private collectors will grant them fees of up to 30% of the back taxes they take in and they are allowed to use people who haven’t passed background checks who will be handling taxpayer’s social security numbers and tax information. But this administration believes that any private group is better at doing anything than any group of public employees, so there you go.
Oh, and IRS employees can lose their jobs, their pensions, and go to jail for misusing (or even accessing) taxpayer information. A company might lose its contract if there were too many violation that were caught, but the individual employee? Probably just get shifted to another account.
“But this administration believes that any private group is better at doing anything than any group of public employees, so there you go.”
Oh, I don’t think they believe any such thing. It is simply a way of putting taxpayer money in private hands with even less accountability. People love this argument though. They eat it up. It’s W’s goofy grape flavor Kool Aid.
From what I’ve seen of most public employees, I’d find the private sector hard-pressed to do any worse.
Mike-
Fabulous post!
Also a lot of “would be buyers” won’t be able to buy with lending standards tightening up. And they will get tighter as the bust continues.
Everyone on this blog knows that a lot of recent buyers were dependent on the availability of no-questions-asked-no-documentation loans for 5x, 6x, 7x+ annual gross income. Once lenders start to verify income, require downpayments and some savings in the bank, these prices will get a whole lot less sticky on the way down.
Even with a 5% downpayment requirement, it will be several years before new buyers have that kind of money saved up. And with gas, groceries and health insurance through the roof, I don’t see those savings materializing anytime soon.
Excellent summary. I have a comment to add on one bit:
“…but the severity of a recession is unknown…”
True it is unknown, but one can at least get a sense of what it might be like by considering a few relevant facts:
1) Large share of recent new employment in the real estate sector
2) Large share of recent home sales as seconds (or more) — vacation / retirement / investment
3) Large share of high risk lending (100% LTV / IO / etc) as a share of the overall total (whether subprime, Alt-A or prime)
4) Negative national savings rate (for the first time since the 1930s) during a supposed period of economic strength
5) Unprecedented level of cashout-home-equity-ATM-financed consumer spending in recent years
6) Willingness of home buyers to pay unaffordable prices on high-risk lending contracts due to certainty that “real estate always goes up — by 10% or more”
Think about how a recession would impact the above pillars of the bubble (plus many others that I have not mentioned) and you might get a better sense of why top economic policymakers will do anything and everything within their power to avoid a recession.
“plus many others that I have not mentioned”
gasoline prices come to mind
“If you want to buy there will be PLENTY of time after this mess is over.”
Even if the mess isn’t over until 2020? Because that is roughly how long it took for the Japanese real estate bust that started in 1990 to play out (not sure it has ended yet, though).
does anyone know a recent new home buyer that didn’t get at least 10% in incentives ?
so its 20% off yoy price decline
OK, I must be missing something in the press, because Im unable to determine if this monthly pick-up is a surge or not.
And that is this: What is the historic change in sales from March (a winter month) to April (a spring month)? In the absence of a comparison M-to-M from 06 and 06 and 04 and 03 for the same period, how am I supposed to determine if this is a surge or not?
In any event, I would expect sales to increase from a winter month to a spring month.
I am easily able to check the taxes records status on properties in one of the cities in my state on the internet. For cheap entertainment I run down a few FSBO’s that metion RE agent/owner in the ads.
Earlier this year I found outstanding City TAX LIENS on 3 of these so called RE “Professionals” personal properties.
One RE agent hadn’t paid his taxes on his OWN home in over 1 year. His FSBO telephone number was for out of state.
Times are getting TOUGH!
“The company declined to supply a full-year profit outlook. ‘Given the uncertainty surrounding sales paces, and market direction and, thus, the potential for and size of future impairments, we are not comfortable giving full earnings guidance at this time,’ added Joel Rassman, chief financial officer.”
He is not comfortable giving earning guidance because he knows that the future will bring bad news. It is NOT because uncertainty has increased. Hell, I bet he had no problem issuing forecasts when I predicted prices rising forever.
Even if uncertainly has risen, he still could produce a point estimate for his forecast. The only thing that would happen is that the confidence interval would expand. But since he is predicting a fall in profits, he choses not to disclose this. THAT’S how I interpret his silence.
I think he’s just honestly not sure how many price cuts and incentive packages he’s going to need.
On the upside, you could kind of guess what you could sell for since price was limited by loan, limited by appraisal… On the down side, there is not this same limit. A bank may not give a loan for way over the others in the neighborhood, but they have little problem giving loans for way less.
(Does anyone know of a case where a builder bought and entire old ‘hood, tore it out, and rebuilt new, rather than going further out into the desert or farmland?)
Early 1990s, Staten Island NY.
At the peak of the 1980s boom, the builders started building 13-foot wide rowhouses. From a zoning standpoint they claimed they were an apartment building with units stacked side-by-side. They were sold as family housing. The middle bedroom on the upper floor had a skylight rather than a window, which leaked when opened.
After the bust, these couldn’t be sold. They were bulldozed and replaced with regular houses.
In this case, the battle will be over the conversion of McMansions to multiple units. Plenty of room on the lot for several working class families and their cars. Not so sure about the roads or the schools, however.
What lot? Around here (DC) they build McMansions that are barely smaller than the lots they are built on. Not much room for extra cars.
We’ll be better off in the long run just bulldozing the monstrosities.
Does anyone know how the properties sold or auctioned under forclosures are handle in how the Sales numbers are recorded. Do they effect these government statistics monthly?
Based on the census report (Table 3) I have calculated the percentage of total new houses sold (not started + under construction + completed) relative to new houses completed from Jan. ’05 to April ’07:
87
102
121
113
113
102
114
107
93
95
77
76
75
70
83
76
80
73
58
59
50
44
42
41
37
38
45
53
Not surprisingly there were more new houses sold than completed in the wild Q1 and Q2 of ’05. Since then it has gone downhill. It might look like sales have picked up in the last three months, but since “sales” include cancellations, the last 3-6 months numbers are probably overstated by, say 40% for April ‘07, dropping to 0% for November ‘06. If that is the case, then the real numbers are truly terrifying. There’s a pipeline delay between the total new houses sold (not started + under construction + completed) and the number of completed houses, but averaged over 3 months (typical average delay?) or so, it still looks pretty bad.
Hello,
What is really important is not being mentioned. Two carriers off Iran. A Chinese Stock Bubble. Gas prices that will not be coming down.
I used to read “The Perfect Storm” posts here and chuckle. Not now.
I am a student of history and I don’t think 1929 is the right analogy. Maybe Spring 1914.
NOVA, well stated. Everybody likes comparing our coming financial crunch to 1929, but with the WOT in the picture, this is more like 1914. Substitute “oil” for “gold” and you mix up the same nightmare.
Can you imagine closing the NYSE for four months today? I can only imagine the political horror that would ensue.
Here is a great book for background:
“When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America’s Monetary Supremacy,” by William L. Silber
When Washington Shut Down Wall Street unfolds like a mystery story. It traces Treasury Secretary William Gibbs McAdoo’s triumph over a monetary crisis at the outbreak of World War I that threatened the United States with financial disaster. The biggest gold outflow in a generation imperiled America’s ability to repay its debts abroad. Fear that the United States would abandon the gold standard sent the dollar plummeting on world markets. Without a central bank in the summer of 1914, the United States resembled a headless financial giant.
William McAdoo stepped in with courageous action, we read in Silber’s gripping account. He shut the New York Stock Exchange for more than four months to prevent Europeans from selling their American securities and demanding gold in return. He smothered the country with emergency currency to prevent a replay of the bank runs that swept America in 1907. And he launched the United States as a world monetary power by honoring America’s commitment to the gold standard. His actions provide a blueprint for crisis control that merits attention today. McAdoo’s recipe emphasizes an exit strategy that allows policymakers to throttle a crisis while minimizing collateral damage….
http://press.princeton.edu/titles/8243.html
Funny, that’s twice I’ve heard the term “perfect storm” today. The first was in reference to allowing gays and lesbians to sponsor their foreign citizen domestic partners… Gay Marriage and Immigration!!! It’s the conservatives’ perfect storm!
Why is this all so hard to figure Out?
Sales up 14% because prices are down 11%. So, if the Builders want sales to double all they have to Do is DROP PRICES 11% per Month.
In six Months Sales will be NORMAL and Medium Home Price will Be 110K , where is Should Be according to the NATIONAL MEDIUM INCOMES.
The Funny thing is ” MOST PEOPLE WILL LAUGH AT THIS. But if You have been in Business and Construction as long as I have and Knew what it actually Costs to Build a House You would realize this is what it SHOULD BE.
Oh , DAM . I FORGOT. We’re out of Land! Riiiiiiiiiiiiight.