A Redefined Business
Some housing bubble news from Wall Street, Washington and beyond. “U.S. home builder Standard Pacific Corp. said new orders in April and May fell 16 percent, citing prolonged weakness in the Florida and Arizona markets. The company’s cancellation rate for the period was 28 percent compared with 35 percent a year ago.”
“‘We think management began to respond with further price cuts in May and will continue to adjust price to improve sales,’ Bank of America Securities analyst Daniel Oppenheim wrote. Oppenheim also expected cancellations to worsen, ‘as buyers see another round of incentives/price cuts offered by the builders,’ he wrote.”
The Washington Post. “For the first three months of the year, Reston home builder NVR reported a $12.3 million charge for abandoning projects, up from a charge of $7.2 million for the corresponding period a year ago. For all of 2006, the company recorded charges totaling $174 million, up from $12.6 million in 2005.”
“Analysts say NVR may be forced to write off more in the coming months.”
“NVR said…it ‘experienced a noticeable slowdown in market conditions’ in the mid-Atlantic in the first quarter. NVR also reported reduced home buyer traffic and an 11 percent decline in the average sales price for new orders. In the Washington market, prices dropped by 16 percent.”
From Reuters. “Countrywide Financial Corp., the largest U.S. mortgage lender, on Tuesday said it made 15 percent more home loans in May as the pace of refinancings increased, though the foreclosure rate doubled.”
“Nonprime loans, including ’subprime,’ sank 43 percent. Countrywide said pending foreclosures as a percentage of unpaid principal balances rose to 0.90 percent from 0.45 percent a year earlier, and 0.85 percent in April.”
“Foreclosures based on the number of loans serviced rose to 0.71 percent from 0.47 percent a year earlier, and 0.69 percent in April, Countrywide said. Delinquencies rose to 4.71 percent from April’s 4.45 percent.”
From MarketWatch. “On a consolidated basis, Countrywide funded $2.3 billion in pay-option loans during the month as compared to $6.6 billion in May, 2006.”
The Wall Street Journal. “Economists are giving up on the idea that the U.S. housing slump will be quick and relatively painless. Instead, more are concluding, the downturn that began nearly two years ago will last at least through the end of 2007.”
“The culprits: a glut of homes for sale and growing caution among lenders who now regret being so free with their mortgages during the boom.”
“David Resler, chief economist at Nomura Securities International Inc., says he is surprised by the degree to which speculation caused builders to overestimate demand, leaving a glut of houses and condominiums.”
“Meanwhile, empty houses are multiplying. A recent Merrill Lynch report tallies a record 2.2 million vacant single-family homes and condos for sale nationwide, about one million above the norm.”
“Economists at Merrill Lynch admit it is hard to predict how the slump will play out from here. ‘We are not sure how deflating a $23 trillion asset class, the value of real-estate assets on the household balance sheet, will end, but we doubt that it will end well,’ Merrill economists wrote.”
From Dow Jones Newswire. “General Electric Co.’s WMC Mortgage Corp. and Merrill Lynch & Co.’s First Franklin Financial Corp. are among the first subprime home lenders to adopt proposed federal guidelines on underwriting low- initial-payment mortgages to people with flawed credit.”
“In particular, the guidance calls for lenders to take into account the highest possible monthly payments, as opposed to the initial low payments, when deciding borrowers’ ability to repay the loans.”
“Analysts at Credit Suisse’s asset-backed securities research group recently examined the subprime borrowers who last year took out the loans that have fixed rate for the first two years and then adjusts to market rates. Their conclusion: about a third of them wouldn’t have qualified for the loans had the lenders used the fully indexed rate, not the initial ‘teaser’ rate, in determining the borrowers’ repayment ability.”
“WMC Mortgage, which adopted the guidance in March, estimates that it will make 50% fewer subprime hybrid adjustable-rate mortgages as a result of the new criteria. ‘It will be a redefined business,’ said Eugene Ullrich, a spokesman at GE Money.”
“The U.S. housing market downturn could linger for years but probably does not pose a major risk to the overall economy, Lehman Brothers’ chief global fixed-income strategist said on Monday.”
“Lehman’s Jack Malvey said the subprime mortgage crisis that blew up in February had not completely played out, and that foreclosures ‘are probably going to accelerate.’”
“‘The problem will be for all the homeowners who thought they could roll over into another teaser adjustable rate mortgage’ but find that credit standards have been tightened, he said.”
From CNBC. “I’m blogging to you from the J.P. Morgan Basics and Industrials Conference in mid-town Manhattan, where I’ve never in my life seen so many freaked out CEOs.”
“Here’s what the CEO of Ryland Homes said when I asked for a quick interview: ‘No, you guys make us look like idiots, absolutely not.’ Said the CEO of D.R. Horton, ‘NO, not now, not after the presentation, NO.’ Said the CEO of Standard Pacific Corp., ‘Thanks for asking, uh, I don’t think so, no, real busy today, back to back meetings, nope can’t do it.’”
“Here I am, standing here with breaking news on foreclosures (thank you RealtyTrac)..up 90% year over year and a staggering 20% month to month jump, and not one of these guys will respond.”
“I’m just asking for YOU CEOs to tell me what to say, YOU guys to give me something to put on TV so I don’t have to ask another analyst, YOU, who have an open mike whenever you want it…we’ll give you 30 seconds full if it’s good, hell we begged you to go live), but your lips are sealed. It begs the question: What are you all afraid of?”
“Across the nation, over two dozen states are considering or have passed bills aimed at subprime borrowers who were given loans despite their damaged credit. Mortgage brokers, the agents who connect borrowers with lenders, and other loan vendors are coming under particularly tough scrutiny.”
The Boston Herald. “With foreclosures rising across the state, (Massachusetts) Gov. Deval Patrick yesterday unveiled a plan to crack down on the controversial subprime mortgage industry. Patrick called for criminal penalties for mortgage fraud and for a ban on so-called ‘foreclosure rescue schemes.’”
“Adjustable-rate deals would be banned for subprime borrowers unless the would-be homebuyers specifically opted out of a fixed-rate loan product.”
From Bloomberg. “Banks demanded that Inmobiliaria Colonial SA pay more interest to borrow 7.2 billion euros ($9.7 billion) because of the risk Spain’s second-largest developer will be hurt by a slump in property prices.”
“‘It’s being affected by the slowdown in the housing market,’ said Roger Ramos, managing director of investment banking at Fortis in Madrid. ‘Colonial is a very good company but it’s not paying enough given the timing. A year ago, it would have been no problem to syndicate the loan.’”
The Edmonton Journal. “Soaring land values pushed Edmonton’s new-housing prices up 40.5 per cent from April 2006 to April 2007, the biggest bump in Canada. Calgary was a distant second place, with prices up 27.4 per cent.”
“Michael Mooney, executive director of the Urban Development Institute, Mooney praised city staff for working with industry to streamline the processing of development applications. ‘The best way to limit price increases is to increase the supply on the market,’ he said.”
The Edmonton Sun. “We’re into June now with the dog days of summer up ahead. But suddenly there appears to be a chill in the air. And with the Great Alberta Energy Boom hitting the stupid money phase, the discipline of the business cycle couldn’t come at a better time.”
“The signs of stress started last week when the Realtors Association of Edmonton reported a big buildup of inventory on the resale market last month. Combined with what ComFree Edmonton has on its books, there were over 4,400 properties on the market.”
“Last year the real estate board had 2,416 in inventory while ComFree revealed its property listings has jumped 120% from last May’s total. So why do so many folks want to dump their property?”
The Leader Post. “Buyers beware: House prices are rising all across the Prairies. The four major cities in Alberta and Saskatchewan saw the largest one-year increase in new home prices over the past year, Statistics Canada said Monday.”
“‘We’re seeing a very strong increase in Saskatchewan and Alberta,’ said Randy Sterns, prices analyst with StatsCan. ‘Prices are on a significant rise in those cities.’”
“Rising new home prices will further amplify Regina’s already tight resale market, Regina realtor Jeremy Cossette said. Buyers now routinely make offers greater than the listed price, yet still miss out on homes.”
“‘I have buyers who have been looking for several months, and made offers $15,000 to $20,000 above asking and are still looking,’ he said.”
“Larry Hiles, president of the Regina Regional Economic Development Authority, urged buyers to keep rising prices in perspective. ‘What you see is Regina finally starting to catch up with the rest of Canada,’ he said.”
“U.S. notes extended their declines after the Treasury Department’s $8 billion 10-year note sale drew the smallest demand from a group of buyers that includes foreign central banks since March 2006.”
“‘The U.S. market is part of a global move to higher rates,’ said Jay Mueller, who manages about $3 billion of bonds at Wells Fargo Capital Management. ‘The momentum has clearly turned negative in the bond market globally.’”
“‘Real yields are rising across the board and the U.S. has caught on,’ said Brian Brennan, a portfolio manager who helps oversee $11 billion in fixed income at T. Rowe Price Group Inc. ‘You have some big players in the market changing their mind’ about Fed monetary policy.”
The Wall Street Journal. “Economists are giving up on the idea that the U.S. housing slump will be quick and relatively painless. Instead, more are concluding, the downturn that began nearly two years ago will last at least through the end of 2007.”
- How nice, only six months left until recovery.
How can anyone with half a brain, much less a PhD in economics not see that this will take YEARS to deflate. Every other housing bust in history has taken years to deflate and this bubble is an order of magnitude larger. Foreclosures accelerating, a growing number of vacant homes on the market (up to 2.2 million now)… Are these guys so buried in their empirical models that they can’t see what is happening out there?!
Good point. However these “economists” are like courtiers who know the emperor has no clothes but realise that saying it could get them decapitated. In their case telling it as it is may mean getting the pink slip and kissing the year end bonus good bye. Oh, and no more Hampton summer breaks. Capici.
As a person with an Econ degree I can’t believe all the BS Economic forecasting I’ve seen in the last 2-3 years. It makes me sick when I think about it.
I hope for the sake of the profession. All the scam artists with professor positions that used their prestige to move markets Will get canned faster than they can cash the checks their corporate masters have written for them.
Many academic economists cannot see without the crutch of a mathematical model. And many theoretical economists cannot see at all, unless the thing they are looking at is a pure abstraction with no relationship to economics outside the walls of the ivory tower.
If you’re following mathematical Keynesian models (which are the norm) it’s pretty easy to see that we’re in a huge bubble.
“How can anyone with half a brain, much less a PhD in economics not see that this will take YEARS to deflate.”
Because their paycheck depends on not getting it, or at a minimum saying that it is 6 months from over, whethet they personally believe it or not.
There are some professors that have foretold of the bust, but you just don’t see them getting a lot of press. NPR has had an economist from MIT on a couple of times that I’ve heard. He tells how his daughter is chomping at the bit to buy and he has to keep telling her to cool her heels.
No…When you are looking at the inside of your a$$, you are pretty much blind to everything.
What’s even better is that they are trying to condition the American public into believing that this has been going on for two years now.
I caught that too - suddenly, this “began nearly two years ago”, meanwhile, try to get them to say prices are anything other than “flat”…BTW, here in the Pacific Palisades, inventory is definitely up, but prices are holding. A $1.5MM “fixer upper” just sold for $1.52MM. No idea who the FB is…
Wag the dog
In Florida, sales and prices DID top out in the summer of 2005. That’s two years ago. Houses had been selling almost overnight in our neighborhood and nearby, often for above the asking price. Yet it took us a full month to get our one and only offer in mid May of that year. The offer was about 1% below our asking price. Sure glad we took it!
The Wall Street Journal. “Economists are giving up on the idea that the U.S. housing slump will be quick and relatively painless. Instead, more are concluding, the downturn that began nearly two years ago will last at least through the end of 2007.”
“The U.S. housing market downturn could linger for years but probably does not pose a major risk to the overall economy, Lehman Brothers’ chief global fixed-income strategist said on Monday.”
Slump could last months or years. Whom to believe? Sanity says years clearly must be the winner.
“Economists are giving up on the idea that the U.S. housing slump will be quick and relatively painless. Instead, more are concluding, the downturn that began nearly two years ago will last at least through the end of 2007.”
It appears as though the economics profession has been subsumed by a tsunami-sized informational cascade.
http://en.wikipedia.org/wiki/Informational_cascade
“Economists are giving up on the idea that the U.S. housing slump will be quick and relatively painless. Instead, more are concluding, the downturn that began nearly two years ago will last at least through the end of 2007.”
Why don’t they call these guys what they are: Hired guns with with an economics degree. If the downturn “began nearly two years ago” as these gurus claim, why is it that they are only now giving up on the idea that the “slump will be quick and relatively painless.”? It’s like the weatherman predicting the weather for yesterday. Vinegar and water…D-bags
Yup, isn’t economics “the art of predicting the past”?
Economic forecasting is the art of predicting past events which are not yet common knowledge.
And when end of 2007 passes, they’ll be saying it ‘might last until mid-2008′. None of these industry P.R. shills-for-pay will admit to the magnitude, duration or severity of this crash until it’s already a fait accompli.
“It is difficult to get a man to understand something when his salary depends upon his NOT understanding it.”
–Upton Sinclair
To be fair, the downturn could last ten years and they would have been technically correct. After all, ten years is “at least” six months.
Why, pray tell, is there a bubble forming in Saskatchewan? It’s not like they’re running out of land there.
Oh Regina,
A bubblicious land, nowadays not so free
True profit love in all thy investors command
With glowing hearts we see thee rise
The true north song, same as the states, see?
as you know, the housing bubble is not about lack of land, but about the psychology of a house being the best investment which never goes down, and fueled by an endless supply of easy credit. The prairie towns of Canada are not immune to this psychology or the easy credit. Availability of land has nothing to do with it.
Oilpatch?
My apologies to any Canadians on this blog, I don’t know a whole lot about the country, other than the Maritimes, but I used to have a buddy who worked the oil fields up there. As I recall, around Alberta. Does Saskatchewan have oil sands?
It’s 99.9% alberta. very small amount stretches into sask.
there are interesting early stage energy companies that are rising up in Sask due to recent govt deregulation. Alberta has most of the oil sands, but the search is just beginning in Sask. Could be some diamonds in the rough there.
Canada doesnt have 30 year fixed loans, they generally float after 5 years and you have to refinance. Also mostgage interest isnt deductible. To some extent this has kept the housing party in canada more subdued than the US.
“Prairie,” as in, wheat. Saskatchewan is farm country.
Why, pray tell, is there a bubble forming in Saskatchewan? It’s not like they’re running out of land there.
No, that’s not it. Everyone wants to live there!
The Canadian dollar is strengthing, that could make borrowing easier. It may also be related to jobs from oil and other resorces creating temporary housing shortgages.
Of things that exist on the planet money (and maybe stupidity) is the only thing that can increase without limit. That makes even Canadian prarie land look scarce in comparison.
Prairie RE is booming because J6P specuvestors priced out of major markets have discovered that RE is surprisingly cheap in podunk towns with no industry and no future.
Oh, Betamax, I beg to differ. Global food stocks are at thirty-year lows. Grains are just beginning to rise from Great Depression-level prices (adjusted for inflation).
I think there is a future for the Canadian Prairie. Not in houses, but in wheat, my friend. Wheat for the world…..
Just to reiterate, I believe I heard today that wheat is at a 12 year high.
Bwahahaha. Rising wheat prices will merely mean that rural farmers are actually going to break even instead of slowly going broke like most have for the last couple of decades.
Do you even know what the population of these towns are? The largest ‘city’ in Saskatchewan is Saskatoon, with a popn. of 220k. There’ll be no ‘wheat boom.’
One word - Uranium. Saskatchewan has approx. 90% of the world’s known uranium supplies and with the renewed interest in nuclear power there is a mining boom expected.
http://tinyurl.com/2jb5mn
I thought the “one word” was “plastics!”
Wheat AND Plastics… Melamine.
BFD. Saskatchewan is as big and flat as Texas, with Arctic winters, and has a population of less than a million. Think of a giant North Dakota, which is its neighbor immediately to the south.
Does anything more need to be said?
Thank the Lord for global warming. Saskatchewan will be livable in the summer. As long as oil is over $60/bbl housing will be bubblicious!
Brothers Ponzi Ryland, Ponzi Horton and Ponzi Standard Pacific…
Come come now,
Don’t turn on the last of the old media.
They’re all you’ve got left.
“Here’s what the CEO of Ryland Homes said when I asked for a quick interview: ‘No, you guys make us look like idiots, absolutely not.’ Said the CEO of D.R. Horton, ‘NO, not now, not after the presentation, NO.’ Said the CEO of Standard Pacific Corp., ‘Thanks for asking, uh, I don’t think so, no, real busy today, back to back meetings, nope can’t do it.’”
“Meanwhile, empty houses are multiplying. A recent Merrill Lynch report tallies a record 2.2 million vacant single-family homes and condos for sale nationwide, about one million above the norm.”
Add in the projected number of foreclosures of anywhere from 1.1 to 2 million, plus unfinished spec homes/condos currently under construction, toss in tighter lending standards, higher mortgage rates, falling prices . . . hmmm, not a major risk to the overall economy????
“Meanwhile, empty houses are multiplying. A recent Merrill Lynch report tallies a record 2.2 million vacant single-family homes and condos for sale nationwide, about one million above the norm.”
Let’s see, assuming the average lot size for each home is 10k square feet, this is a trail of homes, side by side on both sides of the street, which is more than seven times the distance of SF to NYC. Nope, nothing to see here.
Put it this way Bear, it is about 3K miles short of once around the equator. Sure, we are running out of land. What a crock!
Slightly OT, but what are people’s thoughts on actually “good” mortgage lenders to deal when and if we do decide to buy? Are there any?
Doesn’t really matter. Your mortgage will be bought and sold many times. Both my parents and brothers mortgages have been sold several times. My Dad doesn’t understand, it told it him his well-seasoned note was the magic sauce medley that bond-pimpers needed to add to their mortgage mush so wall street could pawned it off on his pension fund.
LOL, I’m sure that explanation cleared it right up for him…
Your money isn’t here,” Stewart exclaims, “it’s… why, it’s in. George’s house!”
“Your money isn’t here . . . it’s in your mortgage broker’s Hummer.”
Banks offer mortgages and there are plenty of good brokers. The more informed you are the better your odds that your broker will be a “good” one. Drive the process, get educated. I’ve turned down a lot of “suggestions”. I knew what I wanted and I asked for it. If I heard any BS I found another source of funding.
My mortgage is with Northern Trust Bank in Chicago, and they haven’t sold it so far in almost 10 years. No problems whatsoever with their servicing of the loan. I’m sure they’d love for me to refinance — 4.435% 15 year fixed.
The reason they have not sold it is nobody wants such a low yield.
I agree,
My wife and I have a 5.25%, 15 fixed with Countrywide. They are crying about that one now. The only consolation is the payments are getting made. Looking back I wish I had taken all the equity out at that rate–I could have put it into CDs.
Apparently, BofA’s no-fee mortgage program has all the brokers freaking out. It’s one loan, no PMI, full doc A-paper only. Normally, when someone advertises “No Fee” it’s because they’re jacking up the interest rate and getting paid on the back (YSP). But BofA offers very competitive rates also. They claim that they’re willing to throw the mortgage out there as a loss-leader and make it back on offering other services (”Hey you want a HELOC to go along with it?”)
I think they’re psyched that Wells, HSBC, CW etc got their teeth sunk so hard into subprime they can’t pull free, and BofA is trying to wipe them out by mopping up the A paper market.
B of A is a horrible company. I am phasing out all of my business with them. There are many more reputable lenders out there.
Agreed, Bear. I realize this is 12 yr. old anecdotal evidence, but anyway… When my wife closed her Bof A account, which had some money left, they charged her $24 bucks and didn’t even ask why she was closing. Of course, this was in their heyday of pimping every nickel out of anyone who was a paycheck to paycheck account. But still! I hate them and would rather rent than buy even if they were the only mortgage lender on earth. Don’t go with them I say!
I won’t dispute either BB or OCDan about BofA is Bad (I only have a checking account with them, they seem happy enough when I stash lots of cash there). I wish BB would have told us the more reputable lenders!
All I was saying is, for a lot of people “good lender” == rate/fee. Servicing the mortgage is many times not even the people to whom your money ultimately goes… there isn’t much to being a good lender if you are A paper besides rate/fee.
In my mind, I really only like BofA because whenever a headline talks about subprime or Alt-A, they’ve escaped mention. They’ve escaped the ml-implode list. What big bank lenders are left? Climber has the best advice– shop around, know everything about your situation. A salesperson is selling you a loan. Are they being paid by a salary or being paid on the commission they make for selling you a loan… who is paying and how much? Brokers grow fat on the carcasses of uneducated borrowers.
> ummmmm, let see - my guess: some national homebuilders won’t make it through this downturn.
As long as their stock prices are supported near current levels, I guess they will pull through just fine?
Since when does stock price have any bearing on a firm’s balance sheet or income statement? Even dot coms folded.
I for one hope that all corporate builders go under. Unfortunately, bankruptcy law is much more lenient with corporations than with individuals.
“I for one hope that all corporate builders go under.”
I’m starting to feel the same way. The sea of hideous architecture (Garage Majals) that now covers our suburbs is appalling. And the quality of the work? Don’t get me started. I can’t think of a single national builder that I would want to buy from. Absolute crap, IMO.
CA, how true. When I see these homes that have a garage in front that obscures the rest of the house, which is juck anyway, I want to puke. Don’t tell me that quality work can’t be done AND with good taste. These guys made mammoth profits during the runup, but of course squandered it for the rainy day, which is coming. Therefore, instead of good work in a downturn when they could standout, we will still get McSh!t boxes with the oversized-out of proportion garage. Never has theis been more true than in CA.
CA Guy: “Garage Majal,” I hadn’t heard that one before. I will repeat it endlessly!
it almost seems like all major builders hired the same architect who gave them different versions of the same house. All over the OC house appear the same. only in the slightly older neighborhoods (prebubble) do you find any unique designs. F’ing ugly.
Good stock prices on the open market don’t always indicate a strong company (e.g. LEND, Enron, Worldcom, etc). Their fundamentals (which many investors don’t understand or care about) are what ultimately will decide their fate. If the HB’s are long on land and short on cash, they won’t make it. Profit margins will continue to shrink and unless they can shrink their expenses or have a mountain of cash and NW built up, they are likely toast.
New Century was up there until in just about folded.
‘… the downturn that began nearly two years ago will last at least through the end of 2007.”
Began nearly two years ago??? well if you consider that sales volume has been decline for two years, yes. but http://paper-money.blogspot.com/ has the graphs to show that the downturn in Apprecaition and Prices began 9 months ago.
Also, when comparing it to the 90’s bust, which lasted 54 months, we are gearing just gearing up for the most painful part of the slide.
from paper money:
“The last cycle yielded nineteen consecutive months of YOY home price declines followed by an additional twenty two months after a short three month positive respite”
“Looking at the actual index values normalized and compared from the respective peaks, you can see that we are only nine months into a decline that, last cycle, lasted for roughly fifty four months during the last cycle”
“Also, it appears that price declines seen during the current downturn are actually occurring faster, falling roughly the same amount during the first nine months as seen during the first fourteen months last cycle.
Another important note is that it appears we may be currently at the point in the down-cycle where prices drop most significantly in the smallest period of time.
During the last downturn, the next nine months produced 65% of the total decline to home prices seen peak to trough.
So it seems that we are likely only in the beginning stages of the home price adjustment and that, all things being equal, we may have to wait another few years for prices to set a bottom.”
What a beautiful sight. Hope it cracks 5.25.
http://finance.yahoo.com/q/bc?s=%5ETNX&t=5d
I could hardly be happier if I were actually short the note.
I hate to jump on the rising rate bandbagon but it’s hard to imagine a scenario which would cause the long bond to rally sharply right now. The best case scenario is rates stabilize around where they are, the worst is they continue to rise. Housing was in big trouble even without a rising rate environment. Now we have what? Double Trouble? This thing may play out even worse than some of the bears thought?
It couldn’t possibly play out worse than what I’m imagining.
Mad Max?
LOL. Or maybe Soylent Green…
Just cracked 5.31% on 10 yr US T Bond.
Yup, around here, them’s fightin’ words!
This is great news. May foreclosures up 19% over April and 90% year to year in combination with rising mortgage rates and tightening credit. Finally we’re getting somewhere….downward stickyness. Got some lube?
“General Electric Co.’s WMC Mortgage Corp. and Merrill Lynch & Co.’s First Franklin Financial Corp. are among the first subprime home lenders to adopt proposed federal guidelines on underwriting low- initial-payment mortgages to people with flawed credit.”
“In particular, the guidance calls for lenders to take into account the highest possible monthly payments, as opposed to the initial low payments, when deciding borrowers’ ability to repay the loans.”
That should drive a stake through the heart of the bubble once and for all.
I doubt it; a similar guideline was adopted in the Netherlands beginning this year and it had zero influence. The easy money mob always finds creative alternatives to work around the rules. Bubbles like these are pure psychology, at some time it has to crash under its own weight.
“‘Real yields are rising across the board and the U.S. has caught on,’ said Brian Brennan, a portfolio manager who helps oversee $11 billion in fixed income at T. Rowe Price Group Inc. ‘You have some big players in the market changing their mind’ about Fed monetary policy.”
There is another reason that the Bond sales did not go as well as anticipated/hoped - that reason is the US is losing credibility with respect to its central bank forecasts. It was alright when Greenspan made erroneous forecasts because he was generally regarded as early not wrong. The current Central Banks forecasts have been off target by 30 -40 %. European Central Banks have noticed this and have put out reports suggesting the US lack of credibility and opening up their central bank forecast discussions.
Monetary policy with our own interest rate path
“…Another argument against a central bank presenting its own forecast for the interest rate is that the central bank would lose credibility if the forecast proved to be wrong. It has also been speculated in various market comments that it would entail a loss of prestige for the central bank to revise its forecasts and that the central bank should therefore by wary of doing so. But it is no stranger that we should revise our view of the future development of the repo rate than that we should revise our view of growth, employment or inflation when new information is received that changes the outlook. Nor is it stranger for the central bank to revise its forecasts than for other analysts to do so. What is important is that we can motivate why we are revising our views and that we can do so in an understandable manner…The debate has not been slow in coming. Analyses and discussions on monetary policy are now being conducted outside of the Riksbank in a way that would not have been possible if we had not presented our own interest rate path. It is not, as before, primarily the current interest rate decision that is discussed, but more a question of the monetary policy fluctuations throughout the entire forecast period. The fact that the interest rate forecast may later be changed is a different, and quite natural, matter. Withholding information on how we view the future development of the interest rate merely because this view may need to be revised would make us a less open bank.”
Riksbank
June 8, 2007
http://tinyurl.com/36p6ax
Somebody in the MSM need to refresh the public’s memory about AG’s timely advice to forego a fixed rate mortgage in favor of an ARM back in ‘04. 30 year fixed rates were hovering near low of a 40 year range. Politicians get bashed all the time. What is it about the office of the Federal Reserve that puts them above TV journalists criticizing them?
All of this credit is notional value, this along with the latest news that 95% of the gold in the world is now in private hands, the central banks sold off all of their reserves in the last four years. Averaging 500 tons a year under an agreement they entered into four years ago, the agreement ends in 2009. Since the last time this gold was in private hands was during the fall of the Roman empire what does this forecast for the economic situation of the world? Is this something that could have been stopped or is it another factor in the manipulation by the central banks and not for the benefit of humans. Just sounds ominous to me, paper value. The government is the only entity that can take a perfectly valuable piece of paper and render it worthless by printing on it.
Lots of loans get sold, however when dealing with mortgage companies to get your loan you can really get screwed. I’d stay totally away from them. I had neighbors, had not have, who used Countrywide. They had refinanced so many times thru them that they owed probably 30% above the actual value. I kept telling them that they would be stuck if things got tough and they had to sell, but they wouldn’t listen. Just kept on with the refinancing. Countrywide foreclosed on them about 4 years ago. House sat vacant for another year, mold grew on the walls, and finally someone bought it for about $90,000. The loan total was about $160,000.
Canada also better take a lesson from the US. If they don’t they’re stupid. All this mess here has to be in the press up there.
You’re kidding right? It’s only just barely in the MSM in the US (at least in the DC metro area)… Boston and FL , maybe a little bit of ATL, are the only places on the eastern seaboard that are currently up in arms. The rest are still convinced that it’s a minor downturn and that the NAR is right and that everything will pick up in late ‘07.
MSN has carried few stories, and even then Canadians are convinced “it’s different here”. Nobody learns from others’ mistakes.
Everyone says “It’s different in Edmonton, we have the oilsands.” This is starting to be so much like 1981 its getting very scary. Rapidly rising oil prices and interest rates look like they will be the final nails in the coffin that send the world into recession just like they did then. Edmonton and Calgary experienced terrible unemployment and recession in the early 1980s after oil prices fell and the housing market crashed. It could be a lot worse this time because the boom has been much bigger.
I just added this to the post:
‘The Edmonton Sun. ‘We’re into June now with the dog days of summer up ahead. But suddenly there appears to be a chill in the air. And with the Great Alberta Energy Boom hitting the stupid money phase, the discipline of the business cycle couldn’t come at a better time.’
‘The signs of stress started last week when the Realtors Association of Edmonton reported a big buildup of inventory on the resale market last month. Combined with what ComFree Edmonton has on its books, there were over 4,400 properties on the market.’
‘Last year the real estate board had 2,416 in inventory while ComFree revealed its property listings has jumped 120% from last May’s total. So why do so many folks want to dump their property?’
Another one bits the dust!
“Soaring land values pushed Edmonton’s new-housing prices up 40.5 per cent from April 2006 to April 2007, the biggest bump in Canada.”
No doofus, land values are driven by the market price of the finished houses. Land values are not exogenous.
“Michael Mooney, executive director of the Urban Development Institute,… ‘The best way to limit price increases is to increase the supply on the market,’ he said.”
Well at least this guy gets it, and remember that Edmonton is surrounded by empty land. There is absolutely no reason for Calgary and Edmonton to be 3x as expensive as Dallas and Houston, much bigger cites with a much bigger oil industry (the US produces a lot more oil than Canada does).
There’s no report of the realty trac findings yet on cnn, yahoo news, but it is on the chicago tribune where some more numbers are given out.
Makes you go hmm…why isn’t it on other news sites now?
http://www.chicagotribune.com/business/chi-070612foreclosures-story,0,4425744.story?coll=chi-bizfront-hed
Perhaps it’s because RealtyTrac is changing their formula and people are skeptical…
http://www.nj.com/business/ledger/index.ssf?/base/business-6/1181623554270570.xml&coll=1
The new formula won’t be much better than the old.
Well, the article says that the formula change is intended to avoid counting a property more than once as it moves through the foreclosure process, and “the change is expected to dramatically decrease the number of foreclosures in any given state.”
The change isn’t going to occur until “as early as next month,” so the current report is based on the original formula.
I guess if the numbers look more benign next month, we’ll know why.
Bloomberg carried it, with several updates.
Taking into account the number of homes, Nevada was the No. 1 state, with one filing for every 166 households. Colorado was second, with one filing for every 290 households, followed by California, Florida, Ohio, and Arizona.
We’re #2! We’re #2!
And we’re #6! Wheeeeeee!
Allright…. its about time we made the charts, (btw: its #5)
I think we have a good chance on being #3 passing FL.
got cash?
Things actually seem relatively stable here in Loveland… Could it be the influx of retirees who regularly stick themselves with insulin needles in plain view of other restaurant patrons? Personally speaking, I’d prefer they’d all move away and we have a massive housing price collapse.
I’m going to vote INSENSITIVE on this one! Do you think that any individual “wants” to inject insulin regularly? Why don’t you be productive and find a cure, instead of being degrading, smart guy.
Sorry, but have to agree with Bob on this. Injections should be done in private. And alot of diabetes could be prevented if Americans would stop being such gluttonous hogs.
geez - I have a diabetic dog (pancreatic disease) and I’m very careful to not let anyone see me give her shots (2x day) - it’s hard when we’re on the road, but I manage anyway. Why would anyone want to be seen poking a needle into themselves?? tacky.
You have to keep insulin chillled, so if they kept it in a cooler on the way to the restaurant, pulled it out, and took the rig and insulin in there, that’s a lot of pre-planning to have an ‘emergency’ that calls for someone to do that at the table.
It’s just freaking courtesy.
Diabetes is a real pain in the ass and it absolutely ravages your body if untreated.
Sounds like they either don’t manage it well(probably) and they’re just lazy and inconsiderate(probably).
You don’t even need to use a needle, you can use an air powered gun thingie. Why mess with a needle.
I just posted this below but doesn’t the 1.8% decline in the median beat NARs 1.3% forecast from last week???
“The median price for a U.S. home slid 1.8 percent the first three months of 2007 as the housing slump entered its second year, according to the National Association of Realtors.”
Possibly the -1.8% is a QoQ figure, vs the -1.3%, which may have been a YoY figure. I think the NAR was claiming prices rose slightly for the calendar year 2006 as a whole. (?)
“Delinquencies rose to 4.71 percent from April’s 4.45 percent.”
This little nugget tells me that CFC will be seeing 1.88% foreclosure rate within 6 months. That’s based on current trend of 40% NODs going to foreclosure. Also, it should be noted that a lender like Countrywide holds 40% of thier loans, and they often hold the most toxic tranches because they can’t be sold in the market.
I expect CFC to go KABOOM by 12/07.
I’ll betcha they qualify for plunge protection. Not sure why, just a gut-level hunch…
“Here’s what the CEO of Ryland Homes said when I asked for a quick interview: ‘No, you guys make us look like idiots, absolutely not.’ Said the CEO of D.R. Horton, ‘NO, not now, not after the presentation, NO.’ Said the CEO of Standard Pacific Corp., ‘Thanks for asking, uh, I don’t think so, no, real busy today, back to back meetings, nope can’t do it.’”’
What the CEO’s sold stock options and now don’t want to venture a guess how this will end for the poor sucker who bought at the height of the bubble.
“…no, you guys make us look like idiots…”
I had a good laugh when I read that. I can envision that CEO all flustered and red faced blurting that comment out in a fit of rage.
“…no, you guys make us look like idiots…”
No, Mr. CEO, you made yourself look like an idiot by incorrectly calling the bottom for the umpteenth time. CNBC just reported what you said.
“Economists at Merrill Lynch admit it is hard to predict how the slump will play out from here. ‘We are not sure how deflating a $23 trillion asset class, the value of real-estate assets on the household balance sheet, will end, but we doubt that it will end well,’ Merrill economists wrote.”
What are these Merrill economists trying to suggest? That they think the non-bubble will not end not badly?
Merrill has been really bearish on housing for a couple of years. I think their economist’s statement above is rhetorical…
IMHO Merrill is saying ‘good night America’ when they said “we doubt that it will end well”. The easiest thing to forget in US finance is that Merrill, Goldman, Bear Stearns et al are multi national corporations that are only interested in the US when there is moneys to be made. The US is broke and the multinational banking houses are relying on Asia and Europe for their profits.
Excellent point. While bankers and thier ilk make bad moves, see Implode-o-meter for that list. These guys you mentioned are the biggies. Like Buffet, when they move, if you are paying attention, you make your own adjustments as necessary.
“I’m just asking for YOU CEOs to tell me what to say, YOU guys to give me something to put on TV so I don’t have to ask another analyst, YOU, who have an open mike whenever you want it…we’ll give you 30 seconds full if it’s good, hell we begged you to go live), but your lips are sealed. It begs the question: What are you all afraid of?”
RUN! It’s an ASS-POUNDING!
Now that l-t T-bond yields are breaking out on the up side, is it time to upgrade the housing market hurricane to Cat-5?
http://www.bloomberg.com/markets/rates/index.html
Chartists see something in the tea leaves that makes them think it is time to buy stocks. Never mind about the ongoing crash in the T-bond market — the stock chart screams “Buy, buy, buy!” Just like
houses, stocks always go up, in the long run.
——————————————————————————-
THE TECHNICAL INDICATOR
Ongoing pullback still looks like opportunity
Focus: Natural Gas, APC, GOOG, PCU, AL, FMCN, CYNO, LAVA
By Michael Ashbaugh, MarketWatch
Last Update: 11:32 AM ET Jun 12, 2007
Editor’s Note: This is a free edition of The Technical Indicator, a daily MarketWatch subscriber newsletter. To get this column, including at least six technical stock picks, everyday, click here.
CINCINNATI (MarketWatch) — Over the past week, the major U.S. benchmarks have suffered their deepest pullback since February.
Yet with those losses, each index has staged a 3% correction against a sentiment backdrop that’s increasing bullish.
That means while the near-term consolidation phase may have yet to run its course, the primary uptrend is intact — this is still a market to buy on pullbacks to support.
http://www.marketwatch.com/news/story/ongoing-pullback-still-looks-opportunity/story.aspx?guid=%7BB80E298D%2DAC5D%2D4213%2D8F47%2D6C0563C4BC10%7D
“Chartists see something in the tea leaves”
An appropriate analogy, GS. Those who practice technical analysis strike me as the modern day equivalent of alchemists, astrologists, or phrenologists. Unless they discover or proffer some defensible cause and effect hypothesis, these technical charlatans contribute nothing to financial discussions, IMHO.
We just saw a 15 bps one-day increase in the 30yr T-bond yield. I was thinking the 50 bps increase from February through yesterday was bad, but the rate of upward adjustment seems to be accelerating rapidly…
Bring back 1981! (100 b.p. in a minute or two)
In the wall street journal online,
“Hard hit by turmoil in the market for risky mortgages, a big Bear Stearns Cos. hedge fund has fallen 23% from the start of the year
through late April, according to people familiar with the matter.”
but here is the best part at the end…
“Some market participants predict the fund’s downturn could have a chilling effect on Bear’s planned initial public offering of Everquest Financial Ltd., a holding company that contains risky assets from some Bear Stearns hedge funds, including the one with recent losses. Everquest is run, in part, by Mr. Cioffi.
Everquest was formed last fall when two credit hedge funds transferred some of their riskiest assets into the new entity.
In return, the funds received a majority stake in Everquest, which was valued at $400 million, plus nearly $149 million in cash, according to regulatory filings submitted to the Securities and Exchange Commission last month.”
Bear is taking all the garbage from their different funds, putting it into Everquest, and then selling it off to the public. Gotta love wall street.
“The median price for a U.S. home slid 1.8 percent the first three months of 2007 as the housing slump entered its second year, according to the National Association of Realtors.”
Hey, doesn’t the 1.8% decline in the median for the first 3 months beat NARs 1.3% forecast just last week?
“Across the nation, over two dozen states are considering or have passed bills aimed at subprime borrowers who were given loans despite their damaged credit.”
They still don’t get it. It’s NOT just a function of FICO scores, it’s a function of household income and how much house someone can reasonably afford.
I have a great credit score. Should that allow me to buy a $600K house? Not on my income.
Until folks take their medicine and realize affordability is WAY out the window, anything they propose will just delay the inevitable.
Lisa excellent reminder for these dolts. As I posted yesterday, a $900K mortgage means you should make or have a household gross income of $300K a year. Divide that in half or $500K, you should be in the $150K/year range. For us schleps in the $45-$75K range, you are looking at anywhere $125K-$250K, tops. These idiots politicos just don’t get it, or they do, but have other motives for keeping the party going.
“Their conclusion: about a third of them wouldn’t have qualified for the loans had the lenders used the fully indexed rate, not the initial ‘teaser’ rate, in determining the borrowers’ repayment ability.”
I’ll bet the rate is greater than the 30% quoted and then just add in those who HELOC’d and there will be no place to hide the massive wave that’s starting to crest.
http://www.azcentral.com/business/articles/0612biz-foxcondo12-ON.html
“Scottsdale restaurant owner buys $3.25 million Waterfront condo”
“We own a lot of real estate at the Waterfront,” Fox said. “I guess you could say we are big believers in the Waterfront.”
Does he think that buy buying the penthouse for such an inflated price, it will jack up the rates of the other units in the building that he owns?
Again, the water of the “waterfront” is an widened irrigation canal. You can rent an apartment a couple blocks away for $600 a month. Rent a house a block away for $1000 a month. Why pay $30K a month to own an apartment?
http://maps.yahoo.com/;_ylc=X3oDMTExNmIycG51BF9TAzI3MTYxNDkEc2VjA2ZwLWJ1dHRvbgRzbGsDbGluaw–#mvt=s&q1=via%20soleri,%20scottsdale,%20az&trf=0&lon=-111.928834&lat=33.500049&mag=1
Saskatchewan’s bubble has also been inflated from speculation about the energy industry going great guns there, which I know some of this to be true since my firend who is a welder and has work coming up there in the fall. (pipeline, natural gas) Also, many are moving to Saskatchewan from British Columbia’s ( and Alberta) over- inflated housing market and high cost of living. I have also heard many stories about out of province investors buying up many properties, squeezing the rental vacancy rate and shooting rent prices up sky high since controls were loosened.
I hear a lot of stuff from my friends in Edmonton and Calgary about rising house foreclosures and car lots filled with repossessed autos. A lot of major oil and gas companies slowed down exploration, drilling and pipeline projects this winter. Rumor has it the energy companies wanted to starve out workers so they could drive down wages. I can picture the scenario of many young kids with their wallets stuffed with cash from their first job in the oil feilds getting carried away with shiny new truck leases and sport vehicles after they signed on to a 2000.00 a month mortgage. It only takes about 3 months to go down under that kind of debt load when the jobs dry up.
We signed a contract to build a new home in San Diego a couple months ago. Buyer demand is strong enough right now that the builder has since raised the price on our model by $30K (4%). Same house would have cost us $100K more if we bought it 2 years ago. Some areas in SD have been going up, while others are going down. Seems like it’s the entry level markets here that have the most foreclosures.
The Ponzi game started when large groups of the greedy ones saw an opportunity to flood into communities with low valued property and home prices causing values to escalate creating an hysteria of a never ending real estate boom. Property and house values are 45 to 50 per cent overtated.
The depression during the late 1920s and into the Second World War came about due to abuses of the economic system primarily by government failing to follow guidelines laid down by the founders. The abuses are historic. They have been going on for a very long time. The current situation involves the same abuses and the same motives. The thinking behind it is in error.