The Housing Market Is Teetering On The Margin
Some housing bubble news from Wall Street and Washigton. MarketWatch, “The outlook for U.S. home building is the worst in 16 years, the National Association of Home Builders reported Monday. The builders’ housing market index fell by two points to 28 in June, the lowest since February 1991.”
“The market probably won’t turn around until next year, said David Seiders, chief economist for the builders. ‘We expect housing to exert a drag on economic growth during the balance of 2007.’”
“The index has fallen 11 points from 39 in February to 28 in June. The index was at 42 a year ago and peaked at 72 two years ago. All three components of the housing index fell in June. The index for single-family home sales dropped from 31 to 29, also the lowest since 1991. The index for expected sales fell by two points to 39, the lowest since September. The index for buyers’ traffic dropped by one point to 21, the lowest since January 1991.”
“‘Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of nonprice incentives to work down sizeable inventory positions,’ said NAHB President Brian Catalde.”
From Reuters. “Merrill Lynch & Co. Inc. plans to delay selling off some $400 million of assets seized from a hedge fund managed by Bear Stearns, CNBC said on Monday.”
The Street.com. “Late last Friday, Merrill seized $400 million in collateral a day after Bear Stearns successfully shopped nearly $4 billion in securities tied to Alt-A and subprime mortgage loans.”
“Bear sold the loans in order to meet calls from lenders to cover the fund’s short-interest investments, where the vehicle had made bets that certain securities or indices would decline in value.”
From Briefing.com. “Today’s Wall Street Journal has an article on the subprime woes that calls specific attention to a Moody’s downgrade on Friday of 131 bonds backed by pools of subprime loans.”
“The downgrade keeps the subprime issues front-and-center, as does the related report in the article about the troubles being experienced by one of Bear Stearns’ in-house hedge funds which is working feverishly to raise new capital to avoid liquidation, according to the paper’s source.”
The Associated Press. “Moody’s said it also put 237 securities on review for further downgrades, including 111 of those already downgraded Friday. The downgrades affects both investment-grade and below-investment grade debt, including securities that had been rated ‘Aa’, ‘Aaa’ or ‘A’ and below, Moody’s said.”
“A sour housing market, combined with rising interest rates, makes it tough for buyers with little or no equity in their homes to refinance into a mortgage with a lower payment.”
“Moody’s and fellow ratings agency Standard & Poor’s have been criticized for not properly evaluating the risks of investments tied to residential mortgages, but the agencies have defended their track record.”
From Moodys. “Most of the securities affected had prior ratings of A and below. However, a small portion of the securities had ratings of Aa or Aaa.”
“Second lien subprime mortgage loans securitized in 2006 are defaulting at a rate materially higher than original expectations. Those loans were originated in an environment of aggressive underwriting and lack protection from home owner equity.”
“The combination of this risk layering with slowing home price appreciation has caused significant loan performance deterioration and is the primary factor in these rating actions.”
“The benchmark ABX credit default swaps index, a measure of subprime mortgage performance, sagged to record lows on Friday on data showing rising delinquencies on risky loans and fears that the recent sharp spike in yields could cause more subprime problems, traders said.”
From Bloomberg. “OceanFirst Financial Corp., the Toms River-based banking company that shut its subprime mortgage unit last month, may repurchase $14.6 million of loans sold to investors.”
“The bank said it has negotiated ‘numerous’ cash settlements for claims tied to mortgages, even though the sales didn’t include a promise to buy them back if the loans soured, according to a regulatory filing by the bank.”
“London house prices rose at the slowest pace in five months in June as the cost of a home fell in more than half of the U.K. capital’s boroughs, Rightmove Plc said.”
“Values fell in 17 of the city’s 32 districts, the U.K.’s biggest real-estate Web site said in a statement today. ‘London is falling behind the rest of the country,’ said Miles Shipside, Rightmove’s commercial director. ‘We can expect a drop in house prices over the next few months.’”
“‘It is significant because the end of a boom, or the mini- surge that we’ve seen since prices they slowed down in 2004, is often signaled by London slowing down,’ said Rightmove’s Shipside.”
From Forbes. “The world is awash in cash. Global liquidity is a phenomenal force. Some economists like the Conference Board’s Gail Fosler call it ‘the garden of Eden.’”
“IMF economist Gary Schinasi told me in Washington some time ago that ‘there could be a tsunami of credit evolving into a perfect storm. If counterparty relationships between banks and hedge funds start unraveling that could prevent financial institutions from rolling over their positions.’”
“As Fosler, The Conference Board’s chief economist told me: ‘This is a bubble, which could be as large or larger as the financial crisis we saw in the late 1990s.’”
“A private report on June 18 may show the National Association of Home Builders/Wells Fargo index of homebuilder sentiment held at 30 for a second month, economists predicted. The gauge hasn’t been lower since February 1991.”
“‘Housing is still trying to find its low point,’ said Lynn Reaser, chief economist at the Investment Strategies Group of Bank of America Corp. in Boston. ‘Builders have a lot of inventory, and prices probably need to fall further. Housing will remain a drag on the economy as the bottoming-out is likely to take a number of months.’”
“Defaults by subprime borrowers, those with a poor or patchy credit history, are adding to the risk that more homes may be returned to the market, economists said. ‘The housing market is teetering on the margin,’ Richard DeKaser, chief economist at National City Corp. in Cleveland, said in an interview this week.”
spoked to a fber this weekend. It is only hitting them now how much trouble they are in.
Multiply this scenario across the country and we have many wrecked personal financials
Helped my BIL paint his new house this weekend. He had to move due to new work. Originally they were going to buy a house with the condition that they got their house sold. But they found a REO and jumped on it. I asked how they found it and according to the wife in MA REOs are a dime a dozen now. Anyway. right now they’re stressed out because according to them there are no buyers whatsoever. Their RE agent sid the same. the house is nice, but there are no buyers. They have one interested party, but of course she needs to sell her house.
So while we were painting, the conversation ended up on the sale of the old house. What astonished me was that even now, when they themselves admitted there are no buyers out there, the emotional need to at least break even is right there. He said he had listed it at 2004 purchase price so he wouldn’t take a loss. Even when I made him agree that paying a mortgage and tax on a house that they don’t live in is a loss too, the idea of lowering the price was completely alien to him.
The good news for my BIL is that he has always insisted on using fixed 30 year loan, and strictly based the loan amount on his salary alone, so up until now he has been fairly conservative with his money. Still, they admitted they’re financially stretched and the wife has to work full time too to service both loans (she used to be stay home or work part time). Also they had to cut back all vacation plans this year.
First, I feel for your BIL.
But what the heck were they thinking? There is a cross connect?!?
My FIL, whom I love, was pressuring me this weekend to buy a house even after we discussed how home prices were going to drop a bunch this year and next (”but the LA times says the median went up…”). Sigh..
I finally pointed out that if I buy now, we could take our entire savings, double it, and do better just shoveling the cash into a roaring fire. (I mimicked the motion of stoking the flames by shoveling money into the fireplace for a bit…)
Only then did he get the point that I’m serious…
Now when these same people are panicking screaming about getting out of RE… then I know to buy.
I should point out that my FIL has a small apartment complex that has been cash flow positive for decades and is now sans mortgage… So he has his bias.
Got popcorn?
Neil
Well in a way it gets worse. They had a chance of getting out much earlier. For a while my BIL has done some extreme commuting to the new job(~100 miles each way). Around this xmas, he decided that enough is enough and they decided to move.
However at that time their RE agent convinced them that it was better to wait for the magical spring/summer season since the market was supposed to pick up and they could avoid the hassle of taking the kids out of school mid semester.
Pretty everyone in the family, on both sides, said that it was nonsense and they would be better off moving right away, but since RE agents are “professionals” and know their stuff, my BIL and wife listened to the agent rather than the family.
So now they’re stuck with two houses and a boatload of stress. As I said, since they’ve always been very conservative in their loans (no HELOC etc.) they should be able to avoid forclosure.
But the situation certainly shows how the RE market really has ripple effects. Even if you find a buyer, that buyer also need to find a buyer, otherwise no deal. Also as long as the old house is not sold, no extra spending on vacation or Home depot.
Again multiply by other in same situation and I doubt this hole mess is contained as beautifully as WS thinks.
“As I said, since they’ve always been very conservative in their loans (no HELOC etc.) they should be able to avoid forclosure.”
Pardon me, but taking upon a second home loan before settling the first is not conservative.
I totally agree with BanteringBear.
Your friends are not conservatives but FOOLS. Why would they buy another house prior to selling the existing one? It sure appears to me that they are like most Americans, got to have it now. I can’t image buying another house with the existing unsold just so I wouldn’t have to drive 100 miles round trip to work. Talk about stress. I’d make the 100 mile trip LONG before I’d burden myself with a another house. FOOLS. Find your self new friends, these people are idiots.
“Also they had to cut back all vacation plans this year.”
What is this “vacation” you speak of ?
From myself, who “vacations” locally and at home I say “Awwww Poor Babies !”
This pathetic jealous bitter renter will be taking his family of 7 to Hawaii this summer with all the cash saved by not buying someone else’s alligator.
My wife and I are using a small portion of money we saved by “paying someone else’s mortgage” for two weeks in Sweden, Finland, and Estonia. Meanwhile, our mortgage slave friends, who from time to time have questioned our logic for not buying, are all staying home this summer.
It’s good to be a bitter renter.
Latest NAHB figures out. Nothing to like in these numbers, as you can see from these details:
* The overall index dropped to 28 from 30 in May. That was worse than the 30 reading forecast by economists … down sharply from 42 a year ago … a fresh cycle low … and the worst reading since February 1991.
* All three components of the index fell. The index measuring current single-family home sales dropped to 29 from 31 … the index measuring future single-family home sales dropped to 39 from 41 … and the index measuring prospective buyers traffic slipped to 21 from 22.
* Regionally, buyer traffic was up in the Northeast, but down everywhere else (Midwest, South, West)
The HB stocks have taken a pretty good hit since 1 p.m. These are getting very heavily shorted and could be candidates for a short squeeze. These companies are in bad shape but you still have to be careful playing with these stocks.
“the worst reading since February 1991″
But, but, but…we are in a Goldilocks economy (unlike in 1991)…how can this be?
I wish there were a National Realtor’s Index. The stories would be hilarious.
“The NRI overall figure was unchanged at 100. This marks the 73rd consecutive month the index has maintained its maximum value, since it was clamped down to 100 in May 2000. According to Relitters everywhere ‘Now is a great time to buy!’”
Or at the other end of the spectrum, a National Home Sellers’ Index. Yikes.
“‘Housing is still trying to find its low point,’ said Lynn Reaser, chief economist at the Investment Strategies Group of Bank of America Corp. in Boston.”
Hmmmmm……I know that low point was around here somerwhere…..
cold! freezing!
The low point is a long, long way off.
The low point is such an unknown, when people say “oh this is the bottom” you can go over and put the sign around their neck “clueless shill shyster”.
“As Fosler, The Conference Board’s chief economist told me: ‘This is a bubble, which could be as large or larger as the financial crisis we saw in the late 1990s.’”
If they’re saying it “could be” that means it already is.
Having some spam problems this AM, please check back if you can’t comment.
Damn Spammers. The yahoo stock forums are run amock with “EXCELLENT READS” aka free advice from pipsqueak websites seeking traffic. Thank goodness Silicon Investor doesn’t allow that crap.
“Having some spam problems this AM, please check back if you can’t comment.”
NO FRIGGIN SPAM!
That’s why everybody should keep those donations flowing to the man we call Ben.
Got a spam free blog?
“‘Housing is still trying to find its low point,’ said Lynn Reaser, chief economist at the Investment Strategies Group of Bank of America Corp. in Boston.
Looking for the Housing Low point ?…
Have they looked IN the Mariana TRENCH in the Pacific next to the whale POOP !
“Gail Fosler call it ‘the garden of Eden.’”
Goldilocks economy, Garden of Eden credit, it’s all good!
Just be aware, when everything is “perfect”, and everything has to stay “perfect” to remain “perfect”, it’ gets harder and harder to *stay* “perfect”.
If things are so perfect, why do we have skyrocketing mortgage defaults? Isn’t that scary, skyrocketing mortgage defaults when *everything* is *perfect*?
Goldilocks economy, Garden of Eden credit?
More like a ‘Red Queen’ economy, where staying even means running twice as fast. Trip, and your head, house and savings
go to the block.
Now is the spring of our discontent
Made glorious summer by this sun of New York;
And all the clouds that lour’d upon our houses
In the deep bosom of the inventory ocean buried.
The Spring of Home Sellers’ Discontent
Unsold houses pile up, and the bottom still seems far off
By Alex Markels
Posted 6/10/07
In the end, there was no loud burst, or even a sharp pop. Instead, the
springtime aftermath of the nation’s housing bubble is sounding “more like
a whoopee cushion,” says June Fletcher, author of House Poor: How to Buy
and Sell Your Home Come Bubble or Bust. “The air is coming out of the
market, but slowly.”
Indeed, the numbers suggest that things are likely to get worse before
they get better. After a sluggish start to the spring selling season,
the National Association of Realtors reported that pending sales dropped
3.2 percent in April, the most recent data available, while mortgage
applications fell about 2 percent over the past month, according to the
Mortgage Bankers Association. Meanwhile, inventories of unsold homes in
major metro areas rose another 5 percent in May, according to Zip Realty,
nearly a one-third increase over the same time last year. And while home
builders have cut back on construction by about as much, “they still
have a lot of money in the ground,” Credit Suisse housing analyst Ivy
Zelman says of the raw land still on builders’ books. “And the only way
to get their cash back is to build more houses.”
With about a quarter of a million finished new homes waiting for buyers
and 700,000 existing homes sitting empty, “the fundamental problem is
too much inventory,” says Mark Zandi, chief economist at Moody’s
Economy.com. “Until builders curtail construction and sellers cut
prices more aggressively, the market will continue to lose air.”
http://www.usnews.com/usnews/biztech/articles/070610/18realestate.htm
Ivy Zelman is one of the few that “gets it”. Fess up, which of you is Ivy?
(And, FYI, Ivy is one of the authors of one of the bubblistas’ most cited report, “Mortgage Liquidity Du Jour: Underestimated No More”:
http://www.billcara.com/CS%20Mar%2012%202007%20Mortgage%20and%20Housing.pdf
(warning, PDF file)
Page 47 is the famous (infamous?) ARM reset chart we all have pasted to our walls)
no ivy growing here …it’s NOT me…that’s my story…and I’m sticking to it !
A house! A house! My kingdom for a house!
Was Richard III a realtor? I mean, he killed kids and buried them in the castle, screwed everybody he could to become king AND killed one of hos best friends to get his wife.
Richard III was no murderer,Shakespeare notwithstanding. Josephine Tey proved that in The Daughter of Time. Poor Richard Plantangenet, still slandered centuries later by the spin of the Tudors. And he was no realtor, either.
The Josephine Tey book is good. While you’re at it check out “”Shakespeare” By Another Name” by Mark Anderson, makes a good argument about who the real Shakespeare was.
No no no, the market is recovering. Prices are trending up. I just posted a picture on the HBB Photo Gallery of an ad in San Diego Union Tribune from yesterday. The text reads:
“BUY IN THE VALLEY
(Of the housing market, that is.)
San Diego housing prices are trending upwards. Buying a
home now could be the smartest decision you ever make.
Superior design, craftmanship and materials promise a
great place to live and nice value. Thats’ what you get in a
Brookfield Home. Purchase soon and you’ll take advantage
of historically low interest rates, affordability of the market,
and builder incentives. Also you’ll get a home in
that valley while it’s still a valley.”
They show a distorted graph (x-axis is app. $650k) with prices topping at $745k in Jun. ‘05 and bottoming out at $692k in Sept. ‘06. March ‘07 is quoted at $708k (is that the most recent or just the highest they could find?). They had to use average (not median) prices to get that graph.
I wonder if buyers can sue them if prices don’t go up. I don’t think it’s enough to use words like “trending” or “could be”. There should be a real disclaimer like “past performance is no guarantee….”.
Yeah, I saw one of those ads in the U-T a few weeks ago, talking about how housing prices were cyclical (with the presumption that this was merely the bottom of the cycle). I couldn’t decide if I wanted to call Shenanigans or just throw up.
I’m continuing to stick by my July prediction. The massive numbers of buybacks and cash settlements will be reflected in 2q results, and even the thickest Wall Street bulls can extrapolate from the continuing housing problems that those results will deteriorate further in 3q and 4q, minimum. Add to this the lack of liquidity becoming apparent as various funds are seized, frozen, or otherwise become unsellable (from fear of cascading failures or simple lack of equity), and you’ve got a major seizure coming on.
Agreed, there’ll be a sea-change in sentiment once 2q results are known. Then we’ll see some good old-fashioned panic.
I think the damage can be hidden for one more quarter.
Agreed, its easy to hide things over the summer from a distracted populace - might be a nasty fall though.
From the update:
‘The outlook for U.S. home building is the worst in 16 years, the National Association of Home Builders reported Monday. The builders’ housing market index fell by two points to 28 in June, the lowest since February 1991.’
‘The market probably won’t turn around until next year, said David Seiders, chief economist for the builders. ‘We expect housing to exert a drag on economic growth during the balance of 2007.’
‘The index has fallen 11 points from 39 in February to 28 in June. The index was at 42 a year ago and peaked at 72 two years ago. All three components of the housing index fell in June. The index for single-family home sales dropped from 31 to 29, also the lowest since 1991. The index for expected sales fell by two points to 39, the lowest since September. The index for buyers’ traffic dropped by one point to 21, the lowest since January 1991.’
‘Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of nonprice incentives to work down sizeable inventory positions,’ said NAHB President Brian Catalde.’
‘The builders’ housing market index fell by two points to 28 in June, the lowest since February 1991.’
The U.S. national economy was in a recession as of February 1991. The recession was dated by the NBER as lasting from July 1990 through March 1991.
http://www.nber.org/cycles.html/
Anyone have a statistic I’m curious to find? I’d like an idea of how mamny escrows in the Las Vegas area are failing to complete. I think I read in an earlier post that in So Cal it was about half. Would like to know the percentage here in Vegas and don’t know where else to ask. Thanks.
I’d be very interested in seeing this statistic for a variety of markets. I’ve started tracking “pending” MLS listings here in Pullman because I’ve noticed anecdotally that nothing ever seems to leave the “pending” category any more. It used to be that homes went “pending” for 4-6 weeks, but now there are a serious number that have been pending for months.
My hunch is that most sales are contingent upon selling another home (particulary for folks moving into town) and those other homes aren’t selling.
“The market probably won’t turn around until next year, said David Seiders, chief economist for the builders.
And what pray tell gives you that idea Mr. Seiders?
Mr. Seiders is giving the planning to give Joe & Sally6pk a 476.94% minimum WAGE increase next year
http://blog.nola.com/times-picayune/2007/06/michael_okeefe_jr_indicted.html
“Federal prosecutors unsealed a grand jury indictment today charging Michael O’Keefe Jr., son of disgraced former state Sen. President Michael O’Keefe, for his alleged role in a house-flipping scam that resulted in bad loans costing the federal government nearly $600,000.
O’Keefe, founder and owner of Citywide Mortgage Co., is charged with conspiracy to defraud the U.S. government, conspiracy to commit money laundering, and engaging in illegal monetary transactions. He faces up to 45 years in prison and millions in fines for the five counts against him.”
geezee …. how much of LA is corrupt?
“geezee …. how much of LA is corrupt?”
I was waiting for that… Because clearly mortgage fraud is only happening in south Louisiana. How many indictments such as this one are being unsealed in your lily-white neck of the woods?
At least our crooks get taken down (eventually)
Actually I read that as Los Angeles and it made perfect sense >; )
The old saying about LA is true…”Half of state is under water and the other half is under indictment”.
Bring back Edwin!
I recall an editorial that was talking about how the billions of dollars of Katrina relief were being pumped into one of the most corrupt governments in the US. The concluding line that I recall the most was: “Let the real looting begin.”
They weren’t kidding about the corruption…
Desperate measures for the mortgage business!
http://money.cnn.com/2007/06/15/news/companies/pluggedin_birger_mortgage.fortune/index.htm?postversion=2007061810
I see corporate lawyers cracking their knuckles and banging out extensive pleadings on that one… somebody’s gonna get sued.
Wamu is on the edge, well that is a brilliant assessment of a financial institute. I might think WAMU is a bunch of ass clowns, but they are definitely in no position to be insolvent, if they are going under the Country as a whole I bet would be in a huge depression.
“they are definitely in no position to be insolvent, if they are going under the Country as a whole I bet would be in a huge depression.”
In which case, they’d get a bailout like Long Term Capital Mangement. I am so sick of these behemoths being able to sink an entire economy. I’m all for dealing with them the way China deals with such “ass clowns”, as Patricio has so rightly called them.
So, I wanted to put the house on the market for $235K-$240K to be $10K-$15K below market. I thought I had a realtor willing to work with me on that, so invited her over to speak to my fiancee… since it is the fianceee’s house.
Damn realtor stabbedme in the back and came up with a figure of $249,900 and my fiancee got pissed at me for “fighting the realtor on price”.
First week goes by and we get one showing. So, I go behind my realtor’s back and talk to the realtor that showed my house. He couldn’t give specific impressions of the people he showed it to, but could give me general impressions of his.
I’m listed where the market was 6 weeks ago, but with TREMENDOUS pressure from short-sales and people in or at risk of default, I’m not overly competative. With 10 months’ supply on the market, nothing about my house makes it stand out the way listing for $15K under what it would appraise for would.
MAYBE I could list at the price I am if I had new bathrooms, granite and stainless kitchen, and real hardwood floors… but with 30 y/o tile in the showers and old vanities, fermica, ugly cabnets and old appliances in the bathroom, and $1.50/sqft laminate… we’re just “at market”.
I made sure he knew that we were willing to take below list….
Anyway….
Now my finacee is emotionally attached to the $250K price. Any going down from there is an insult to her and the house… dam it!!!!
Realtor says she is heavily pushing the open house planned for next weekend. If we get zip for traffic, I think it is time to re-evaluate. Too bad we’re locked into this realtor that has sabotaged my attempt to list for under market.
“but with 30 y/o tile in the showers and old vanities, fermica, ugly cabnets and old appliances in the bathroom”
Sorry,
“30 y/o tile in the showers and old vanities in the bathrooms, and formica, ugly cabinets and old appliance in the kitchen…
I