Bits Bucket And Craigslist Finds For June 25, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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San Diego Mcmansion now toast:
http://www.signonsandiego.com/news/metro/20070624-1335-fairbanksfire.html
If you’re desperate and you can’t sell it then they burn it and collect the insurance money at it’s overvalued price. That in turn causes insurance prices to skyrocket which makes homes even more unaffordable than they are now.
Next Domino Please?
Allstate insurance stopped writing new homeowner policies in California, a few months ago…
What did they know?
Velocity condo auction in Hoboken NJ turns out to be a “marketing gimmick”:
http://www.northjersey.com/page.php?qstr=eXJpcnk3ZjcxN2Y3dnFlZUVFeXk5JmZnYmVsN2Y3dnFlZUVFeXk3MTU2MTM0
As of a week ago, Remi Cos. planned to put 40 of the 128 units on the auction block Sunday to see what the market would bear. Thirty units of what is being called Velocity/Hoboken had previously been sold, the company said.
However, by the time proceedings began in a Jersey City hotel ballroom, the list had been cut to 16, and without notice, it was cut to nine after about a half-hour of spirited bidding.
So now let’s say they’ve sold 40 of the 128 units. They perhaps get another 10 or 20 done with interest generated by the auction - but these prices will be at or below the auction prices. So it becomes effectively a Dutch auction. Slowly, by onesies and twosies, they’ll try to get this filled as prices sag. What will the last 10 units in a large condo complex in a marginal section of Hoboken go for? 50% of what the first 10 went for?
“But to Bruce Snyder, who is renting an apartment in New York City, the price was fair.
He won the bidding at $502,000 for one of two two-bedroom units sold, and was willing to pay about 10 percent more after his due diligence convinced him that concern about the location was not warranted.”
Genius. Because it’s cheaper than prime locations in Manhattan it must be a deal.
I give it a year before this guy is crying in his beer.
I’ll bet he works on the East side of Manhattan, and the NJ transit leaves him at Penn station on the west side…
That would be the Ultimate Moron home buyer.
Think of it this way–he’ll save on gym fees!
In 1990/91 when property prices corrected in NYC, some of the best prices were available when developers auctioned blocks of apartments, or in 1993 after developers lost control of their projects to their lenders and the lenders sold at lower prices. The lesson I learned then is that if you want a deal, you have to consider a building that didn’t sell out due to a less than ideal neighborhood or finishes (whatever reason). This cycle, there may be opportunities buying from small investors/speculators in large sold out developments, but that depends on the investors facing financial pressure and a weak Manhattan housing market, which might take a couple of years. In 1993 after prices had corrected, some people were aggressively trying to get owners of recently constructed appartments to unload them. Most people hung on through the cycle and were rewarded with a recovery in prices, but that took seven years.
Seven years of plenty, seven years of famine.
Correction: One year of market correction, eventeen years of plenty and counting. We are talking actual history here. I’m glad I was a homeowner through that last correction, because it taught me a valuable lesson. Market prices suffer occasionally painful price corrections, but over time, prices, rents and taxes keep inflating.
The Compton Showcase of Homes!
http://louminatti.blogspot.com/2007/06/compton-showcase-of-homes.html
2 bed, 1 bath, 817 square feet. Bank-owned
foreclosure, $260,000.
Are they offeriing machine guns to the buyers?
Good one Lou….
Are you trying to tempt LA_Investor_Girl to snap up some of these bargains?
A fire could beautify that location - those places are dumps! I would not let my dog sleep in one of those places.
“The Compton Showcase of Homes”
Bet they’ll be lining up to bid on that second home. Might be good for illegal=alien barracks housing or crackhouse drive-thru outlet.
Big fire near Lake Tahoe, 165 homes have burned…
http://www.breitbart.com/article.php?id=D8PVM6500&show_article=1
wonder what arson rate was for may 07 vs 05 ?
LOL, that’s one way to get a failed development off the books.
palmetto…
This fire has nothing to do with failed developments~
The last time there was a huge fire in Tahoe, Samuel Clemens started it…
Read all about it!
http://www.amazon.com/Roughing-Mark-Twain-Library/dp/0520238923
Is that the fire they show on the map during the intro to “Bonanza”? Yeah, that was a big one!
In South Hillsborough County (Tampa Bay area), I awakened to a light haze and the smell of smoke, so something’s burning somewhere around here.
And yet, no fireworks ban so far this year and people are already practicing for the 4th of July. One little “oopsie” stray spark can wipe out an entire development.
The vast majority of fireworks are illegal to use in FLA without a permit.
don’t you know that you sign a release stating that you are buying to “scare away birds”? Just alot of birds around here on the 4th!
Tough area to fight a fire also…..
I’ve been suckin’ smoke all night long. The silver-lining is that rebuilding burnt areas may provide our starving contractors some relief in the months ahead (if their bids are low enough).
Won’t have to worry when rebuilding what trees you can cut down and what ones you can’t!
This is unbelievable…
from the Sun Sentinel.
The Rev. Dennis Grant has found his version of the Promised Land — miles of undeveloped desert in far western Texas he is reselling for $22,000 per 20-acre parcel.
Preaching that “God did not create us to be broke,” Grant, a community activist and senior pastor of Restoration Ministries in Tamarac, has bought up an expanse larger than the island of Manhattan in a remote area 90 mileseast of El Paso. He is selling the real estate to the Caribbean community and to members of his church as an investment to help them retire rich.
LocalLinks
In the process, Grant stands to make millions of dollars for his company, Florida TopLand.
It’s quite believable. This happens time and time again out there.
A rancher out in Big Bend tried to sell parcels for a new subdivision, called Terlingua Ranch. Get 20 acres for $5k! Spectacular mountain views! What the literature didn’t say was it was 100 miles from Alpine and the nearest grocery store, plus another 20 miles down a rutted dirt road.
We were there a few years ago and on the community bulletin board people were desperate to essentially give their land away because they were paying property taxes for land that they visited only once or twice.
and don’t forget the infomercials for Arkansas and Tennessee… but this guy is taking money from his parishoners. That is just so wrong.
The “poncharello” ranch?
Maybe he’s started to order the packets of Kool-Aid already?
Doing the same thing in Wyoming…
Where in Wyoming? Is Jeffrey City gonna rise again?
You mean that uranium/radium dump on the way to Riverton and Lander, Former FB?
Quite a ghost town….right up there with Lysite and the remains of Shoshoni.
Lysite has a grocery store. I still have a red Lysite T shirt from the my times at the Madden Gas Field.
Yeah, that’s where I’m talking about CB. That was a big-time bubble town (the last uranium bubble). They built an entire town of brand new bubblicious housing and a brand new nice school and then it just all went away…glad that’ll never happen again [cough]. I’m pretty sure the value of those homes basically fell to zero, but some have been occupied since then with people who didn’t mind living in the middle of nowhere. I don’t know whether they all found (human) occupants or not, though.
6″ of rain/year, rocky soil, and complete isolation for only $1050/acre. You can still buy parcels in rural Virginia for that.
Upstate NY as well. Sometimes with free natural gas. At least it’s fertile.
I agree that this pastor’s actions are worse than wrong.
Methinks Rev. Grant needs a refresher course on the Bible. I hope he focuses on the parts about not worshiping two masters or leading others into temptation.
Hey Everyone –
I saw the movie Maxed Out this weekend. The movie is a documentary about the great American penchant for credit card debt and it’s effects on people’s lives. There is one scene where a Las Vegas real estate agent is interviewed. She has a very bubbly tone in describing how large modern homes have become. When the conservation turns to how people are able to afford these places, she turns a bit somber and explains that she is not really sure If you have a chance - check it out.
Is it a movie or on a satellite channel? Reason being that there is a show I watch called All Maxed Out that features cc debt by participants who are counseled by a financial advisor.
~Misstrial
Chinese stock market down another 3%…
http://news.bbc.co.uk/2/hi/business/6236252.stm
Almost time for that opening bell…places, everyone.
Making popcorn as we speak. Just like sitting in the cheap seats watching the horses take off.
Expect and up and down day.
I’m envisioning the scene from Trading Places when they’re in the bathroom before the opening bell and there are two guys talking to each other. “How’s the ulcer Harry?” Downs a swig of booze, “Good! How’s the hypertension Bob?” Downs a handful of pills, “Good!”
Seeing what you expected?
This isn’t going to help…. (quoted from aladinsane’s link)
“Foreign capital
Aside from concerns about inflation, investors were unnerved by new proposals to be make all foreign takeovers of Chinese firms subject to scrutiny on national security grounds.
The measure, which is being considered by legislators, would be the first time that specific national security vetting requirements would be enshrined in law.
One analyst said this reflected a “big change” in China’s attitude towards foreign investment, which totalled $60bn (£35bn) last year.
“It will be more and more difficult for foreign capital to enter into China,” said Andy Xie, an independent economist.”
In the WSJ Saturday, “US Foodservice on Friday downsized and delayed its planned offering, significantly paring a tranche of risky paid-in-kind toggle notes that give the borrower the option of paying interest in the form of additional debt rather than cash.”
WTF
Wish those guys at WSJ would write in English…tranche…toggle notes….paying interest in the form of additional debt.
Sounds like kite paper to me but I am just a caveman lawyer.
Yeah, Crapburner, I just love (not) this “tranche” business. The COO of Ebay now refers to “tranches” in describing what used to be the various starting price “levels” or “tiers” of auction listings, which is how they determine the fees for listing. What was wrong with levels or tiers? Now they’re “tranches”. What a horse’s ass. He’s been spending too much time with Wall Street ANALysts and not enough with his customers. He can “tranche” this.
Didnja like how starbux did away with pedestrian sizes like small, medium and large?
I forget the names they use, but…
If they went tranche, the sizes would be
Sub, Alt & Prime
He’s suffering from a serious case of “tranche mouth”.
How do you pronounce the word “tranche?”
Depends on where you’re from. In Birmingham it might be close to “trawnsh”, but in Opp, it would rhyme with Comanche.
Who knows, it might become part of the dialect everywhere. Goin’ upscale, even when misunderstood. Example, in Opp: “Elmer, I don’t want you askin’ that girl out, y’hear? She’s just a tranchey ‘ho.
LOL!
If you’re in France (it comes from the French language), it is pronounched trahnsh
Big shock: Prices plummet in N’orleans
http://www.nola.com/news/t-p/frontpage/index.ssf?/base/news-8/1182667825187350.xml&coll=1
Crystal Bolner, a graduate student at Loyola, recently offered $145,000 for a vacant two-bedroom, 1-1/2 bath on Carnation Street in Metairie that had been on the market for several months and was listed for $195,000.
Why would someone with a low-paying, temporary position (a) put an offer on a house at all, (b) put an offer on a house that cost that much. Clearly, the GF’s still abound.
If Ms. Bolner is anything like the grad students at Stanford who’s parents were buying them 2/1 shoebox condos in Mountain View for $750,000 or more in recent years, then surely it’s the Bank of Mom & Dad who are the GF’s.
Emphasis being on the “Fools” part.
“whose”
Cool!
ZipRealty now lets you “search only” on Short Sales or Fixer Uppers.
Wall Street Fears Bear Stearns Is Tip of an Iceberg
By Justin Lahart and Aaron Lucchetti
Word Count: 1,601 | Companies Featured in This Article: Bear Stearns, Bank of Montreal
The near-meltdown of two hedge funds at investment bank Bear Stearns Cos. last week underscored — and in some ways aggravated — a growing fear on Wall Street: that hard-to-trade investments may suddenly turn south and set off a broader market downturn.
The Bear Stearns funds, whose investors include wealthy individuals, other hedge funds and some of the firm’s own executives, are part of a recent boom in investment vehicles specializing in illiquid assets, such as exotic securities, highways and timber lands.
Unlike stocks or bonds listed on an exchange, such assets can’t be readily bought or sold. That makes it hard to establish an accurate price for them. Fund managers have broad discretion in attaching a value to these assets, and often don’t reveal many details of their trades.
Bear Stearn’s High-Grade Structured Credit Strategies Fund and High-Grade Structured Credit Strategies Enhanced Leverage Fund ran into trouble when a downturn in parts of the housing market hurt the funds’ bets on complex securities backed by subprime mortgages, or home loans to borrowers with troubled credit histories.
http://online.wsj.com/article/SB118274074999546759.html?mod=home_whats_news_us
Apologies as I posted on anolder thread and didn’t get much response.
Was it Bear Stearns that put out the Buy on new Century a few months ago a week before they tanked?
I believe so.
How is it that no one has picked up on this? I thought it was fraudulent at the time. Isn’t anyone questioning what the tie’s to these hedge funds might be? Wonder how much New Century they were holding?
From the article in WSJ: Still, the increase in illiquid investments raises concerns. For one thing, even in liquid securities like stocks, what can seem like a ready supply of cash can dry up quickly if investors get spooked. Those problems are heightened when leverage is used.
Hehehehe….. the ghosts of Greenspan.
The Austrians will get the last word when the folly of neo-Keynesian economics comes to light. To summarize, printing money and dropping it out of helicopters is not a sure way to grow the economy.
June 25, 2007, 8:00 am
Amid Financial Excess, a Revival of Austrian Economics
Does the U.S. risk repeating the mistakes that led to the Great Depression? The Bank for International Settlements’ annual report, released Sunday, suggests that it does, and offers a remedy steeped in the doctrine of Austrian economics.
In the 1930s adherents of the “Austrian school,” named for its Austrian-born proponents Ludwig von Mises, Joseph Schumpeter and Friedrich Hayek, argued the Great Depression represented the unavoidable remediation of misallocated credit and overinvestment in the 1920s. The Austrian school largely failed to become orthodoxy as first Keynesian demand management appeared to end the Depression and later monetarism blamed the Depression on inadequate attention to the money supply.
http://blogs.wsj.com/economics/2007/06/25/amid-financial-excess-a-revival-of-austrian-economics-in-basel/
Is anyone interested in a tidy Modesto home offered somewhere south of $340K?
http://www.signonsandiego.com/uniontrib/20070625/news_1n25house.html
That house is going to be a hard sell.Who wants the peterson family stopping by for coffee?Scott might sick some of his new prison buddies on you.
Its also a huge disclosure issiue now & in the future….
Let me expand on that a little…..Typically a bank owned property that is sold through a foreclosure auction is sold “Where is, As Is” and I believe are exempt from the California “Seller Transfer Disclosure Law” ….Its up to the buyer to do there own “Due Diligence” regarding the property…However, In this case, with such a high profile murder, trial & conviction I would bet that the lender, Auctioneer or anyone associated with the transfer of title to this house will disclose the prior event….With that said, the property will be tainted for many a year and will severely limit the number of potential purchasers and possibly adversely affecting the finance ability of the property….So, how much do you pay for this property given its “taint”.??….If it was my money I was investing, I would pay no more than what the property would carry as a rental with 10% down on a 15 year loan (It may take that long for the taint to go away)….And remember, the disclosure law likely applies to the future renter also thereby reducing the potential pool of renters and discounting the potential rent to attract one….
for what it’s worth, i read that since it was never proved that the murder took place in the house itself, disclosure is not required..
Whoever buys it should be resigned to living there without regards to any sort of investment value, imo.
ackkk.. just typing about it gives me mental pictures… i need to go wash my hands.
IMO, the “proof” of the murder is not necessary…The possibility that it occured along with the conviction that “she was murdered” is sufficiant…All the exposure of the house location nation wide would alos be of a concern besides all the neighbors….Again, IMO, I don’t think there is any question that this would be a material fact that needs to be disclosed to a potential buyer OR renter and quite likely for a very long period of time…OJ’s house in beverly hills comes to mind…They had a very difficult time selling that house including Auctions…The final buyer “razed” the house just to get rid of the taint, which, I believe was successful…
Hehehe… not after what happened to the last buyer:
Its most recent owner, Gerry Roberts, purchased the house for $390,000 in 2005 – $10,000 more than the asking price.
Roberts blamed media interviews for the loss of his job shortly afterward, then put the home for sale on eBay. Roberts filed for bankruptcy protection in February, listing $340,000 owed to the lender as his largest debt.
This one is both hysterical and disgusting on many levels: A South Florida “pastor” is selling desolate Texas desert under the guise of “the gospel of prosperity.”
Here’s the article: http://tinyurl.com/yq7dcf
“‘The land is open to you. Live in it, trade in it and acquire in it.’ — Genesis 34:10.
The biblical passage hangs in Grant’s strip-mall office on Atlantic Boulevard in Margate, from which he sells the Texas parcels.
Throughout the office are photographs and models of Mercedes Benzes, a symbol Grant says he has used to motivate himself since coming to this country from Jamaica with almost nothing 21 years ago. These days, the real thing is parked outside his office: a shiny black 2007 S550, worth at least $85,000.”
Fred Garvin
In good times, preachermen fulfill their grossest sexual desires. In hard times, it all comes back to money.
You will always find wolves among the sheep.
Do these buyout firms, which seem to always be waiting in the wings to snap up troubled auto makers, subprime lenders and the like, enjoy U.S. government sponsorship? With obvious-sounding names like Freedom Acquisition Holdings, Blackstone and Fortress Investment Group, one has to wonder.
GLG Partners Two-Stepping To U.S. Listing
By Henny Sender and Alistair MacDonald
Word Count: 653 | Companies Featured in This Article: Fortress Investment Group, Blackstone Group, Lehman Brothers Holdings
GLG Partners LP, the large London hedge-fund manager with a turbulent past, is engineering a two-step transaction that will make it a publicly listed U.S. company, giving it a higher profile with American investors.
The first step, announced today, calls for 28% of GLG Partners to be acquired by Freedom Acquisition Holdings Inc.
Freedom is part of a crop of special-purpose acquisition vehicles, also known as blank-check companies, that have exploded in popularity in the past year and exist solely to buy companies. Freedom trades on the American Stock Exchange and after acquiring the stake in GLG, which has $20 billion in assets under management, the merged entity plans to list on the NYSE under the symbol GLG and expects an initial stock-market value of $3.4 billion.
As part of GLG’s push to bring in more investors, GLG co-founder Jonathan Green last week sold part of his stake in the firm to an investment arm of the government of Dubai and the largest private bank in Germany, giving each a 3% stake.
As competition among hedge funds has increased, some of these private firms are willing to shed their cloaks of secrecy to tap into a broader base of investors and secure a permanent source of funds from public markets instead of constantly having to hit up private investors. In the U.S., Fortress Investment Group LLC, a hedge fund and buyout firm, led the way with its IPO earlier this year. Blackstone Group LP, a buyout firm, went public in the U.S. on Friday.
http://online.wsj.com/article/SB118273321096046620.html?mod=home_whats_news_us
How come all these outfits are named Cerberus, Blackstone, Fortress, Citadel…..sounds like hedge funds and moolah from the underworld?
Mafia has nothing on these jokers.
Cerberus is my favorite… (very enron-ish name)
Another visual of the very beast, with Hercules battling it out with the 3 headed one, on an ancient Greek piece of pottery…
http://www.timelessmyths.com/classical/gallery/cerberus.jpg
There’s something about these funds that reminds me of Vladimir Putin…
“Founded in 1992, Cerberus (named for the legendary three-headed dog in Greek mythology that guarded the gates of Hades) invests primarily in companies which are near bankruptcy and hopes to make the businesses it acquires profitable. Feinberg has stated to his employees that while the Cerberus name seemed like a good idea at the time, he later regretted naming the company after the mythological dog.”
Down Boy! http://www.atkorstudios.com/concept/cerberus.JPG
http://en.wikipedia.org/wiki/Cerberus_Capital_Management
Cerberus = Fluffy?
http://www.drawfluffy.com/three-headed-dog.html/
Hasn’t this info been posted enough times already? It’s getting really tiresome.
Next thing you know, someone will start posting a wiki entry on the origin of the bull/bear symbols every time Bear Stearns comes up. Yeesh.
Laf - I once pissed off several people at Cerberus in an attempt to explain the proper pronunciation of their name.
I had not seen it and am glad to read about it. Thank you all.
“Hasn’t this info been posted enough times already?”
I suppose that if Ben’s blog did not attract a continual influx of new readers, many of whom might be novices to the lingo, that could be true. But I don’t think that premise works. Too many new screen names, too high a probability of increased Web searching and awareness among the sheeple, many of whom are anxious to get a belated education in bubblenomics. To each his own, but the repetition doesn’t bother me.
Maybe someone should set up a “glossary” section.
Comment by MazNJ: “Laf - I once pissed off several people at Cerberus in an attempt to explain the proper pronunciation of their name.”
ROFL. Thanks. My wife now thinks I’m a lunatic.
Bungee jumping, anyone?
http://www.marketwatch.com/tools/marketsummary/
It looks like the PPT has focused their early-morning efforts on keeping the high-profile DJIA near the opening bell level.
What should one make of plunging l-t T-bond yields? Have bond traders gone collectively schizophrenic?
http://tinyurl.com/3dxea2
How do shill financial journalists predict short-term stock market movements with such great aplomb?
MARKET SNAPSHOT
U.S. stocks to inch higher at Monday’s opening
By Leslie Wines, MarketWatch
Last Update: 9:30 AM ET Jun 25, 2007
NEW YORK (MarketWatch) - U.S. stocks are set to move a touch higher at Monday’s opening, bolstered by an upgrade for General Motors, although the advance is likely to be modest in the wake of Friday’s sizable selloff as investors continue to fret about shaky credit.
The futures contract for the Dow Jones Industrial Average last was up just 4 points at 13,510. The futures contracts for the S&P 500 and the Nasdaq 100, respectively, were off 0.5 point at 1,520 and up 3 points at 1,951.
U.S. stocks took a heavy hit on Friday due to nervousness about a combination of rising Treasury yields, global interest rates and whether subprime lending woes have further to unwind. The Dow industrials dropped 185 points, the S&P 500 fell 19 points and the Nasdaq Composite slipped 28 points.
Investors appeared prepared to snap up stocks that fell to attractive levels during the recent rout at Monday’s open, but worries about credit deterioration will not be far from their minds.
http://tinyurl.com/36pbvu
When GM is leading the lurch forward…
Maybe they talk to Cramer as he sets out to create the day’s fiction.
After seeing some of the algorithms in place at some funds, I really wonder if alot of this is just Program Trading Mk2 effects.
WHO ISSUED THE SELL SIGNAL?
I predict the PPT will kick start the headline indexes off the day’s lows and bring them back near the opening bell level by 1pm. This will allow American Public Radio’s MarketPlace stock market commentators to play the happy music tonight (”We’re in the money…”).
Twenty minutes later, I have to congratulate myself. The DJIA just crossed back over the opening bell level…
ECONOMIC REPORT
Inventory of homes for sale rises to 15-year high
Existing-home sales fall 0.3% to 4-year low at 5.99 million annualized
By Rex Nutting, MarketWatch
Last Update: 10:00 AM ET Jun 25, 2007
WASHINGTON (MarketWatch) - The inventory of previously owned homes for sale in May rose to the highest level in relation to sales in 15 years, a real estate trade group said Monday.
Sales of existing homes fell 0.3% in May to a seasonally adjusted annual rate of 5.99 million from 6.01 million in April, the National Association of Realtors reported Monday.
Sales were stronger than the 5.90 million pace expected by economists surveyed by MarketWatch.
Inventories of homes on the market rose by 5% to a record 4.43 million, representing an 8.9-month supply at the May sales pace. That’s the biggest overhang of inventory since June 1992, at the tail end of the last housing bust. The inventory was at 8.4 months in April and 7.4 months in March.
The median price of a home sold in May was $223,700, down 2.1% compared with May 2006. It’s the 10th straight month of declining year-over-year median prices.
http://tinyurl.com/2e6695
“That’s the biggest overhang of inventory since June 1992, at the tail end of the last housing bust.”
I don’t know about the rest of the country, but I can say the last bust did not end in California until 1996 or later. That is a pretty long tail…
“Yun said buyers are simply waiting to buy. He’s found that household formation has slowed dramatically, something rarely seen outside of a recession.”
Hummm…
L.Y.’er, in one bold partial paragraph…
Blames it all on a recession.
Game, Set and Match to the NAR
Amazing, Yun and co. can’t see the forest for the trees. Maybe when the NAR stops recruiting pot smokers who are always feeling good they can start understanding that having a majority of the population priced out of owning homes is not good for the economy, the populance, or the NAR itself.
Now you are impuning pot smokers by linking them with the NAR?
I did not inhale that monthly payment…
New marketwatch.com headline:
U.S. is stockpiling housing
Inventory of for-sale U.S. housing rises to a 15-year high in May, according to a sobering report from the Realtors association.
Supply is definitely the big story here. It isn’t just the “months supply” measure of supply that has increased. It’s the raw number of units on the market. We now have a whopping 4.43 million homes, town houses, condos, and co-ops sitting out there looking for buyers. That’s the highest level ever, and roughly twice what was customary in the late 1990s and early 2000s. The only way we’re going to chip away at this Mount Everest-sized pile of inventory is by price cuts, and so far, sellers haven’t been aggressive enough.
I put a chart up at my blog that shows graphically the magnitude of this supply glut …
http://tinyurl.com/22e6wz
A picture is worth 1000 words, as they say. Judging from that chart, the inventory crash in the U.S. housing market began on 12/31/04 and shows no signs of abating.
“Sales of previously owned homes in the U.S. fell in May to the lowest in almost four years, reinforcing concerns about a protracted housing slump.
Purchases last month declined 0.3 percent to an annual rate of 5.99 million, the lowest since June 2003, from a revised 6.01 million in April, the National Association of Realtors said today in Washington. The supply of unsold homes jumped to the highest in almost 15 years.
Weakening demand for existing homes, along with a decline in construction starts on new homes reported last week, make the housing market the biggest threat to economic growth, economists said. An increase in mortgage rates this month will further discourage buyers, leaving a glut of properties on the market.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aKwuz0Pio554&refer=home
I guess Wall Street is pretty bullish on the news that housing inventories are at their highest level in 15 years relative to sales, on back of the Bear Stearns subprime hedge funds meltdown last week? The DJIA took off like a rocket after the existing homes inventory data release.
Go figure - At least I can now sleep at night.
Got Vanguard Prime Money Market?
I guess this is a new model: if there’s bad news, expect a rise. Anyway, looks that way to this bemused outsider.
Up is the new down.
It is like after Katrina, all the housing prices jumped 25% in New Orleans. There was just too much capital and too much easy financing. Now, housing is falling there, based on a link above. When was Katrina? nearly 2 years ago? Will it take that long for the stock market?
I think Wall Street was relieved that sales didn’t go up, thus raising the specter of the Fed increasing rates. However, when the magnitude of future economic problems sinks in, there maybe a serious correction!
Didn’t get to post in “weekend observations” - but definitely lower prices in Alexandria, Va. resale properties this week — just looking at the prices on “newly listed” properties, I can eyeball listings and see that folks are asking 50 to 100k less on typical townhouses and bungalows in Old Town, Del Ray — places that would have been asking $850 k over a year ago now listed in the 700’s. Still out of whack in terms of affordability and rental comparison, but definitely less so.
Inventory holding in mid 1600 range. I think it has been as high as 1700 (just barely), and has not grown as much as I expected. I think it helps that there is not much new SFR construction in Alexandria any more. On the other hand, lots of new condo inventory still come on line of next year or two — THAT’s a market I would worry about.
I too have been looking around in Alexandria as I rent there. A place inside the beltway, 10 min from the Pentagon and less than 20 min to the White House where realtors and others said prices would never drop. Cameron station THs and other SFHs now under 600k (still rediculous of course). Inventory slowly, but surely building with sellers now starting to drop prices some. I would like a house, but this blog and others have made me think more rationally about the market and I’m holding out for a serious price correction back to sustainable levels versus income.
–
June 25, 2007
The Real Demand For Housing In America: For Once, I Must Have Known the Truth Better Than Any Economist In America
NAR just reported (via CNBNC), i.e., admitted, that the household formation in the US had dropped precipitously, to a mere 0.5 million annual rate (and I knew it because Vacant Units, Year Round, went up 1.1M in a 12-momth period). While economists that love to “estimate” and hate to count, add, and subtract kept their estimate to three times the actual number admitted by NAR.
I have been pounding the tables for a long time that all thru the housing boom economists were lying about the demand for homes to live in to feed the buying frenzy and to justify higher prices people needed to pay. For the past several years, in survey after survey after survey, Vacant Units, Year Round, kept going up lot more than economists’ estimate of the demand (we have very good reporting of the supply, every month, and all economists agree on that part). One economist with whom I have had an ongoing feud in this regard is a man I like a respect, Bill, who hosts Calculated Risk (CR) Blog. He has been adamant about demand being 1.75M annually. Appended is what I posted yesterday in response to someone who advised me that my facts should speak for themselves (evidently, facts don’t matter to those who have their minds made up) in a different context, though, than the housing demand.
Jas
-x-x-x-x-x-x-x-x-x-x-x-x-
June 24, 2007
I presented REAL FACTS, i.e., data, to CR, a man I like and respect, about the Fundamental Demand for house-dwellings but he is married to his estimates. I say, why estimate when you can count?! Especially, when someone has been doing the counting, via regular surveys, for you and reporting regularly. CR doesn’t want to know that number of Occupied Housing Units could go down even when the population and households go up. Is it a theoretical impossibility? Hell, no. It is an observable and easy to verify fact that when costs skyrocket, or economy weakens, the demand for housing units that are occupied is pushed down. He is a perfect example of the practitioners of the Dismal Science. It is not personal; it is strictly business.
FACTS:
Increase in Vacant Units, Year Round, over the past 13 Quarters = 2 million!
Units Completed, over the same 13 Quarters = 6.2M.
For those who are arithmetically challenged the actual demand during the past 13 Quarters was close to 1.3M. When a yuppie woman in her 30s jointly buys a home with her father (at the absolute peak for the neighborhood) and moves in with him there must be a compelling economic force at play, no? Poor woman didn’t have enough space in the 2-car garage for her Beemer! I put very little faith in theories and lot of emphasis on facts and the best available data.
If the recession begins in 2007 and depression in 2008, as I predict, the demand for 2004-2010 would be below 0.5M a year. At the end of 2010, in that case, there should be 7M more Vacant Units, Year Round, than there were at the end of 2003.
Jas
Jas — I thoroughly enjoy, and never tire of, what you and Bill write. Only by reading the uncensored observations of you two and others am I able to form a reasonable conclusion about what is going on around me. Pour moi, thanks very much for what you contribute here and on your own site.
(What should one make of plunging l-t T-bond yields? Have bond traders gone collectively schizophrenic?)
Flight to quality, Bloomberg says. Money has to go somewhere I guess.
I am surprised the market opened so strongly today, given all the nervousness about subprime, hedge fund blowups and all…
———————————————————————————-
MARKET SNAPSHOT
Stocks turn lower on subprime, hedge fund jitters
Dow loses steam as concerns about Bear Stearns, Goldman Sachs weigh
By Nick Godt, MarketWatch
Last Update: 3:02 PM ET Jun 25, 2007
NEW YORK (MarketWatch) — U.S. stocks turned lower on Monday, with the Dow Jones Industrial Average losing earlier gains of up to 120 points, as jitters resurfaced about the impact of the distressed subprime mortage market and of higher interest rates on financial firms.
“People remain very sensitive to the mortgage-backed securities situation and how all this leverage creates an uncertain environment,” said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.
http://tinyurl.com/2dwdxe
The stupids are still out in San Diego. 3/2 POS with peeling paint, 1 block from huge apartment building in an area where even the realtors say you have to send your kid to private school just sold in less than a week for $850K to some people who want to tear it down & build a mcmansion. It does have a nice view of the ocean once if you don’t mind looking past a big nest of telephone & electric wires. UGH.
This weekend I had no time for open houses, but I took the kids to see Evan Almighty. A barely OK movie for the kids, in case you want my review. The best thing about it, aside from the super cute animals, was Molly Shannon playing a shill realtor. She sells Evan a bloated McMansion with all the frills in a new development, and then he buys eight empty lots around his house pulling equity from his McMansion for the downpayment. It’s amazing how this whole thing is filtering into the mainstream culture. I have always loved Molly Shannon, and she really makes the best of the one and a half minutes she gets in the movie. Those of you who don’t have kids can wait to rent it and skip through the whole thing just to see her.
Hey, cass, Molly Shannon is one of my faves. Love that Sally O’Malley..
I know, Molly Shannon really rocks, I love her too.
I’m fifty!
When FB’s don’t take foreclosure well, the pictures can get interesting:
http://www.fotothing.com/apstemp/
These five photos show some of the destruction wreaked upon a nice little house in the Hillcrest area of San Diego. These guys fixed this house up really nice, then, when they were loding it to foreclosure, they really fixed it up nice!!!
The following may not be relevant, and I don’t mean to offend anyone, but they were apparantly (by the location, and copiuos amounts of gay porn in the unit) homosexual. I have heard that in general, gay males can be really bad when angry, due to the combination of male agressiveness, and feminine vindictiveness. These photos may bear this out.
Paul
this is nothing compared to what the teenagers were doing to unoccupied house in Long island in the 70s.
Bank took house, kids broke in to party all night,
Bank boarded up doors, Kids tore off rear wall, entered and partied all night,
Bank boarded up rear wall, Kids tore off side wall, entered, broke every window and piece of sheetrock in house, now too cold with no windows, moved to next bank owned on the next block.
Bank boards up first house, someone enters and removes all copper pipes.
Bank boards up new entrance.
Housing BOOM story from same town, Port Jefferson Long Island
Port Jeff, seedy indutrial port near new university with new learning Hospital on north shore of LI.
Town full of welfare and section 8 , but some very exclusive waterfront nearby.
One summer in the early 80s, a rooming house burns down, and a new doctors office complex is immediately built, At east ten simlar building burn that summer and are quickly replace with fancy Dr offices. No one asks any Questions, Where did all the poor people go? No one asked.
That fall a building is damaged by fire, the local Born again chuch houses the occupants in the church while church members repaired the building.
Now everyone is asking is it legal to house these peolpe in a church? Shouldnt that eyesore be torn down?
Big problem on LI in general, With the poor people gone who will clean my house?
Oh, the poor LonGislanders. They’ll have to do their own housework.
Wow. I’ve seen a few trashed houses, but this one is worse than anything I’ve seen in person.
gay males can be really bad when angry, due to the combination of male agressiveness, and feminine vindictiveness
You’re right, that may not be relevant — but it sure is stupid. Why wouldn’t the combination be female aggressiveness and male vindictiveness, for example?
Ugh. My brain needs to go take a shower.
Sad, Future Vulture.
Your name says it all, but you want to bag on me. Your feminists will cry all day long about male aggression, the saying that “hell hath no fury like a woman scorned” has imbedded itself into classic culture, I tried to ease the blow by mentioning the offensive (read politically incorrect) content of my post, but you end up bleating anyway.
Give me a break.
What is offensive is that someone dug themselves a hole without caring about the consequences, and when they could not fulfill their responsibilities, they wreck the property.
Did your mom ever tell you to clean your plate, that there are starving children in Africa or wherever?
Are you not offended by the sheer waste here?
FU! “Ugh. My brain needs to go take a shower!”
Seems to me that your brain has been washed enough.
Paul
Based on what I have seen in my travels I give that a 6 out of 10. I’ve seen much much worse they were being kind.
Time for subprime kingpins to think hard about whether marking to model is a defensible valuation method.
US existing-home sales hit 4-year low
By Ben White, Daniel Pimlott, and Michael Mackenzie in New York
Published: June 25 2007 15:53 | Last updated: June 25 2007 23:26
Shares in Bear Stearns dropped another 3.2 per cent on Monday as the Securities and Exchange Commission sought information from the bank about its two troubled hedge funds and a drop in US home sales sparked more fear about the state of the mortgage market.
Bear shares are now down about 19 per cent since January on fears that turmoil in the subprime and wider mortgage market could take a heavy toll on the bank’s earnings. Goldman Sachs and Lehman Brothers shares each dropped about 2 per cent on mortgage concerns.
The drops came as new data showed sales of existing homes fell slightly last month to a four-year low as the backlog of unsold homes rose, dampening hopes of a recovery in the sector.
Bond yields remained lower as investors worried that financial institutions could face further losses in the mortgage market. The 10-year bond yield fell to 5.08 per cent on Monday, against 5.13 per cent late on Friday.
The SEC has sent informal letters to Bear asking for details on how its two hedge funds fared so badly, sparking heavy redemption demands from investors and demands for repayment from creditors. Bear last week agreed to extend $3.2bn in loans to one of the funds. The other larger and more levered fund is still negotiating with creditors. Bear shares closed at $139.10 on Monday, a nine-month low.
The SEC inquiry is at a very preliminary, information gathering stage, people familiar with the matter said. It is also said to be part of a broader inquiry by regulators into the way banks and other publicly-traded companies are valuing their holdings of subprime loans at a time when losses appear to be rising quickly.
http://www.ft.com/cms/s/d9943900-2311-11dc-9e7e-000b5df10621.html
Saw today that BS cut its loan offer roughly in half, explained away by MSM happy-talk about assets bought and lesser risk. Sounds like the fix is in that the other, larger, more-toxic fund will be allowed to settle to the bottom like all those used tires that were supposed to form a beautiful reef — and now have to be dredged up at the expense of someone else. It’ll be interesting to see how the deep-six of #2 plays out in the news.
Am I the only NPR fan here? Anyone else listen to Ben this morning on Talk of the Nation? Dean Baker was the primary guest, with a woman from Chicago whose name slipped by me. Presumably the audio is available on npr.org, talk of the nation. Congratulations Ben… That’s playing with another group of big boys. And thank you for HBB (I remembered to ship another handful of pesos….and trust my fellows to do the same)
Is this the story? Ben’s name is not mentioned in the credits.
Your Money
Should You Buy in a Sliding Real Estate Market?
Listen to this story…
Talk of the Nation, June 25, 2007 · There’s more bad news for the housing market, with sales and prices of existing homes falling again in May. But the market varies from one region of the country to another. Should You Still Buy?
Guests:
Ilyce Glink, publisher of the Web site ThinkGlink.com and author of the nationally syndicated newspaper column “Real Estate Matters”
Dean Baker, economist and co-director of the Center for Economic and Policy Research
http://www.npr.org/templates/story/story.php?storyId=11361676
That’s the story….. Ben broadcast during the last portion of the 30-minute segment…. HBB mentioned, of course…
It was an interesting listen.
http://www.npr.org/templates/story/story.php?storyId=11361676
Ben was on about 20 minutes in.
Here is a link to the interview. (Sorry if double posted.) Ben’s portion is about 20 minutes into the program.
http://www.npr.org/templates/story/story.php?storyId=11361676
2007 - 26 = 1981 — right in the middle of the Reagan recession years.
12.45pm
Pound breaks through $2
Larry Elliot, economics editor
Monday June 25, 2007
Guardian Unlimited
British holidaymakers to the US received a boost today as the prospect of a fresh rise in interest rates from the Bank of England pushed the pound through the $2-level.
Amid City speculation that Threadneedle Street’s monetary policy committee will push the bank rate to 5.75% when it meets next month, sterling briefly hit $2.0006 in early trading.
Some analysts said the pound was likely to come under further upward pressure over the coming weeks and would test the 26-year-high of $2.0133 hit in April.
http://business.guardian.co.uk/economy/story/0,,2111002,00.html
Payback svcks!
Bear Stearns Rivals Reject Fund Bailout in LTCM Redux (Update3)
By Jody Shenn and Bradley Keoun
June 25 (Bloomberg) — Bear Stearns Cos. is getting a taste of its own medicine.
It was Bear Stearns, the biggest broker to hedge funds, that nine years ago declined to join 14 other investment banks in the bailout of Long-Term Capital Management LP. Then last week, as New York-based Bear Stearns pleaded for help to rescue two of its hedge funds teetering on the brink of collapse, many of the same firms refused to come to its aid.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYDTeHYnV3ms&refer=home
Market Insight: Carry trade threatens a deflationary global collapse
By Tim Lee
Published: June 25 2007 17:49 | Last updated: June 25 2007 17:49
Concerns that the credit cycle may be turning down are growing. But so far, the impact on stock markets has been fairly limited.
Investors take comfort in three misguided beliefs. They believe that equities are not expensive and that there is no sign of any diminution in the flood of global ‘liquidity’. Furthermore, they believe that if the worst happens, the US Federal Reserve will come to the rescue.
Such beliefs represent a failure to understand the unique nature of this global credit bubble and the consequences of its inevitable collapse. The financial markets have become closely intertwined in ways that we have never seen before.
http://www.ft.com/cms/s/61e3e170-2335-11dc-9e7e-000b5df10621.html
Thanks, as always, for your informative posts, GS!