Clearly, Prices Must Fall In California
The LA Times reports from California. “Currently, nearly 3% of the homes for sale in Southern California are owned by lenders, according to ZipRealty, up from a fraction of 1% a year ago. ‘Volumes are increasing, definitely,’ said Patrick Carey, the executive in charge of foreclosed properties at Wells Fargo & Co.’s real estate division.”
“The San Francisco-based bank is managing more than 800 bank-owned homes for sale in Southern California. So far, lenders aren’t offering fire-sale prices, but that could change if sales remain slow and lenders slash prices to clear their inventories.”
“‘They will make a contribution to the erosion in property values,’ especially in neighborhoods that attracted marginal buyers with shaky credit, acknowledged Robert Kleinhenz, deputy economist for the California Assn. of Realtors. But he added, ‘How this plays out both directly and in a market psychology sense is going to be difficult to estimate.’”
The Union Tribune. “Moving from assigning blame to looking for solutions to the growing subprime mortgage crisis, the Federal Reserve Board’s San Francisco bank yesterday gathered lenders, consumer advocates and fair-housing experts to look for ways to save financially distressed homeowners from foreclosure.”
“Scott Turner, the bank’s community affairs director, distributed maps at a meeting in downtown San Diego that showed a concentration of problem loans in neighborhoods south of Interstate 8.”
“‘The homeownership gains are going to be threatened in San Diego,’ he said.”
“An examination of subprime lending by the San Diego City-County Reinvestment Task Force found a high incidence of defaults and foreclosures in Mira Mesa, south-central San Diego, Spring Valley, Oceanside, Vista, Escondido and Chula Vista.”
“At the San Diego meeting, some lenders said such steps would buy time until the real estate market recovers from its current slump.”
“‘If we can milk it along for a few years, we have a chance of recovery,’ said Mike Gross, Eestern managing director for Countrywide Home Loans. ‘Otherwise, your business gets wiped out.’”
“Apartment vacancies in San Diego County are rising as average rental rates have declined, the San Diego County Apartment Association reported in a study released today.”
“Some analysts said they were surprised that the study found rents to be falling. Six months ago, the association reported that landlords were enjoying rising rents and reduced vacancies. At the time, association Executive Director Robert Pinnegar said potential home buyers were swelling the ranks of renters while they waited for house and condo prices to fall.”
“The new report attributes the shift, in part, to condominium conversion units returning to the rental market.”
“‘Toward the end of last year, the surge in developers converting existing apartment stock into condominiums effectively came to an end,’ the report said. ‘Many of these converted units have since returned to the market as rentals, increasing supply.’”
“Alan Nevin, the chief economist of the California Building Industry Association, tracks housing conditions locally at MarketPointe Realty Advisors. He said the survey’s finding that rental rates are dropping was puzzling.”
“‘A 5 percent vacancy rate is equilibrium, but if a market is in equilibrium, rents don’t drop,’ Nevin said. ‘Rents are stable.’”
The Voice of San Diego. “In a strategy borrowed from the playbook of car dealers, some homebuilders are offering would-be buyers a way around the uncertainty of selling in a slow market.”
“They’ve taken out newspaper ads and posted large signs to push the tactic: If the builder’s realty team can’t sell a customer’s home in a certain amount of time, it will buy it so the customer can be free to purchase one of its new homes.”
“‘I think that it’s a sign of the times, this is not the first time we’ve seen it,’ said Tim Sullivan, president of the Sullivan Group Real Estate Advisors.”
“‘In today’s market, it’s the biggest obstacle: How am I going to get rid of my old house?’ said David Bennett, sales representative at Crews’ Cityscape, a group of 14 row homes in Escondido.”
“The trade-in program allows builders to offer buyers a concession (they’d call it a ‘value-added program’) on the purchase of a new home, without frustrating the neighbors, many of whom purchased similar homes when the market was hotter. If the home next door suddenly sold for substantially less than was paid for comparable homes, builders could face a line of disgruntled homeowners in short order.”
“‘This is more done to protect homeowner’s values than anything else,’ said Jeff Pitzer, sales director for Barratt American. ‘Some builders…do price-slashing, and we don’t do that.’”
“North County Realtor Jim Klinge said sellers in this market are notoriously averse to lowering their price for any reason. ‘They’re selling convenience, and God bless ‘em. But they’re not going to give you your sky-high dream price on your old home and cut you a deal on your new one. There’s no free lunch,’ Klinge said.”
The North County Times. “The burst of a real estate bubble could lead home prices to slide as much as 18 percent over the next four years, a Southern California economist argued in a report released Wednesday.”
“Prices could also begin to recover next year, according to a ‘best-case’ scenario outlined in the report, but weaker consumer spending and a continuing rise in foreclosures make that less likely, said Christopher Thornberg, a co-author of the report.”
“The recent proliferation of risky mortgage loans leaves plenty of room for uncertainty, said Thornberg, a consultant and former economist for the respected UCLA-Anderson Forecast.”
“A study by Global Insight, a forecasting firm, concluded in March that home prices here and in neighboring San Bernardino County should be about 38 percent lower, a discrepancy surpassed in only seven U.S. metropolitan areas.”
“The rate of mortgage defaults has risen sharply since 2006, with Riverside County’s number of foreclosure-related legal filings nearly doubling to about 6,900 in the first three months of this year, according to one research firm.”
“Thornberg said that number probably will continue to rise to the point where it severely undercuts home prices. ‘Prices relative to incomes are just ridiculously high,’ he said. ‘Clearly, prices must fall. The question is how fast. It depends on the rest of the economy.’”
‘C.A.R. today projected a 14 percent decline in single-family home sales this year, and forecast a 1.8 percent increase in the median price of a home. ‘Sales have declined in all areas of the state, but higher-end markets have experienced somewhat smaller declines,’ said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. ‘Sales are weakest in areas that had a lot of new home building in recent years or those areas that had been popular for second home purchases. Prices tend to be softer in those areas as well,’ she said. ‘This pattern is likely to continue throughout the rest of the year.’
‘The Padre is back up for sale for $5.6 million less than a year after a potential local buyer cut off talks about purchasing the building. Pacifica Enterprises is abandoning a renovation project to add condos to the building, an effort that has dragged on for five years. ‘
‘Rent tracker Axiometrics has a stunning stat out: Its measure of rents at large O.C. apartment complexes shows what it calls ‘effective rent’ — typical rents minus typical concessions — growing at 2.5 percent a year in this second quarter vs. 7.2 percent a year ago.’
‘Axiometrics tracks 70,000 units in O.C. It found 4.4 percent of those units vacant in this quarter vs. 3.9 percent a year ago.’
‘C.A.R. today projected a 14 percent decline in single-family home sales this year, and forecast a 1.8 percent increase in the median price of a home.’
Don’t big drops in sales normally portend falling prices? I guess the C.A.R. has good reason to believe it is different this time?
Apparently they’ve figured a way around the supply and demand curve.
Actually it’s very valid for prices to continue increasing even after a fall in the sales rate. It’s not the *change* in the sales rate that determines whether prices rise or fall, it’s the sales rate itself. E.g. if sales fell back to 2001 levels, price increase rate would fall back to 2001 levels as well, which was a positive rate of increase. However that’s only if inventory and demand are also at 2001 levels, which of course they aren’t. (Just using 2001 as an example)
Off topic, but…… Casey is back.
Digging farther into Lansner’s piece, I find a link to the document he quotes from, and in that document I find this:
“Las Vegas, NV 2Q 2007
Metropolitan Statistical Area
Outlook: Big drops on all fronts since peaking in 2005. Rent growth is on a negative pace for the year. The occupancy rate has decreased in six of the past eight quarters. Job growth is at its lowest point since June 2003. Total permitting is down –41.9% from a year ago; MF permitting is down –35.7%. The market has to deal with all of the supply from 2005 and 2006 coming online while job growth is shrinking.”
“Apartment Market
Effective rental rate growth for the quarter: +0.9%.
Annual pace from 4Q06 to 2Q07: -0.9%.
Effective rental rate growth for the year: +1.3%, down from +5.5% from last year and +10.5% from 2Q05.
Occupancy rate: 94.1%, down by –1.4% from 2Q 2006 but up +0.5% from 1Q07.
Concessions: -3.3% (-$31 per month) of asking rents; down slightly from last quarter (-3.5%).
Demand and Supply
Annual job growth at March 2007: +29,600 jobs or +3.3%, down from +7.1% last year this month.
MF permitting trailing twelve months ending March 2007: 6,152
Change from a year ago: -3,418 or –35.7%
MF Demand/Supply Ratio at March 2007: 3.1 jobs per MF permit, down from 22.5 in 2006.”
Hmmm.
“‘The homeownership gains are going to be threatened in San Diego,’ he said.”
he meant gains are going to be wiped out.
“‘The homeownership gains are going to be threatened in San Diego,’ he said.”
Add this: “Only” in San Diego…this comment sponsored by:
“Neil’s Butter Popcorn” Stock up today!
Buttered? Oh boy!!
For that, I charge extra.
got neil?
You best save some pop corn for later. This is going to be a very long show
Don’t worry,
I intend to franchise.
Got popcorn?
Neil
Popcorn is the perfect metaphor for our shaky financial times…
Look how blown out of proportion a popcorn kernel gets, after it’s “housing bubble” bursts?
Tastes good too.
I recommend Redmond RealSalt, the Grey Poupon of salts…
Yum
Neil! Glad to see you back!
Missed your comments!
Congratulations! Hope you had a a great honeymoon.
How does the new wife feel about popcorn in bed?
“Some analysts said they were surprised that the study found rents to be falling. Six months ago, the association reported that landlords were enjoying rising rents and reduced vacancies. At the time, association Executive Director Robert Pinnegar said potential home buyers were swelling the ranks of renters while they waited for house and condo prices to fall.”
I wonder if anyone ever really believed that scare tactic BS that was tossed out a few months ago about how rents were going up! Whooo . . . scary! Not!
“Alan Nevin, the chief economist of the California Building Industry Association, tracks housing conditions locally at MarketPointe Realty Advisors. He said the survey’s finding that rental rates are dropping was puzzling.”
Add Nevin to the Yun and Husing circle of clueless “economists” who probably lack the skills to flip burgers for a living. For more than 2 years virtually every poster here has predicted that the numbnut FBs who won’t “give their house away” will become accidental landlords.
Failed condo conversions becoming rentals…yeah, another big surprise to analysts and economists. You might as well take these three yahoos and add them to the unemployed list…since they have no predictive or productive value.
spike66
Totally agree. And when the next scare of “median rents for houses increasing” don’t buy it - it will be because the per q ft size of rentals on the market will be going up. I see a lot of “for rent” signs on houses that aren’t in typical rental areas
Right, but when it comes to price per square foot of houses sold, you won’t find that statistic–the Realtors(r) keep that secret!
What a jackass. I’m a stinkin’ engineer and even I predicted rents would fall.
It’s the inventory, stupid.
Exactly. Every time I saw articles posting that rents will rise I wondered what the authors were putting in their pipes. Inventory increases so rents must fall. In my own complex, there were several people who moved out into nearby houses and are renting them for a ridiculously low price in the Ahwatukee area. And because they moved out, the vacancy rate is higher than normal and this keeps the management from raising the rents at our complex. Isn’t it beautiful how the “law of” supply and demand works? Too bad the stupid RE cheerleaders are clueless on economics.
I suspect that the RE cheerleaders may not be as stupid as they seem. I believe their comments are often a calculated attempt at influencing the market by putting some positive spin on a situation.
And when there is no way to spin something, it is …
“puzzling.”
“their comments are often a calculated attempt at influencing the market”
Fair enough, then they’re marketing guys–consultants, analysts, spinmeisters, whathaveyou.
Are there any real qualifications for calling yourself an economist? That us,outside of academia, where you might be a Professor of Economics?
Without any serious professional licensing requirements, these shills are as unethical and/or clueless as Realtors.
And quoting them as objective sources is dishonest and deliberately misleading.
5% is a bogus vacancy number.
It’s called a shadow supply, and unless you factor it in, you will be puzzled.
Check out the Craigslist postings for rentals, I’m sure the magnitude of the listings would be enlightening to these “economists”.
You know, I can’t believe that Mr Nevin is really that stupid. My guess is that he was telling the people who sign his paycheck what they wanted to hear. Delivering bad news is not the path to glory in some organizations.
Quick follow-up.
In the SD section of rentals in Craigslist, there are over 600 postings…today.
95 between 4:07 and 6:05pm… just under 2 hrs. That is … say… 50 per hour.
Wow! That’s a lot!
holy moly Batman!
“I wonder if anyone ever really believed that scare tactic BS that was tossed out a few months ago about how rents were going up! Whooo . . . scary! Not!”
Sometimes I am tempted to use scare tactics as well. Like casually mentioning that well known economists are predicting a 75% drop in house prices. Or, overstating vacant housing by 20 million units. You know, the same sorts of tactics the REIC employs. Rumors can spread like wildfire.
“Or, overstating vacant housing by 20 million units.”
It is much more effective under current market conditions to just tell it like it is, which is plenty bad enough to put a hard landing in the bag. Exaggeration gives REIC liars an opening to turn the tables on you.
Was merely being sarcastic. Honesty has always been the best policy in my book.
OK folks here is the reality regarding the MBS mkt right now.
I was in our weekly officers meeting. The topic turned quickly to our residential MBS holdings. My bank (a commercial bank with some MBS holdings due hedging, etc.) has been selling all of our traunches during the past 3 weeks. We are now trying to get rid of the “lesser” performing traunches. During the meeting it was revealed to us (at the meeting) that we are struggling to sell the last remaining traunches because the bid price is so low.
How low you ask? 10 cents on the dollar. Surely this has to be for 2nd TDs right? Nope - these are all 1st TDs. these properties are all over the US - no they are not localized.
That’s what’s truely going on behind the scenes. Anybody that thinks this thing will end quickly - soufflet, soft landing, truffle, etc. - is a fool or a liar. Anyone who thinks RE will not decrease 30-50% is either a homeowner, investor or realtor (or all three).
Now that’s what I call low balling…
Nope that is a bank that is willing to take quick losses and let the profits run.
Nothing worse than having the FDIC inspect records, even with a clean bill of health the damage is done. The FDIC will find problems in every bank inspected. “See, we are protecting your savings”.
10 Cents on the Dollar, for 1st T.D.’s?
We are gathered here, to mourn the late, departed housing market, which passed away @ 15:13:56 pst…
“…has been selling all of our traunches during the past 3 weeks”
Where forth came such enlightenment from thou? The recent full moon was only illuminated on the 3rd week of said month.
“Anyone who thinks RE will not decrease 30-50% is either a homeowner, investor or realtor (or all three).”
Or journalist.
Or CAR economist.
Or a loan officer or appraiser.
Especially an appraiser.
I’m no fan of the MBS market (I am presuming that these are non-agency MBS), but 10 on the dollar seems pretty low- one could profit at that level. For instance, if the AAA tranche is paying 7%, and one paid 10 cents on the dollar, you would be clearing 70% a year interest.
Of course, these could be cr*p MBS- for instance, I would not touch a collateralized debt instrument based on 2nd mortgages because it might not last two years before losing all its principal. But if it is AAA tranche 1st lien mortgages with a non-bankrupt servicer, 10 cents on the dollar is really a good price… IMHO such a tranche with variable or fixed interest and with about 300 months to go would be worth 50 cents on the dollar. Dang, now I’m thinking about inflation risk. Hmmm, ok, 45 cents on the dollar…
Yeah, but they are selling the “lesser performing” tranches. They are the equivalent of a 2nd DOT since they are probably among those in the first loss position.
In other words, if you have the AAA piece of an MBS portfolio, I’d be surprised if you’ve been hit so far.
If you are in a “lesser performing” tranche already, it means that you have already taken a hit, and every investor out there has seen the Credit Suisse chart. It’s going to get worse. The question isn’t whether the “lesser performing” tranches will be performing worse next quarter, but whether they will be wiped out altogether or not.
How far into the tranches will be touched?
I’d bet they’re priced at $0.10 on the dollar for good reason. It’s probably still a risky bet at that price.
LostAngels –
I like these “front lines” posts. Should make a lot of fence sitters slide back over to the safe side and begin to set up camp for the next winter.
Ellen Degeneres: “Storm’s a brewin’ ….“
yeah, now that’s what I’m talkin about…..
“‘The homeownership gains are going to be threatened in San Diego,’ he said.”
I demand that congress acts now to protect my stock Market Gains ! Things should NEVER go down !!!
Reminds me of a lady I heard about on the news several years ago who was suing the maker of Beanie Babies because they were no longer worth what she paid for them.
I demand that congress acts now to protect my stock Market Gains ! Things should NEVER go down !!!
Promise been around since 1987: http://en.wikipedia.org/wiki/Plunge_Protection_Team
“‘In today’s market, it’s the biggest obstacle: How am I going to get rid of my old house?’ said David Bennett, sales representative at Crews’ Cityscape, a group of 14 row homes in Escondido.”
“I want to buy a new house…but you MUST sell my old house… for $650,000 + or else. Otherwise, I will hold my breath until I turn blue”
The easy money has stopped flowing, the music stopped playing and all the seats are occupied. Good luck to would-be sellers trying to find a place to sit down against the backdrop of a crashing bond market.
http://www.bloomberg.com/markets/rates/index.html
Who’s occupying the seats? The smart ones who have cashed out or have accumulated cash (money market funds, T-bills, and the like).
That’s why renting with a down payment in the bank is a great position.
In two years, not having a selling contingency will get me a better price compared to someone with a sales contingency.
“The burst of a real estate bubble could lead home prices to slide as much as 18 percent over the next four years, a Southern California economist argued in a report released Wednesday.”
“On the upside, Thornberg and other economists cite state government data showing unemployment in the two-county area at just 5 percent in April, near an all-time low. And the region is creating jobs remarkably quickly, which in turn creates demand for houses.
If that situation continues, housing prices will probably bottom out this year and stay stable through 2010, Thornberg and Mark Schniepp of the California Economic Forecast argued in the report.”
Things are either going to be really bad, or flat. Wow, he’s really going out on a limb with that one.
“Clearly, Prices Must Fall In California”
TIM-BERRRRRRRRRR……………!!!
Question: Who at this meeting represented the “living within their means” folks?
“Moving from assigning blame to looking for solutions to the growing subprime mortgage crisis, the Federal Reserve Board’s San Francisco bank yesterday gathered lenders, consumer advocates and fair-housing experts to look for ways to save financially distressed homeowners from foreclosure.”
God I wish I could find out about these “hearings” before they take place so I could show up.
Might not be a good idea…especially if they ask you for I.D. before letting you in to speak (”they” might give you a time limit of 3 min or less)…you might suffer from the law of unintended consequences…”tin-foil-hat radiating”…some God… please Bless America!
You’ll chatter..and not much will be remembered…and I’m…an optimist!
You know that those “hearings” are strictly for show, right?
“‘This is more done to protect homeowner’s values than anything else,’ said Jeff Pitzer, sales director for Barratt American. ‘Some builders…do price-slashing, and we don’t do that.’”
You will Jeffy-boy when you are sitting there on that pile of unwanted, unloved, unused piles of lumber/stucco/nails, etc. They certainly won’t be someone’s home where they want to actually live, now do you think?
They don’t want those of us living
If Qualcomm sneezes, does San Diego get the flu?
Some Phones With Qualcomm Chips Banned
Associated Press 06.07.07, 4:54 PM ET
New models of cell phones made with Qualcomm semiconductors can no longer be imported into the U.S. because the chips violate a patent held by Broadcom, a federal agency ruled Thursday.
The U.S. International Trade Commission said the import ban would not apply to mobile phone models that were imported on or before June 7.
The commission’s decision represents a compromise between a ban on all phones with Qualcomm Inc. chips, as its rival Broadcom Corp. requested, and a ban only on the chips themselves, as recommended by an ITC administrative law judge late last year.
What happened with QC is everyday living in Silicon Valley Santa Clara County CA? I have to say both suffer from over-hype by realtors. But us old timers know that when home prices/cost of doing business increases. Many High Tech employers move out.
Its sad many new homeowners dont get this double edge sword of living in tech ladden areas. More times than any mass changes and turnover do happen. The liquer store down the street from me has been in business for the past 15 years. Very few tech companies last even that long and their employees even less. MS killed Netscape overnight. Very common…
Ummm, except Netscape released the first beta for Netscape 9 two days ago: http://www.linux.com/article.pl?sid=07/06/05/1728243
… I get your point, just couldn’t resist - this is the “I told you so site” right?
…said Thornberg, a consultant and former economist for the respected UCLA-Anderson Forecast…
Shouldn’t that be “the formerly respected UCLA-Anderson Forecast”?
I’ll second that. It was fun to watch Thornberg duke it out with their blinded optimists until he left. He took any respect with him.
Leamer was one of the first to point out the unsustainability of home prices. Perhaps he is more of a bought realist than a blinded optimist?
When did Thornberg “duke it out” with the others? He’s always been the “things are horrible in the real estate market and there is definitely a bubble, but prices will be the same in 2010 as they are today” guy. He sounded like a bubble believer but then he always gave his soft landing prediction.
He sounded like a bubble believer but then he always gave his soft landing prediction.
So far he’s been right, alas.
So far, so good, so what.
And my point was, how did that differentiate him in any substantial way from the others at UCLA?
From the NCtimes article:
“The most recently available data don’t show any significant drops in consumer spending. Thornberg said he expects such a drop in the second half of this year, as more consumers suddenly realize that they can no longer spend money as if their homes were appreciating by $50,000 a year. Depending on its scope locally, other sectors of the local economy may or may not be affected, he said.”
That’s the thing I don’t get. It’s not that people could go and peel dollar bills off their house. They could get a loan….. and pay it back, presumably. So how come the appreciation was seen as spending money?
“…as more consumers suddenly realize that they can no longer spend money as if their homes were appreciating by $50,000 a year.”
I guess that realization takes many months to sink in? Maybe a look at today’s financial market action would help bring home the new reality of asset prices which don’t always go up…
http://www.marketwatch.com/tools/marketsummary/
“There was a time when a fool and his money were soon parted, but now it happens to everybody.”
Adlai E. Stevenson, Jr.
marketing + stupid people = free money
‘The best option available, Bair said, is for lenders and investors to modify loan terms to “provide sustainable mortgages for borrowers.”
At the San Diego meeting, some lenders said such steps would buy time until the real estate market recovers from its current slump.
“If we can milk it along for a few years, we have a chance of recovery,” said Mike Gross, Eestern managing director for Countrywide Home Loans. “Otherwise, your business gets wiped out.”’
These guys are still working through the denial stage of housing bubble grief. I am all for the lending industry bearing the cleanup costs of the financial mess they collectively made.
But that does not change the basic reality on the ground, which is the severe mismatch between the recently built stock and the income distribution. Where do these bankers plan to find buyers for starter homes priced at $500K+ against a backdrop of falling prices? I’ll keep my eyes peeled for the fire sale auction results.
The say this as is it would help at all. It wont. The reality is the servicer must minimize investor losses. They will ONLY offer a loan mod if you are deep underwater and you won’t leave the home for a deed in liu or try for a short sale (or cant short sale due to nothing selling).
The idea is to keep the underwater chumps in the home paying something on the mortgage until their is equity and/or they catch up the note/sell the home. Very rare situation. Much better for FB to walk away and rent after living rent free 12+ months in the banks house.
This guy has a problem with his possessive pronouns:
“If we can milk it along for a few years, we have a chance of recovery,” said Mike Gross, Eestern managing director for Countrywide Home Loans. “Otherwise, your business gets wiped out.”’
Notice how he goes from “we” to “your.” Should be from we to MY!
I checked Countrywide’s REO listings for CA today…took a good few minutes there for it to load onto my computer. Not much in LA, yet, but fun to watch.
Here’s the website for any future fellow bottom feeders:
http://www.countrywide.com/purchase/f_reo.asp
Bottom feeders?………Like this?
http://www.smileygarden.de/smilie/Strand/smilie_water_099.gif
Use this blog, which tracks Countrywide foreclosures. It does not take anytime to download, since it already has the downloads set up in pages you can click on to read. Also, a very nice feature is that this site shows the original listing price and tracks it down as Countrywide reduces the prices to dump the inventory. It is a beautiful thing: http://countrywide-foreclosures.blogspot.com/index.html
“‘If we can milk it along for a few years, we have a chance of recovery,’ said Mike Gross, Eestern managing director for Countrywide Home Loans. ‘Otherwise, your business gets wiped out.’”
YOU’VE been MILKING IT OUT long enough…your CASHCOW has just DRIED UP you frigging parasites.
mike needs glasses… that’s no cow he’s milking, it’s a bull… from the smile on it’s face i think mike just made a new friend
“They’ve taken out newspaper ads and posted large signs to push the tactic: If the builder’s realty team can’t sell a customer’s home in a certain amount of time, it will buy it so the customer can be free to purchase one of its new homes.”
How do they finance this Ponzi scheme?
Perhaps it’s a diversification play. Instead of owning a whole bunch of houses in one subdivision, they own the same number of houses in lots of different areas.
Ponzi? Yes.
Obfuscation of the true value of the new homes they are trying to sell? Also yes, but probably the main driver.
And what if they go bankrupt after selling Mr. FB his new house, but prior to selling his old house? Somehow I suspect that FB will be found to still be the legal owner of the unsold house and will still be responsible for the mortgage that he thought he was free of. But surely FB would never close on his new house without insisting that the builder close on the purchase of his old one…?
My guess is that once they have you in the new house, they have you by the cojones on the price of the old one.
My guess, instead of $50k in incentives on the higher priced new house, they reduce the value upon resale on the lower priced old house to make it move. As is usual with all these schemes the new home value would be overstated.
“At the San Diego meeting, some lenders said such steps would buy time until the real estate market recovers from its current slump.
“If we can milk it along for a few years, we have a chance of recovery,” said Mike Gross, Eastern managing director for Countrywide Home Loans. “Otherwise, your business gets wiped out.”
So, let me get this straight. Limping things along while trying to keep people paying on homes which are decreasing in value (that borrowers truly couldn’t afford in the first place) is the best Plan B these people could come up with? In the face of a tsunami of tens of thousands of resets in the next year and a half, are these businesses truly able to afford to keep their heads above water as both FB bagholders and ‘loan work-out charities’ in a declining market for a few years? I doubt it.
Wipeout!
“…are these businesses truly able to afford to keep their heads above water…”
They must be holding out hope for govt-provided helicopter drops of corporate welfare, because the gravitational force of current market disequilibrium would otherwise crush them the way it crushed the subprime sector earlier this year.
Printout!
Let them think that sound offshore is coming in to save them. Maybe so, maybe no.
There is nothing else to do, or to think of. Too big, too damaging - and the political types must make some noise to look like they care. This truly is a tsunami - the waters gettin’ sucked out of the beach, and that distant rumbling ain’t the sounds of a gentle rain. Too fast, and the ‘powers’ can’t run from this one.
http://www.youtube.com/watch?v=sLxmJM4Mzac
Lou’s masterpiece. I expect to show my grandkids the DVD of this some day in the Library of Congress archives…
http://www.youtube.com/watch?v=0HPq31I0O5E&mode=related&search=
Comments to the NCtimes article, spot the HBB reader:
Jack wrote on Jun 7, 2007 6:55 AM:
” 38% drop is HUGE! If your house is “worth” $600k today, that means it will be worth about $372,00 by next year. Time to fire your expensive realtor and put out your For Sale by Owner sign. Bwahahahahahahah ”
Concerned-1 wrote on Jun 7, 2007 9:32 AM:
” I know it’s in the media’s nature to report the worst case scneario when ever it can, but you have to ask yourselves: what is news? I find it hard to believe that home prices will continue to fall over the next four years. It could happen, but I’m personally sceptical. The point is the media does affect consumer spending, and publishing a report like this does not do the economy any good. Should have left it on the table until something factual transpires, then refer to it. And, NCT, in this doomsday scenario guess who will be one of the first businesses to go under? You can thank yourselves for that. “
I’m skeptical of anyone who can’t spell skeptical.
“A study by Global Insight, a forecasting firm, concluded in March that home prices here and in neighboring San Bernardino County should be about 38 percent lower, a discrepancy surpassed in only seven U.S. metropolitan areas.”
If a popular consensus develops that recognizes the reality of this ‘discrepancy,’ then prices will overshoot to the downside, thanks to the momentum of a sudden negative expectations shock. That is a big problem with giving too many opportunities for REIC bulls to air their unsubstantiated biases in the MSM.
“East is East, and West is San Francisco, according to Californians. Californians are a race of people; they are not merely inhabitants of a State.”
O. Henry
Does that mean I could live there and not pay 9% state income tax, if I can just document I’m not of the Californian Race ?
Just move everything into a brokerage account, move into CA, and then buy up California municipal bonds. Then you won’t pay the 9% tax.
Would buy CA munis if MBIA and AMBAC were not so seriously underfunded (see somebody’s posts on this board a few days ago)
or you can tell them you’re an illegal alien. you’ll get free housing, medical care and not have to pay income taxes.
Are you sure? Free beds do happen, but they are continually running out and largely dominated by hardcore homeless. Free medical care does happen, but can be hard to come by even on the Haight. Not paying income taxes? Are you sure about that? Most real jobs withhold, so what they don’t get is the standard deduction check afterwards. I bet if you can find even one example of this it will also come with tons of qualifications. Long searches for affordable housing and time on the street often come before free housing is made available. Time without medical care or filled perscriptions is often the rule even if care might sometimes come free. When it comes to pay income tax free a significant amount of the time means you will be stiffed for some or all of your wages because the boss can.
Your view of undocumented workers would be laughable if the realities were not so unpleasant.
“So far, lenders aren’t offering fire-sale prices, but that could change if sales remain slow and lenders slash prices to clear their inventories.”
Wait till the heat cranks up and the house isn’t opened up for air movement. Wait till they get tired of paying for the gardener. Wait till the home owner insurance policies go up because the houses are vacant. They still don’t get the big picture!
“‘If we can milk it along for a few years, we have a chance of recovery,’ said Mike Gross, Eestern managing director for Countrywide Home Loans.”
Yes, milk it all the way to the bottom. Rent them out and watch them go down hill. Have fun with evictions and trying to collect rents. We’ll have a whole new class of subprime renters. Prices are going to come down whether you ‘wish it holds’ or not.
Replying to an above comment:
People could not peel dollar bills from their houses but it is surprisingly shocking how easy it is to get a HELOC. I was at my credit union one day and a lady at the next teller simply stated: “I’d like to transfer money from one account to the other:. The teller asked which accounts and the lady answered: “I’d like $10,000 transferred from my home equity account to my checking account”. Simple as that. No fuss at all! I was SHOCKED! This lady acted as if she did this all the time. I would have been acting a LOT different if I just took out a 10k loan!!
“People could not peel dollar bills from their houses but it is surprisingly shocking how easy it is to get a HELOC.”
A couple more days with similar T-bond market action to today’s could change that in a hurry.
Yes, this happened very frequently. I was shocked at how many people did this and how cavalierly they did it when I became interested in the housing market and started asking questions. I am very curious how these HELOCs get resolved in foreclosure and bankruptcy. I am not an expert, but I have heard they are recourse, so they could really be a drag on people’s finances for quite some time. I really can’t see how this bust can be anything but epic.
Me too, Stretch. I get nervous when transferring part of my savings for a major purchase. Maybe that’s why we have savings - it scares us to not have them.
On other fronts, it appears the entire 50 state area and all cities within, will also be effected in the same way as San Diego…
“Scott Turner, the bank’s community affairs director, distributed maps at a meeting in downtown San Diego that showed a concentration of problem loans in neighborhoods south of Interstate 8.”
“‘The homeownership gains are going to be threatened in San Diego,’ he said.”
The problem with HELOC’s is they have to be repaid eventually and with the 10 year at 5%+ those fully indexed HELOC’s are gonna hurt!
Serf’s Up!
LOL. Give it up, it’s feudal.
I still say it’s going to be the CC debt load that unhinges any plan bankers or the gov can come up with and that wave has already formed. A lot of the CC’s have interest rates in the high 20% and with HELOC money drying up it’s just a matter of time! I have a relative with three cards maxed out and can barely afford the minimum payment while monthly outgo exceeds income by $600 a month.
They can just declare a BK and walk away clean. There are no consequences any more. I know a guy who had his Honda repo’d three years ago. He went to the dealership this weekend and bought a brand new s2000 with Honda financing!!
Not necessarily –don’t forget the bankruptcy ‘reform’ law’s new means test. I he makes less than the state median income, Ch. 7 it is. If not, so sorry Mr. Debt Serf.
can anyone give a 1991 or 92 as a refernce for this number ??
tia
Currently, nearly 3% of the homes for sale in Southern California are owned by lenders,
I found this interesting interview with a SoCal housing analyst. Had not seen it posted yet:
http://efinancedirectory.com/articles/State_of_the_Housing_Market:_Update_from_Schahrzad_Berkland.html
Prices will fall in half. We’ll go back to 1999 prices. It could be worse. Don’t be surprised by my statement. Let’s just look at what happened in the 1980s and 1990’s downturns. It’s easy enough to look up at the County Recorder Office, or on the MLS, but neither the County Recorder, nor the realtors, wants to advertise the ugly truth: CA has 15 year housing cycles and prices fall 30 percent to 50 percent in a downturn.
I have many examples. I’m talking about homes in Laguna Niguel, Encinitas, Del Mar, La Jolla, Poway, Pacific Palisades…..the most desirable properties, which are still rising now by the way, fell 40 percent in the last downturn. The media needs to start asking realtors this tough question: ‘How much did superior properties fall in the last housing downturn?’ When I posed this question on a Carlsbad realtor’s blog, he blocked my internet address.
So it’s not a question of what I think will happen to prices. It’s a matter of fact what actually does happen to prices. History tells us.
That was a great interview, JTB. You don’t read stuff like that outside of this blog.
Let’s hope you’re right about Pacific Palisades…we’ve been looking to buy, dragged my wife kicking and screaming to the last lease signing…fortuntately, she’s changing her tune. Last house we looked at was a 950 sq ft. 2 BR…asking $1.25MM (yes, a SFR, not a condo). Homes still appear to be selling here.
Actually, it was 1995 when the subprime lending stormfront first hit. Ouch!
During the 90-95 down turn (crash) housing prices in San Luis Obispo County declined 34.7%. We have a long way to go but prices and volumn are all local, right?
If we can milk it along for a few years, we have a chance of recovery
Well, if some foreclosed idiot can stick pigs in the now REO house, is this guy recommending future foreclosed idiots to stick some cows in the house when they are leaving. That might help to milk it along.
The Russians employed a “Scorched Earth” policy, when they were retreating from the nazis in 1941-42, intentionally destroying anything that might have been of value to them…
We’ll have the same thing, those foreclosed upon, leading the scorching. Petty destruction to widespread mayhem, will be their calling card…
Retreating to, who knows where?
“Currently, nearly 3% of the homes for sale in Southern California are owned by lenders, according to ZipRealty, up from a fraction of 1% a year ago.
I went to most of the lenders sites and compiled the median and average asking prices and compared them to RealtyTrac California Avg.Year-to-Date Foreclosures Sales Price $365,076.
http://tinyurl.com/2ssca2
“Currently, nearly 3% of the homes for sale in Southern California are owned by lenders, according to ZipRealty, up from a fraction of 1% a year ago.”
Anyone (mrincomestream, sm_landlord) know what level this needs to reach before it starts having a serious effect on prices? Doesn’t seem like we’re there yet (but it seems inevitable that we will reach it).
“The trade-in program allows builders to offer buyers a concession (they’d call it a ‘value-added program’) on the purchase of a new home, without frustrating the neighbors, many of whom purchased similar homes when the market was hotter. If the home next door suddenly sold for substantially less than was paid for comparable homes, builders could face a line of disgruntled homeowners in short order.”
“‘This is more done to protect homeowner’s values than anything else,’ said Jeff Pitzer, sales director for Barratt American. ‘Some builders…do price-slashing, and we don’t do that.’”
Quite a fine charity for FBs Barratt American has going there. Very admirable the way they’re willing to forgo current sales and cash-flow in order to help support inflated asset prices for their former customers.
I’ll go out on a limb here and guess that either, (a) Mr. Pitzer is lying, or (b) Barratt American is going to go out of business in the near future.
I don’t think Mr. Pfitzer is lying, he is merely leaving out a word at the end of the sentence: Some builders…do price-slashing, and we don’t do that YET
If the immigration bill falls apart. Builders who went to the Capitol earler this week stating 20 % of the builder work force is illegal.
Room for trim.
Anyone have link to that story?
Immigration Bill is dead for the Year…Bill Fails in Senate.
Yippee!!
http://www.cnn.com/
Double yippee!
Problem is, continuing the status quo is terrible for the average American. If we could just force the government to enforce the border, hire more border agents, and enforce the law things would be better and no legislation would be necessary.
That’s what I was thinking: whoopee, we stopped the amnesty bill (I say “we” because I made about 40 phone calls to various senators), so now we’re left with millions still coming in every year?
Don’t worry, the illegal immigration thing is already working itself out. As the construction business slows, most illegals will have no job prospects. They will either move back to from where they came, or rob the rest of us…
It is truly pathetic that ordinary citizens are reduced to “hoping” that the goverment would enforce the law.
I didn’t make any phone calls.
I just went to http://www.nrsc.org and gave them 10 bucks every week that this bill was filibustered.
I think this country’s worth 30 dollars. Money well spent.
N. Hollywood condo, anyone?
http://losangeles.craigslist.org/sfv/rfs/346901258.html
250k to live in a dark 1 bedroom 500 feet from the end of the burbank airport runway…
lovely
Why, $ 249 grand is a steal! The privilege of being able to say “I live in NoHo” is worth at least another $100K.
as red foxx used to sing about the all girl basketball team:
“We are the girls from Noho, Noho, Noho
we play it clean at Noho, Noho, Noho
we don’t drink, we don’t smoke, Noho, Noho!”
(of course his song was about a team from “Nofork”)
Or perhaps a Compton short sale?
http://losangeles.craigslist.org/lgb/rfs/342099846.html
LOL does a Uzi come with that…
Or perhaps a Compton short sale?
http://losangeles.craigslist.org/lgb/rfs/342099846.html
Another motivated seller, by USC, comes with a “large attack” LOL:
http://losangeles.craigslist.org/lac/rfs/341972360.html
“Nice sized rooms, and huge attack.”
bet that description really bring out the crowds at the open houses…
Right, seeking “principles”. How about economic principles–drop your price to market levels!
The “huge attack” helps the iron de-fence windows, perhaps?
My handyman lives not far south of there, last week two black girls on his street got hit by a car driven by some black guy fleeing a drive by shooting (killing) he had just committed. Large attack indeed.
My handyman lives not far south of there, last week two black girls on his street got hit by a car driven by some black guy fleeing a drive by shooting (killing) he had just committed. Large attack indeed.
Sorry for the repeat.
What’s up with that, labigotgirl? I think you should change blogs to supremerace.com and save the planet there.
What the hell would make anyone think she’s a bigot?!?
She stated the facts - what’s so wrong about that? Shit, it wouldn’t surprise me if lainverstorgirl was black. Oh but wait, you could be assuming she’s not because her name has “investor” in it, and I think you believe black people are too dumb to invest, right? See how easy it is to assume? Ease off there, JimmyB.
Rob
Rob,
Most black people would have probably said that two girls were hit by a guy in a car instead of two black girls were hit by a black guy in a car. The race part doesn’t really add anything to the story. My husband is white and his childhood friend was killed when he ran into the street after a ball. When my husband told me the story he didn’t say “my white friend was hit by a white driver.” He said, “my friend was hit by a driver.”
I am totally not a bigot, I have just noticed from a lot of incidents he has relayed to me that, blacks do a lot of shootings over there. Of course, many blacks are victims, too. It is very unfortunate.
lainvestorgirl,
There are usually a small number of criminals who account for the vast majority of crimes committed. When you make a comment like “blacks do” I assume that you think if I lived there I should be shooting people too since I am black. I think your comment would have been just as accurate if you had left the race part out.
The only reason I know these details is because that’s how the story was told to me by my handyman, who is MX, I guess that makes him a racist too.
“I think you should change blogs to supremerace.com and save the planet there.”
LOL!
Here’s one for LVlandlord
Gloomy Outlook For Las Vegas Housing Slump
The news isn’t good when it comes to Southern Nevada’s housing slump. Mortgage rates jumped to the highest level in ten months Thursday and a new economic report predicts it could be late next year before we see any improvement.
The University of Nevada Las Vegas conducted the mid-year economic report. Its authors make a couple of predictions. If you’re trying to sell your home, it’s pretty dire.
More and more people keep trying to sell and the prices keep going down. For people like Mike Fitzwilliams who bought two years ago and suddenly have to sell, it means big losses.
Nine months ago, he wasn’t willing to take a $9,000 loss. Now, he’s looking at offers $40,000 below what he paid for his home. Losses he may have to pay off with credit cards to try to avoid foreclosure.
Fitzwilliams said, “There is a lot of anxiety and a lot of stress that goes along with it. You try to go from here on forward and maintain a positive perspective.”
Keith Schwer, of the UNLV Center for Economic Research, said, “There has been a housing bubble, a lot of excess supply. We think about 14-15,000 housing units more than we need and that is depressing home building and home building has slowed significantly.”
UNLV’s midyear economic outlook shows people are spending less, construction is falling and housing permits plummeting in Southern Nevada. Schwer says the housing downturn could last one to four years, and then start to climb. He hopes it’s just one year. The strength of the Southern Nevada gaming and high-rise building market support his hope, he says.
The Greater Las Vegas Association of Realtors said that people who are selling or thinking about selling need to look at what their homes were worth in 2004 and then start to go down from there.
http://www.klas-tv.com/Global/story.asp?S=6628798
Ben Bernanke’s Post-Horse Barn Door-Locking Strategy for Real Estate
In short, there is no sign that the housing downturn has ended.
In short, the lenders were idiots. They did not see this coming. The experts were lured in by Mr. Greenspan’s bubble policies.
In short, the fat lady has not yet sung. But, no problem!
In short, they don’t know what to do, but they plan on doing it, Real Soon Now.
There now. Don’t you feel confident about the future? There will be lots more of the same. That will fix everything.
http://www.lewrockwell.com/north/north535.html